瑞信-中国-科技行业-中国再创新系列：半导体的成功-2019.11.5-26页.pdf

China Market Strategy China Reinvented series:SEMI-successful CIC Special Strategy|Strategy In the second of China Reinvented series to discuss Chinas drive for technology independence in key manufacturing areas,we study the prospects for Chinas semiconductor industry.Figure 1:Semiconductors now the biggest import item of China Source:CEIC China going solo.Semis have surpassed crude oil as Chinas major import item since 2015 and are a key area in the countrys drive for technology independence.CS global analysts also address this topic in detail in China:Can it gain tech independence?We believe that while striving for technology independence,China should never disconnect itself from the global production food chain which brings huge benefits to society.The deteriorating relationship between China and the western world adds more hurdles to Chinas push towards technological development through M&A and foreign-educated talent.Prospects for Chinas semiconductor industry.We interviewed Dr.Joseph Xie,who is a veteran with 30 years experience in the semiconductor industry.He believes China has some strength in areas such as IC design,memory and equipment,but a considerable gap is expected to continue to exist in most sub-sectors.Dr.Xie sees M&A as a quick way for China semis to expand their technologies and product portfolios.That said,he has also addressed a few challenges which are observed across semi sub-sectors,including lack of talent and patent risk.Implications on stocks.The strong momentum of semi import substitutions benefits virtually all China semi players.We prefer IC design to OSAT,as fabless could still use international suppliers for chip production and OSAT has a heavier depreciation burden.In IC design,we prefer Will Semiconductor and Gigadevice.In OSAT,we like Huatian.We are NEUTRAL on SMIC.*Section 2“Prospect of Chinas Semi industry”comes from an interview with Dr Joseph Zhifeng Xie.It represents his view,not CS house view.05101520253035Jan-01Jan-03Jan-05Jan-07Jan-09Jan-11Jan-13Jan-15Jan-17Jan-19Crude OilIC/SemiconductorAircraftMachine Tools(US$bn)5 November 2019 Equity Research Asia Pacific|China DISCLOSURE APPENDIX AT THE BACK OF THIS REPORT CONTAINS IMPORTANT DISCLOSURES,ANALYST CERTIFICATIONS,LEGAL ENTITY DISCLOSURE AND THE STATUS OF NON-US ANALYSTS.US Disclosure:Credit Suisse does and seeks to do business with companies covered in its research reports.As a result,investors should be aware that the Firm may have a conflict of interest that could affect the objectivity of this report.Investors should consider this report as only a single factor in making their investment decision.The Credit Suisse China Investment Conference(CIC)is one of the most exclusive business gatherings in the Greater China region,bringing together business leaders and entrepreneurs from around the region,as well as global institutional and private investors.This year,the Credit Suisse China Investment Conference will explore the theme of Great Expectations a topic that embraces the continued progression of China and the advancement of some of the countrys most dynamic companies against the current geopolitical and macroeconomic backdrop.Research Analysts Chaolien Tseng 852 2101 6795 chaolien.tsengcredit- Vincent Chan 852 2101 6568 vincent.chancredit- Hu Shen 852 2101 6540 hu.shencredit- 5 November 2019 China Market Strategy 2 Focus table and chart Figure 2:Percentage of revenue from China Ticker Company name Mkt cap(US$mn)2012 2017 2018 2019 Sub-sectors INTC US INTEL CORP 245,079 16 24 27 IC Design,Manufacturing,OSAT NVDA US NVIDIA CORP 123,578 24 19 20 IC Design AVGO US BROADCOM INC 114,305 41 54 49 IC Design QCOM US QUALCOMM INC 99,271 42 65 67 IC Design 005930 KS SAMSUNG ELECTRONICS CO LTD 258,269 14 16 18 Manufacturing,Memory 2330 TT TAIWAN SEMICONDUCTOR MANUFAC 252,511 -17 Manufacturing,OSAT MU US MICRON TECHNOLOGY INC 53,260 36 51 57 15 Memory 000660 KS SK HYNIX INC 51,164 19 33 39 Memory ASML NA ASML HOLDING NV 113,254 -10 17 Equipment AMAT US APPLIED MATERIAL 51,287 9 19 30 Equipment LRCX US LAM RESEARCH CORP 40,113 -13 16 22 Equipment 8035 JT TOKYO ELECTRON 33,364 -14 15 24 Equipment KLAC US KLA CORP 26,983 -12 16 27 Equipment ENTG US ENTEGRIS INC 6,634 4 11 13 Materials VSM US VERSUM MATERIALS INC 5,790 -6 7 Materials CCMP US CABOT MICROELECTRONICS CORP 4,564 -15-Materials Source:Company data,Credit Suisse estimates Figure 3:CS global tech teams view on China semis competitiveness vs.the experts perspective Sector Experts view CS global tech teams view IC Design A few established players in limited chip areas(HiSilicon,UniSOC,Goodix,Montage and Gigadevice).In next 3-5 years,China fabless to expand through M&A Despite some success in mobile AP,networking and consumer,China is still a limited player in a number of strategic and high-value areas including microprocessors,graphic,microcontrollers,programmable logic,MEMS sensors,analogic,automotive and display drivers.China needs to