Lvxiao Technology: increase Capital Hefei Ludao Semiconductor plus Code to expand production of Silicon Carbide substrate [Institutional Review]

Increase capital to subsidiary Hefei Luxiao Semiconductor. In December 2021, the company increased its capital by 60 million yuan to its subsidiary Hefei Ludao Semiconductor, with a cumulative capital injection of 320 million yuan. After this capital increase, the company's stake in Hefei Luxiao Semiconductor increased from 50.98% to 55.65%.

Industrial time, silicon carbide substrate is on the eve of localization. The performance of silicon carbide power electronic devices is significantly better than that of silicon-based devices, which can empower new energy vehicles and photovoltaic power generation, and achieve all-round improvement of efficiency, pressure volume and weight reduction. IHSMarkit expects the silicon carbide market to reach US $10 billion in 2027, with an annualized compound growth rate of 38.9%. The silicon carbide upstream substrate link has high process barriers and low product yield, accounting for nearly 50% of the device value. Hefei Luxiao Semiconductor has a mass production capacity of 6 inches of conductive silicon carbide substrate, with an annual production capacity of 25000 tablets, and is expected to reach 100000 tablets in June 2022. Hefei is geographically located, working with local state-owned assets to layout silicon carbide substrates. Hefei Luxiao Semiconductor is located in Changfeng County, Hefei. The company, together with local state-owned assets in Hefei, plans to invest a total of 10 billion yuan in three phases to achieve large-scale mass production of 6-inch and 8-inch conductive silicon carbide substrate wafers and epitaxial wafers. Since the establishment of Hefei Lulu Semiconductor, the company has injected 320 million yuan. The company issued a non-public stock offering plan on November 24, 2021, which intends to raise 2.94 billion yuan to invest in the silicon carbide project.

Technical people and equity incentives lock in industry experts. Professor Chen Zhizhan, chief scientist of Hefei Luxiao Semiconductor, has worked in Shanghai Institute of silicate, Chinese Academy of Sciences for a long time, studied the technology related to silicon carbide crystal growth for 23 years, published more than 100 papers and authorized more than 50 patents. The company's employee stock ownership plan has awarded Chen Zhizhan 1 million shares, which will be unlocked in three phases according to performance assessment.

Investment suggestion: the company's traditional business has gradually recovered, the layout of silicon carbide substrate for new business is relatively fast, and it is in the forefront of China in terms of technology accumulation, follow-up production capacity, cooperative customers and so on. From 2021 to 2023, we expect the company to achieve a revenue of 36.9 pounds 38.8 / 4.05 billion yuan and a net profit of 1.39 pounds 3.64 / 505 million yuan, corresponding to PE164.9/72.1/51.9 times. Maintain the "overweight" rating.

Risk tips: new product sales are not as expected; increased competition in the industry; impairment caused by disasters and other risks.