Summary of SICC (688234.SS) Conference Call Company Overview - **Company**: SICC (688234.SS) - **Market Cap**: Rmb41.2 billion / $5.8 billion - **Enterprise Value**: Rmb39.0 billion / $5.5 billion - **Industry**: Greater China Technology, specifically in SiC (Silicon Carbide) substrates Key Points and Arguments Financial Performance - **Share Price Increase**: SICC's share price has increased by 68% year-to-date, outperforming the Shanghai-Shenzhen 300 Index which increased by 14% [1][10] - **Target Price**: The target price has been raised to Rmb111, implying a 29.2% upside from the current price of Rmb85.90, with an implied 101.2x 2026E PE based on 100% net income growth year-over-year in 2027E [1][40] Revenue and Earnings Forecast - **Revenue Growth**: Projected revenues are expected to grow from Rmb1,768.1 million in 2024 to Rmb4,625.7 million by 2027, reflecting a compound annual growth rate (CAGR) of 41.4% [3][13] - **Net Income Growth**: Anticipated net income growth of +81% CAGR from 2024 to 2027, driven primarily by the 8-inch SiC substrate [15][32] - **Earnings Per Share (EPS)**: EPS is expected to increase from Rmb0.42 in 2024 to Rmb2.20 in 2027, with significant growth in 2026 [3][13] Capacity Expansion and Product Mix - **Capacity Plans**: SICC plans to increase annual capacity in China by 500k by 2027E and establish a new production site in Southeast Asia [7][27] - **Product Mix Upgrade**: The company is shifting towards 8-inch and larger substrates, with expectations that 8-inch revenues will contribute up to 90% by 2027, up from 25% in 2024 [7][34] - **ASP Increase**: The average selling price (ASP) of SiC substrates is projected to increase by 7% CAGR from 2024 to 2027, reaching US$698 [7][34] Market Position and Customer Base - **Customer Penetration**: SICC's substrates serve over half of the global top-10 power semiconductor device suppliers, with 48% of revenues coming from outside mainland China [7][15] - **Market Share**: Expected to increase global market share in conductive SiC substrates from 19% in 2024 to 24% by 2027 [15][34] Application Expansion - **EV Adoption**: SiC substrates are increasingly used in electric vehicles (EVs) for fast charging and improved power efficiency, with expectations that SiC adoption in EVs in China will rise to 50% by 2027 [21][22] - **AI Data Centers**: SiC is being adopted in AI data centers for power supply units, enhancing energy efficiency and power density [24][25] - **AI Glasses**: SiC substrates are also being utilized in AI glasses, contributing to a reduction in size and weight while improving display quality [26] Capital Expenditure (Capex) - **Investment Plans**: SICC has invested Rmb2.5 billion in Shanghai for 300k/year capacity of 6-inch SiC substrates and plans to invest an additional Rmb976 million to expand capacity for 8-inch and larger substrates by the end of 2027E [27][31] - **Capex Ratio**: The capex ratio is expected to normalize to 32% in 2024, with further expansions planned across China and Southeast Asia [31] Earnings Revision - **Revised Projections**: Net income estimates for 2026-27E have been raised by 14% and 43% respectively, reflecting better product mix and higher gross margins [32][38] - **Revenue Adjustments**: Revenue estimates for 2026E have been reduced by 8% due to pricing competition in the 6-inch SiC substrate market [33][38] Valuation Methodology - **Target P/E**: The valuation methodology has shifted to a long-term discounted P/E approach, with a target price of Rmb111 based on 2029E EPS [40][41] Additional Important Insights - **Strong Execution**: SICC has successfully transitioned from 6-inch to 8-inch substrates and is on track to launch 12-inch substrates, enhancing its competitive position [15] - **Industry Dynamics**: The competitive landscape is expected to improve due to industry consolidation and rising demand across various applications [33][34] This summary encapsulates the key insights from the conference call, highlighting SICC's growth trajectory, market positioning, and strategic initiatives in the SiC substrate industry.

