JINGSHENG MECHANICAL&ELECTRICAL(300316)：SETBACK IN ESTABLISHING JV WITH AMAT NOT ALTERING LONG-TERM GROWTH PROSPECTS-格隆汇

机构：中金公司
研究员：Ziding ZHANG/Xianfan CHEN/Jia YAN

What's new
In July, Jingsheng Mechanical & Electrical (Jingsheng) announced that it plans to establish a joint venture (JV) with Applied Materials (AMAT) by increasing the capital of Kesheng Equipment, a wholly owned subsidiary of Jingsheng. Kesheng Equipment plans to acquire the Italy-based screen printing equipment and Singapore-based wafer inspection equipment businesses of AMAT for US$120mn. On November 23, 2021, Jingsheng announced that subsidiary Kesheng recently received notice that the Italian government rejected the deal as it failed to pass Itay’s Golden Power review.
Comments
Setback in establishing JV will not derail long-term growth. Jingsheng noted in the announcement that the firm and AMAT will continue communicating with the Italian regulator, and disclose updates when they receive them. We do not think Italian government’s veto will weigh on Jingsheng’s short-term earnings and fundamentals. We believe the firm’s valuation suggests that the market’s expectation for the solar cell manufacturing equipment business is low. We will monitor progress of the deal.
Backlog orders hit new high of nearly Rmb20bn. As of end-3Q21,
Jingsheng had Rmb17.76bn backlog orders (incl. taxes) for crystal growth equipment and smart processing equipment, and Rmb726mn backlog orders for semiconductor equipment, both new highs. The firm has announced multiple large orders since the start of 3Q21 (e.g., Rmb1.49bn from Gaojing and another Rmb838mn from Shuangliang), and we estimate that new orders YTD have exceeded Rmb18bn, an increase of over 150% YoY.
Semiconductor equipment business to create a new growth driver. On August 25, Jingsheng announced that it plans to raise no more than Rmb5.7bn via an A-share private placement plan. Rmb996mn of the proceeds will be used to fund construction of a 12’’ integrated circuit silicon-wafer equipment-testing project and a polishing and thinning project for semiconductor materials equipment (capacity 80 units/p.a.). We expect the latter business to contribute increased earnings on accelerated semiconductor import substitution. Another Rmb3.13bn of the placement proceeds will be used to expand capacity for silicon carbide substrate wafers (0.4mn/yr). We believe the semiconductor equipment and silicon carbide businesses will offer new growth drivers.
Valuation and recommendation
We leave our 2021 and 2022 earnings forecasts unchanged at Rmb1.6bn and Rmb2.5bn. The stock is trading at 36.7x 2022e P/E. We maintain OUTPERFORM and our TP of Rmb97.15 (implying 50x 2022e P/E), offering 36.37% upside.
Risks
Downstream PV capacity expansion and new business development disappoint.