expand its R&D teams or use M&A or equity stakes to accelerate development.Manufacturing(Foundry)3-5 years gap(two generations)between SMIC and TSMC;the gap to last in future TSMC to remain the leading supplier,while SMIC/HH Semi may enhance their competitiveness Memory YMTC now only half generation gap vs.global players.To catch up with global players in five years.For DRAM and NAND,CS expects very little supply impact from China by 2020.CXMTs 19nm DRAM may not be competitive.YMTCs 64L NAND also has no cost advantage while its 128L NAND may take more time for R&D.OSAT China close to global pure-play OSATs,but 35 years behind leading chipmakers advanced packaging.We expect China OSATs to continue to show outgrowth and target a combination of growing domestic opportunities and international customers seeking either more localised positions or lower priced solutions.Equipment AMEC 2-3 years behind global peers,but to shorten gap in future.Naura 5-10 years behind;tough to shorten gap.Equipment lagging 5-10 years vs.global peers;and the gap is likely to continue in the foreseeable future,given the long development and complicated qualification process required with chipmakers.AMEC may be one of the few China suppliers to shorten gap vs.global players.Materials Not much gap in technology for chemical materials,but scale too small.For silicon wafers,not yet any established players Silicon wafer:China wafer makers are unlikely to close technology gap vs.global suppliers or significantly expand their market share over the next 1-3 years.Source:Credit Suisse Figure 4:Valuation table of focus stocks Ticker Company CS rating TP (loc)Upside P/E(x)P/B(x)EPS 19E 20E 19E 20E 18A 19E 20E 603501.SS Will Semi O 136 24%211.2 37.8 14.1 9.9 -9%71%459%603986.SS Gigadevice N 141-15%85.8 53.2 10.7 8.7 -28%35%61%002185.SZ Huatian O 6.9 26%43.1 24.6 1.9 1.8 -21%-31%75%0981.HK SMIC N 9.5-8%52.9 71.9 1.2 1.2 -27%-2%-26%Source:Company data,Credit Suisse estimates 5 November 2019 China Market Strategy 3 SEMI-successful China going solo In When China goes solo,we discussed how the US restriction on Huawei would make China more eager to push for technology independence.The drive may remain strong for several years,so we launched a special report series to evaluate Chinas prospects in key manufacturing areas through discussions with industry experts and input from CS analysts.Following China Reinvented series:Learning to fly,in which we discussed China building its own aeroengine,the second report focuses on semiconductors.Semis has surpassed crude oil as Chinas major import item since 2015,accounting for 15%of its 2018 total imports.On this topic,CS analysts from various parts of the world also co-ordinated a more detailed report China:Can it gain tech independence?China worries that the supply is controlled by a few foreign companies and subject to the influences of countries with which it may not enjoy good relationships.However,the context for Chinas strong demand is that a significant portion of imports is for manufacturing products destined for export.The tremendous success of Chinas electronics industry is a good reminder that the push for technology independence should not isolate itself from the global production chain.Also,the deteriorating relationship between China and the western world adds difficulty to Chinas push towards technological development through M&As and foreign-educated talent.Prospects for Chinas semiconductor industry We interviewed Dr.Joseph Xie,an industry veteran with 30 years experience in the semiconductor industry and worked at various semiconductor companies including Intel,Chartered Semi and SMIC.By sub-sector,Dr.Xie is more optimistic about China memory and IC Design.In memory,he expects YMTC to be meaningful in the global NAND market in the next five years.In IC Design,there are already some established China companies with good market share in their respective products,including HiSilicon,UniSOC(Spreadtrum),Goodix,Montage and Gigadevice.In manufacturing(foundry),he sees SMIC being behind TSMC by about three to five years,or two generations,and this gap may last in the future.In OSAT(outsourced semiconductor assembly and testing),while China OSATs are only behind international pure-play OSATs in terms of management and operation,they lag leading chipmakers such as TSMC and Intel for advanced packaging by three to five years.For equipment,he estimates AMECs etch tool is only two to three years behind global suppliers and AMEC should be able to close the gap.He also sees M&A as a quick way for China semis to expand their technologies and product portfolios.That said,he has also addressed a few challenges which are observed across semi sub-sectors,including lack of talent and patent risk.China semis still a long way to go We note strong momentum in China semi domestic replacement since 2018 due to the ZTE restriction and geopolitical tension,and this momentum has intensified in 2019 due to the Huawei restriction.The strong