Summary of Conference Call Notes Industry Overview - **Industry**: Silicon Carbide (SiC) Substrates - **Key Players**: SICC, Infineon, Bosch, On Semi, Meta, Google Core Insights and Arguments 1. **TAM Opportunities**: The Total Addressable Market (TAM) for SiC substrates is expected to grow due to advancements in AR glass and AI data centers, with a projected TAM of US$44 million in 2027, representing 4% of the SiC substrate market valued at US$1.1 billion in 2024 [3][5] 2. **AR Glass Growth**: Meta's upcoming launch of AR glass Hypernova and Google's Aura project are anticipated to drive demand for SiC substrates, although current high costs and low yields hinder widespread adoption [3][11] 3. **AI Data Centers**: SiC devices are projected to play a crucial role in power conversion for AI data centers, with an initial TAM addition of ~1% in 2027, potentially increasing to ~20% by 2030 as 800V adoption rises [3][16] 4. **China's Competitive Position**: Chinese SiC substrate vendors, particularly SICC, are better positioned than local device makers due to their role in the supply chain for AR glass and AI data centers [4][5] 5. **Financial Projections**: SICC's bull case price target has been raised by 23% to Rmb104.4, with expectations of revenue contributions from AR glass and AI data centers adding 3% and 1% respectively by 2027 [5][24] Additional Important Insights 1. **Cost and Yield Challenges**: The high cost of SiC substrates (approximately US$1,600 for an 8-inch substrate) and low yield rates are significant barriers to adoption in AR applications [9][20] 2. **Supply Chain Collaborations**: SICC is actively collaborating with supply chain partners to promote SiC substrate applications in AR glasses and EV displays, indicating a strategic approach to market penetration [10] 3. **Market Share Dynamics**: China's SiC substrate vendors held a 36% global market share in 2024, with SICC supplying wafers to major industry players [4] 4. **Revenue Growth Expectations**: SICC's revenue is projected to grow at a CAGR of over 25% from 2024 to 2027, with gross margins expected to improve to over 35% by 2027 [24][34] 5. **Valuation Methodology**: The valuation for SICC is based on a P/B multiple of 5.4x for the base case, reflecting the average since its listing in January 2022, with a bear case at Rmb49.7 and a bull case at Rmb104.4 [31][41] Financial Performance Highlights - **Quarterly Revenues**: Total revenues for SICC are projected to be Rmb1,768 million in 2024, with a slight decline expected in 2025 before recovering to Rmb2,442 million by 2027 [30][49] - **Gross Margin Trends**: Gross margins are expected to fluctuate, with a notable increase anticipated by 2027 [30][49] - **Operating Income**: Operating income is projected to improve significantly by 2027, reflecting operational efficiencies and market share gains [30][49] This summary encapsulates the key points from the conference call, focusing on the SiC substrate industry, SICC's market position, financial projections, and the challenges and opportunities ahead.

