China Power Semiconductor and Silicon Carbide Sectors_ Stay cautious; Downgrade SICC to Neutral; Neutral for StarPower, United Nova, CR Micro and NCE Power. Mon Feb 10 2025

Summary of the Conference Call on China Power Semiconductor and Silicon Carbide Sectors Industry Overview - The report focuses on the China Power Semiconductor and Silicon Carbide (SiC) sectors and provides an updated outlook for 2025, including demand dynamics and earnings estimates for key companies in the sector [2][6]. Key Companies Discussed - SICC (SiC substrate): Downgraded from Overweight (OW) to Neutral - StarPower: Neutral rating maintained - United Nova: Neutral rating maintained - NCE Power: Neutral rating maintained - CR Micro: Neutral rating maintained [2][4]. Core Insights and Arguments 1. Demand Outlook: - Mixed demand outlook for Chinese power semiconductor companies in 2025: - Continued strength in China's EV growth with expected NEV shipments growth of 24% in 2025 and 36% in 2024 [6]. - Limited growth in industrial and renewables demand despite a sluggish 2024 [6]. - Mild growth in consumer demand following strong growth in 2024 [6]. 2. Power Semiconductors: - Companies will remain flexible in product pricing to drive shipment growth, especially in the auto market, due to: - Abundant industry capacity - High bargaining power of auto customers - Active competition from international peers [6]. - Pricing erosion may offset end market growth and suppress margins [6]. - Global revenue for power SiC devices grew mid-teens in 2024, a significant slowdown from 84% growth in 2023, with an expected 20% growth in 2025 [6]. 3. Stock Calls: - SICC: Downgraded to Neutral due to lingering competition and high valuation (43x 2026E P/E). Expected to ramp up 8" substrate business but faces potential commoditization risk in the longer term [6][13]. - StarPower: Earnings forecasts for 2025 and 2026 are 10% and 19% below consensus, respectively, due to lower revenue and gross margin [6]. - United Nova: Fundamentals improvement is on track, but concerns exist regarding ongoing losses and share count dilution [6]. - NCE Power: Fair risk-reward profile noted [6]. - CR Micro: Awaiting better visibility on demand outlook or profitability [6]. Financial Estimates and Revisions - SICC: - Revenue estimates for 2024E, 2025E, 2026E, and 2027E revised down by 16%, 21%, 29%, and 35% respectively [14]. - Projected revenue growth of 33% CAGR from 2024-2027, driven by technology leadership and market growth [13]. - Expected gross margin to peak at 29-30% in 2025 [13]. - StarPower: - Revenue estimates for 2024E, 2025E, and 2026E show a decline compared to consensus [9]. - United Nova: - Revenue estimates remain stable, but operating losses are a concern [9]. Pricing Trends - Anticipated price reductions for both 6" and 8" substrates due to competitive pressures and market dynamics [14]. - Significant price decline of 30-40% for 6" substrates during 2024, with continued competitive pressure expected [14]. Additional Insights - The SiC device market is projected to account for 10% of total discrete semiconductor TAM in 2024 [38]. - The growth rate of the power SiC device TAM is expected to influence SICC's substrate revenue growth, with a projected 40% growth for SICC's n-type substrate revenue in 2025 [42][43]. Conclusion - The report indicates a cautious outlook for the China power semiconductor sector, with specific challenges related to pricing, competition, and demand dynamics. The downgrades reflect a more conservative view on growth potential amidst these challenges.