momentum of semi import substitutions benefits virtually all China semi players.That said,despite the excitement of this strong,multi-year momentum,we would also remind that the semiconductor industry has a very long and wide supply chain and that history of this industry has suggested that no single company or country could survive by itself.In terms of each sub-sectors technology gap(or competitiveness)vs.respective global major players,China IC design has the shorter gap(or has more established scale),followed by China OSATs,foundries,equipment/material and lastly memory.Also,while we tend to think most of these sub-sectors would continue to be behind global peers,we would remind that China semis have already been influential in the competitive landscape in different sub-sectors or their respective supply chain.Within our A-share semi coverage,we prefer Will Semiconductor(ASP upgrades on top of share gains and 12%market organic growth)and Gigadevice to Goodix.In OSAT,we like Huatian(RF,NOR,CIS growth drivers)to Tongfu and JCET.We decided to launch a special report series to evaluate the prospects of Chinas drive for technology independence in various key areas Dr.Joseph Xie,an industry veteran,shares his view about Chinas prospects for independent development in different subsectors The strong momentum of semi import substitution benefits all China semi players,but the semiconductor industry has a very long and wide supply chain and the history of this industry suggests that no single company or country could survive by itself 5 November 2019 China Market Strategy 4 China going solo*This section is CS analyst contribution In the report When China goes solo,published on 21 June 2019,we discussed how the restriction on the sale of US technology to Huawei evoked intense nationalist feelings among Chinese.This made the government more determined to push for Chinas technological independence.We believe that the initiative is likely to remain strong for the next several years,and have therefore decided to publish a special series to evaluate the prospects of Chinas drive for technology independence in various key areas,mainly through discussions with industry experts as well as input from CS analysts.In the second report of this series,we focus on semiconductors.This is a rather no-brainer choice as the intensified push for technology independence in China is arguably due to the US decision to restrict electronic component(most importantly,semiconductors)supply to Huawei and ZTE.Indeed,imports of semiconductors/IC have already surpassed crude oil as the major import items into China from 2015 onwards and accounted for about 15%of Chinese total imports in 2018.Due to the importance of this topic,apart from publishing this report,CS analysts from across the world have also co-ordinated a detailed report China:Can it gain tech independence?on this topic,while some of the findings are also presented in the third section“China semis still a long way to go”from p.15 to p.21 of this report.Figure 5:Semiconductors are now the biggest import item of China Source:CEIC At the same time,China has become a very important source of revenue for the global semiconductor giants in recent years.While these big companies might worry about losing China as a client,China on the other hand worries about the supply of such an industrial product being controlled in the hand of a few companies not domiciled in China and subject to the influences of countries which may not enjoy good relationships with China.05101520253035Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Jan-13 Jan-15 Jan-17 Jan-19Crude OilIC/SemiconductorAircraftMachine Tools(US$bn)Thanks to the Huawei restriction,the China government would be more eager to push for Chinas technological independence Imports of semiconductors/IC accounted for about 15%of Chinese total imports in 2018 China worries that the supply of semiconductor products is controlled by a few companies outside China and subject to the influences of countries which may not enjoy good relationship with China 5 November 2019 China Market Strategy 5 Figure 6:Percentage of revenue from China Ticker Company name Mkt cap (US$mn)2012 2017 2018 2019 Sub-sectors INTC US INTEL CORP 245,079 16 24 27 IC Design,Manufacturing,OSAT NVDA US NVIDIA CORP 123,578 24 19 20 IC Design AVGO US BROADCOM INC 114,305 41 54 49 IC Design QCOM US QUALCOMM INC 99,271 42 65 67 IC Design 005930 KS SAMSUNG ELECTRONICS CO LTD 258,269 14 16 18 Manufacturing,Memory 2330 TT TAIWAN SEMICONDUCTOR MANUFAC 252,511 -17 Manufacturing,OSAT MU US MICRON TECHNOLOGY INC 53,260 36 51 57 15 Memory 000660 KS SK HYNIX INC 51,164 19 33 39 Memory ASML NA ASML HOLDING NV 113,254 -10 17 Equipment AMAT US APPLIED MATERIAL 51,287 9 19 30 Equipment LRCX US LAM RESEARCH CORP 40,113 -13 16 22 Equipment 8035 JT TOKYO ELECTRON 33,364 -14 15 24 Equipment KLAC US KLA CORP 26,983 -12 16 27 Equipment ENTG US ENTEGRIS INC 6,634 4 11 13 Materials VSM US VERSUM MATERIALS INC 5,790 -6 7