Investment Rating - The report maintains a "Buy" rating for several companies including NAURA, SICC, SUMCO, Shin-Etsu Chemical, Mitsubishi Electric, and Infineon [2]. Core Insights - The report highlights significant growth in local production and demand for silicon wafers and SiC substrates in China, with local coverage expected to increase from 41% to 54% for 12-inch silicon wafers and from 80% to 87% for 6-inch SiC substrates by 2027E [1][6]. - Pricing trends indicate a decline in average selling prices (ASP) for 8-inch silicon wafers at a CAGR of -10% from 2024 to 2026E, while 12-inch wafers are expected to decline at -6% CAGR during the same period. SiC substrate ASP is projected to decrease from US$443 in 2024 to US$384 in 2026E [1][6]. - Capacity expansion is notable, with 12-inch silicon wafer capacity expected to grow at a CAGR of 21% from 2024 to 2027E, significantly outpacing the 3% CAGR for 8-inch silicon wafers. SiC substrate capacity is also set to expand at 26% and 96% CAGR for 6-inch and 8-inch substrates, respectively [1][6]. - The report anticipates a consolidation in the industry, with the top three Chinese silicon wafer suppliers projected to cover 36% of domestic demand by 2027E, up from 26% in 2024 [1]. Summary by Sections China TAM - The total addressable market (TAM) for silicon wafers in China is projected to grow from US$1.999 billion in 2021 to US$4.511 billion by 2030E, with a notable increase in shipments from 36,962k units in 2021 to 103,570k units by 2030E [37]. - The SiC substrate market is expected to grow from US$197 million in 2021 to US$2.770 billion by 2030E, driven by rising EV penetration and SiC adoption rates [39]. - The GaN devices market is projected to expand from US$66 million in 2021 to US$1.611 billion by 2030E, supported by applications in EVs, data centers, and consumer electronics [42]. Supply and Demand Dynamics - Local suppliers' capacity expansion in silicon wafers is primarily driven by logic and memory clients, while SiC substrate capacity is expanding due to increased adoption in EVs and fast charging technologies [43]. - The report notes that local suppliers are expected to cover 75% of SiC substrate demand in China by 2025E, increasing to 84% by 2027E [6][39]. - The demand for SiC and GaN is anticipated to replace IGBT in high power and high frequency applications, with SiC penetration rates projected to reach 75% in EVs by 2030E [52]. Pricing Trends - The ASP for silicon wafers is expected to decline, with 8-inch wafers decreasing at a CAGR of -10% and 12-inch wafers at -6% from 2024 to 2026E [1][6]. - SiC substrate pricing is also expected to narrow, making SiC MOSFETs more competitive against silicon IGBTs [1]. Industry Consolidation - The report indicates a trend towards consolidation in the silicon wafer industry, with the top three suppliers expected to significantly increase their market share in China by 2027E [1].

Investment Rating - The report maintains an "Overweight" (OW) rating on Yangjie Technology and StarPower Semiconductor, while it is "Equal-weight" (EW) on Silan Micro and "Underweight" (UW) on CR Micro [6][5][12]. Core Insights - Power semiconductor pricing has stabilized, but discounts to end customers will impact gross margins in 1Q25. Companies with higher automotive exposure and better operational efficiency are favored [1][5]. - Power discrete sales have shown signs of recovery, with a 10% year-over-year shipment growth recorded in February 2025. The blended average selling price (ASP) of IGBT is stabilizing, indicating a potential recovery in this segment [2][15]. - Chinese power semiconductor companies are capitalizing on automotive opportunities, with Yangjie Technology's automotive product sales growing over 60% in 2024, significantly outpacing its total revenue growth of 12% [3][5]. - SICC has increased its global market share in SiC substrates to 22.8% in 2024, and there are expectations for further growth in SiC devices due to local self-sufficiency being less than 10% [4][12]. Summary by Sections Pricing and Margins - Power semiconductor pricing has largely stabilized, but normal price discounts will affect gross margins in 1Q25 [1]. - StarPower's gross margin is expected to be the lowest quarterly level this year, with gradual improvement anticipated for the rest of the year [2][10]. Company Performance - Yangjie Technology is expected to see an 18% year-over-year revenue increase in 1Q25, although a 3% quarter-over-quarter decline is anticipated due to seasonality [11]. - StarPower's revenue is projected to grow by 19% in 2025, driven by strong demand in the Chinese EV market and its acquisition of MSCT [10][12]. - SICC's revenue is expected to decline by 6% quarter-over-quarter in 1Q25 due to seasonal factors, but gross margins are anticipated to remain stable [10]. Market Trends - The automotive sector is a significant growth driver for power semiconductors, with companies like Yangjie showcasing their automotive solutions at major trade fairs [3]. - The global market for SiC devices is expected to grow, with local players like UNT and Silan Micro making strides in production capacity [4]. Price Target Adjustments - Price targets for StarPower and SICC have been lowered to Rmb115 and Rmb77, respectively, reflecting changes in market conditions and pricing pressures [6][12].