Semiconductors have been in a high boom cycle since last year. With the gradual release of production capacity and the accelerated import of downstream products, most semiconductor companies have achieved good development, which has been reflected in the gradually disclosed interim performance forecast. However, in terms of quarterly segments, since the second quarter, the performance of the semiconductor industry has been differentiated.

?? Among them, due to the weakening of downstream demand and the high point of the cycle, the performance of companies with high consumer attributes such as electronic chips has been under pressure from the previous month. However, companies that are closely related to downstream innovation needs such as new energy vehicles and other industries, and companies that have expanded their production capacity in the process of domestic substitution have better performance.

??The valuation of the semiconductor industry has been repaired, and the exploration of opportunities will focus on two factors

?? Since the beginning of the year, affected by macro factors such as liquidity crunch and the outbreak of epidemics in some cities, the superimposed semiconductor cycle has peaked and mobile phone shipments have fallen short of expectations. The semiconductor electronics sector has experienced a wave of "killing valuations". After that, with the promulgation of new policy plans for the semiconductor industry chain in many countries, and the outbreak of demand for downstream sectors such as new energy vehicles, photovoltaic energy storage, and 5G base stations, the overall industry valuation level rebounded.

?? As of the end of July, the PE (TTM) of the Shenwan Semiconductor Index was about 38.80. Compared with the beginning of the year, consumer electronics and semiconductor companies fell by about 30%, and the valuation fell from 40 times to about 30 times. The leading companies in the semiconductor equipment sector's PS valuation fell to 10 times PS (price-to-sales ratio), and the second-tier companies fell to 7-8 times PS. At present, changes in the overall valuation level of the sector have digested pessimism such as periodic demand declines and price declines, and still maintain a certain price advantage.

?? However, this type of hard technology sector has a high professional threshold, and the industry chain itself has the characteristics of large investment, long cycle, and subdivision of the track, which is not friendly to ordinary investors. Therefore, in the specific investment, two major factors need to be considered: first, whether the business of the target is core; second, whether the core technology of the target has development prospects.

?? Regarding whether the business engaged in is core, the key consideration is the downstream demand space, that is, from the perspective of the downstream corresponding to the company's business, how important is the company's products among downstream manufacturers, what is the proportion of value, and the supply and demand of this product? Whether the change in relationship will directly affect the shipment rhythm of downstream manufacturers. Taking the power semiconductor IGBT module as an example, it acts as an inverter in a new energy vehicle, and is a key link connecting the battery output and the motor drive, with a high value. At present, the supply of IGBTs is still in a tense situation, which also has a certain impact on the shipment rhythm of downstream new energy vehicle manufacturers.

?? Regarding whether the core technology has development prospects, what aspects should be focused on? Still taking automotive power semiconductors as an example, the silicon carbide MOSFET module is an upgrade of the IGBT module. Comparatively speaking, it has the advantage of lower loss and can improve the cruising range. Although the use of this module will increase the cost of power devices, it is still cost-effective from the perspective of vehicle cost. At present, new energy car manufacturers are upgrading the system voltage of the whole vehicle from 400V to 800V in order to meet the demand for fast charging. In the 800V environment, the performance advantages of using silicon carbide modules will be more obvious, and the willingness of car manufacturers to replace is very strong. In the future, with the increase of silicon carbide production capacity, the replacement of IGBT will be accelerated, and the growth space will be broad.

?? Combining the above two factors, in the semiconductor industry chain, we are relatively more concerned about subdivision clues such as semiconductor materials and equipment that can meet the broad downstream needs at the same time and have obvious advantages in domestic substitution.

??New energy demand superimposed domestic substitution of third-generation semiconductor materials or become the main line

?? In recent years, the process of domestic substitution of semiconductors has accelerated. However, the industry chain is long and there are many products. From consumer electronics to home appliances to industrial automobiles, domestic replacement is difficult to achieve overnight, but a process from easy to difficult, from consumer electronics to black and white electricity.

?? Now, some domestic semiconductor-related companies have gradually grown up. Although there is a big gap compared with international giants, the future development space is still very broad. Among them, localization opportunities are worth looking forward to, such as being able to benefit from new energy vehicles at the same time. , photovoltaic, 5G and other downstream demand exploded, and the technical threshold is higher, and the mid-to-high-end track in the upstream position of the supply chain.

?? The most representative is the third-generation semiconductor material, which refers to the wide-bandgap semiconductor material represented by silicon carbide and gallium nitride. Among them, silicon carbide devices have three advantages of high voltage resistance, low loss and high frequency, and are mainly used in new energy vehicles, photovoltaic power generation, rail transit, smart grid and other fields. Gallium nitride devices have the advantages of high switching frequency, high temperature resistance, and low loss, which can better meet the needs of 5G macro base stations, satellite communications, microwave radar, data centers and other fields.

?? Among them, the core driving force for the accelerated penetration of silicon carbide is new energy vehicles, photovoltaics, etc. According to estimates, the global new energy vehicle silicon carbide device and module market size in 2020 is 270 million US dollars, and it is expected to reach 3.01 billion US dollars in 2025, corresponding to a compound annual growth rate of 62.3%. Different from overseas companies, domestic companies focus more on part of the industrial chain when they are laying out the silicon carbide industry, such as only engaging in the preparation of substrates and epitaxy or only focusing on silicon carbide wafer manufacturing. Therefore, when seizing opportunities in silicon carbide-related fields, we can focus on companies that have taken the lead in realizing in-depth layout in core links, that is, companies that have mastered core technologies and have capacity expansion project reserves.

?? Because such companies have the opportunity to fully benefit from domestic substitution and have the potential advantage of forming a leader. For example, in the substrate segment, we can focus on companies that have mastered the preparation technology of silicon carbide substrates of multiple sizes and have substrate project reserves, because such companies have the opportunity to take the lead in realizing mass production. In the manufacture of silicon carbide wafers, we can focus on the leading manufacturers in the layout of etching, deposition and other major tracks, because these companies have a wider room for revenue growth.

?? Another important field of third-generation semiconductor materials is gallium nitride. According to estimates, benefiting from multiple drivers such as consumer fast charging, 5G, and new energy vehicles, the global market for gallium nitride is expected to reach US$3.5 billion in 2026. From the perspective of companies in the gallium nitride industry chain, foreign companies maintain a large lead in technical strength and production capacity, while Chinese companies are still in their infancy. Therefore, in the GaN A-share investment, we should focus on those companies that have the opportunity to realize industrialization in a certain core link of the industry chain. For example, in the field of epitaxy, a company has taken the lead in the layout and has planned related expansion projects. There is an opportunity to take the lead in realizing large-scale production in this field.

?? In addition, with the acceleration of localization of semiconductor equipment, semiconductor equipment companies with platform-based layout are also worthy of attention. Because local equipment manufacturers have continued to expand the breadth of products and tap the depth of their products in recent years, the platform layout is conducive to the continuous expansion of the subsequent scale. Taking chip manufacturing as an example, the types of equipment required at each stage are different, covering different core equipment such as lithography, debonding, and ion implantation. But local equipment manufacturers often only focus on 1 or 2 of them. Therefore, expanding the existing equipment coverage process can provide more possibilities for the company's revenue growth.