GRINM SEMI MATERIALS(688432)：A TRAILBLAZER IN SEMI SILICON MATERIALS

　　GRINM Semi Materials is a pioneer in the industrialization of semi silicon materials in China, and its recent expansion in Dezhou has given the Company a new boost. Benefiting from the rapid ramp-up of production capacity and the improved profitability, GRINM Semi Materials may maintain high earnings growth. We forecast the Company's 2023E/24E/25E attributable net profit (ANP) to reach Rmb392mn/538mn/604mn, corresponding to a YoY growth rate of 11.7%/37.0%/12.4%, equivalent to EPS forecasts of Rmb0.31/0.43/0.48. We adopt the sum-of-the-parts (SOTP) valuation framework and assign 12x PS to its semi silicon polished wafers and 55x PE to its silicon materials for etching equipment. Taken together, we arrive at a target market cap of Rmb21.2bn, corresponding to a target price of Rmb17. We initiate coverage with a "BUY" rating.
　　Company overview: A trailblazer in the industrialization of semi silicon materials in China.
　　GRINM Semi Materials originated from the semi silicon materials research office of GRINM Group. It took the first step in realizing the industrialization of 6- and 8-inch silicon wafers and the technological breakthrough of 12-inch silicon wafers in China. In 2005, the Company realized the industrialization of silicon materials for integrated circuit (IC) etching equipment. After the mixed-ownership reform in 2018, the controlling shareholder became RS Technologies (RST), a Japanese listed company engaged in the recycling, processing and sales of silicon wafers. At the same time, GRINM Group was still providing support as an important shareholder, and the Company also entered a new stage of development. At the end of 2020, the Company's overall production was moved to its new base in Dezhou. With the smooth ramp-up of production capacity, the Company got a 35.23% YoY increase in revenue in 2022, with ANP up 136.58% YoY. The Company stands well to continue to benefit from capacity expansion, product structure optimization and profitability improvement.
　　Industry analysis: Terminal demand has boosted the prosperity of silicon wafers, and advanced processes have driven continuous demand expansion for silicon materials used in etching equipment.
　　According to the data from World Semiconductor Trade Statistics (WSTS), global semi sales reached US$555.9bn in 2021, with a YoY increase of 26.2%. At the same time, the data from Semiconductor Materials Market Information (SEMI) show that in 2021, the capex of global wafer manufacturers increased by 42% YoY, exceeding US$90bn, and will likely exceed US$100bn in 2022. The high prosperity of the semi industry has also driven the demand for upstream silicon materials. In terms of semi silicon wafers, 8- and 12-inch silicon wafers are the market mainstream, and 8-inch silicon wafers have obvious advantages in niche products. We predict that the demand for 8-inch silicon wafers in the global/the Chinese mainland markets will reach 7.07mn/2.12mn pieces each month in 2025, with a CAGR of 3.0%/17.0% over 2021-2025. The demand for 12-inch silicon wafers in the global/the Chinese mainland markets will reach 10.90mn/2.83mn pieces each month in 2025, with a CAGR of 10.7%/21.3% over 2021-2025. In terms of silicon materials for etching equipment, the growth of global wafer shipments and the increase in the number of etching times for advanced process chips have resulted in faster consumption for silicon components. We forecast that the global demand for silicon materials used in etching equipment will reach US$660mn in 2025, with a CAGR of 13.4% over 2021-2025.
　　Silicon wafers and semi materials for etching equipment create growth upside, and three major competitive advantages boost the Company. 1) The leading silicon wafer technology in China accelerates the expansion of production capacity. GRINM Semi Materials' core technologies cover all aspects of the silicon wafer processing with a leading advantage in China. Its gross profit margin (GPM) has improved significantly after the increase in the capacity utilization rate of its Dezhou base. At present, the Company's planned production capacity of 8/12-inch silicon wafers have reached 230k/300k pieces each month, and orders for 8-inch silicon wafers in new energy vehicles (NEVs) have been saturated. 2) GRINM Semi Materials is the core silicon material supplier for etching equipment manufacturers in the world, and its Dezhou base has begun to ramp up production capacity. The Company has become a long-term and stable supplier for international 12-inch etching equipment component manufacturers, with a diversified customer structure, and its products can be used in 5nm processing. Its global market share has expanded to 16% driven by the recent expansion in Dezhou.
　　Currently, its planned production capacity reaches 540tpa. Benefiting from the high prosperity of semi components, we expect that the Company's new production capacity will be released quickly. 3) Backed by strong shareholders, perfect incentive mechanism and a long-term stable customer relationship. The controlling shareholder RST's customer resources in the semi industry boost GRINM Semi Materials’ sales. As an important shareholder, GRINM Group has jointly carried out the 12-inch large silicon wafer project with the Company. In addition, it also aligns the interests of core employees via the equity incentives. At the same time, the Company has maintained a long-term stable cooperation with major customers.
　　Potential risks: High customer concentration; intensified market competition; customer certification; technological iteration; the risk of industry periodicity; the risk of raw materials for suppliers.
　　Investment recommendation: Benefiting from the rapid ramp-up of production capacity and the improved profitability, GRINM may maintain high earnings growth. We forecast the Company's 2023E/24E/25E ANP to reach Rmb392mn/538mn/604mn, corresponding to a YoY growth rate of 11.7%/37.0%/12.4%, equivalent to EPS forecasts of Rmb0.31/0.43/0.48. We adopt both the DFC valuation method and the SOTP valuation framework and assign 12x PS to its semi silicon polished wafers and 55x PE to its silicon materials for etching equipment.
　　Taken together, we arrive at a target market cap of Rmb21.2bn, equivalent to a target price of Rmb17. We initiate coverage with a "BUY" rating.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。