SAN‘AN OPTOELECTRONICS(600703)：NEW OPPORTUNITIES FOR MINILED;SIC BUSINESS TO GAIN MOMENTUM

　　Action
　　In late April, San’an Optoelectronics released its 2021 annual report that showed that Mini LED sales increased 246.61% YoY, and that revenue of San’an Integrated Circuit - a subsidiary of the integrated circuit business - rose 129.15% YoY to Rmb2.23bn in 2021. As we mentioned in our August 4, 2021 report MiniLED, compound semiconductor businesses to bolster growth , San’an has become a domestic leading player in Mini LED and Micro LED as well as the second and third generation compound semiconductor markets. We expect revenue to continue rapidly growing over the next few years.
　　Reasoning
　　LED. San’an Optoelectronics has expanded into mid-range and high-end LED markets such as infrared and ultraviolet, plant lighting, auto lamps, Mini LED and Micro LED. We note that terminal manufacturers have been launching Mini LED-backlit LCD TVs and tablets since 2021. The rapid increase in the penetration rate of Mini LED into consumer electronics will become an important driving factor of the LED industry, in our view. San’an has collaborated with overseas clients such as S004 and A006 and domestic clients such as H002, TCL, and CSOT. Some products such as Mini LED have already started mass production. We expect 2022 sales of Mini LED and Micro LED to exceed Rmb1.5bn, driving steady growth of the LED business segment.
　　Compound integrated circuits.
　　1. Radio frequency products such as GaAs, GaN PA, LNA, and filters are main revenue growth drivers. San’an has become a supplier of leading mobile phone and module manufacturers both at home and abroad. Clients include Samsung, Honor, Transsion, VIVO, MOTO, Quectel, Fibocom Wireless, SIMCom, MeiG Smart, and Hezhou Communication Technology.
　　2. Power electronics products such as SiC diodes, MOSFETs, and GaN to be important driving force of earnings. SiC diodes are applied in domestic PFC power supplies, photovoltaic inverters, home appliances, charging stations and UPS. GaN products are partially mass-produced, industrial-grade SiC MOSFETs have been sent for sample testing, and vehicle-grade SiC are supplied to key client in the alternative fuel vehicle market. We expect 2022 revenue of this segment to reach Rmb4bn.
　　Financials and valuation
　　We maintain our earnings forecasts, expecting 2022 and 2023 revenue to rise 39% and 26% YoY to Rmb17.5bn and Rmb22bn, and net profit to increase 91% and 37% YoY to Rmb2.5bn and Rmb3.4bn. The stock is trading at 35.6x 2022e and 26.0x 2023e P/E. We maintain OUTPERFORM and our target price of Rmb28 (implying 50.0x 2022e and 36.4x 2023e P/E), offering 40.35% upside.
　　Risks
　　Slowing growth momentum of the traditional LED industry; lower-than-expected penetration rate of Mini and Micro LED; disappointing customer development for SiC; escalating trade friction between the US and China.
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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。