2025-10-28 03:06Summary of SICC (688234.SS) 3Q25 Earnings Call Company Overview - Company: SICC (688234.SS) - Industry: Silicon Carbide (SiC) Substrate Manufacturing Key Financial Metrics - 3Q25 Revenues: Rmb 318 million, down 18% QoQ and 14% YoY, significantly below expectations by 37% compared to Goldman Sachs and Bloomberg consensus [2][3] - Gross Margin (GM): Improved to 20.6% in 3Q25 from 12.6% in 2Q25, reflecting a product mix upgrade towards 8-inch SiC substrates [1][2] - Operating Income (OP): Reported a loss of Rmb 42 million in 3Q25, compared to a loss of Rmb 28 million in 2Q25 [3] - Net Income: Loss of Rmb 10 million in 3Q25, down from a profit of Rmb 2 million in 2Q25 [3] Core Insights - Product Mix Upgrade: The shift towards 8-inch and 12-inch SiC substrates is expected to drive future growth [1][5] - Market Competition: Intense pricing competition, particularly in the 6-inch SiC substrate market in mainland China, is impacting revenue and margins [2][5] - R&D Investments: Increased R&D and selling expenses due to new product developments have contributed to the operating loss [2][5] - Future Growth Drivers: Anticipated growth in SiC adoption in electric vehicles (EVs) for fast charging capabilities and expansion into AI applications such as AI glasses and servers [1][5] Earnings Revision - EPS Forecast: 2025-2027 EPS estimates reduced by 86%, 9%, and 7% respectively due to lower revenues and higher expenses [5][10] - Revenue Growth Projection: Despite the cuts, a strong revenue growth of 65% CAGR is expected from 2025 to 2027, driven by product mix upgrades and market expansion [5][10] - Long-term Margin Recovery: Blended GM is projected to recover to 37.6% by 2027, with an operating margin (OPM) of 24.9% expected as revenue scales normalize [5][10] Valuation and Price Target - Target Price: Rmb 101, reflecting a 36.7% upside from the current price of Rmb 73.86 [17] - Valuation Methodology: Based on a discounted P/E approach, with a target P/E multiple of 35.8x applied to 2029E EPS [10][15] Risks and Considerations - Downside Risks: Include slower-than-expected capacity expansion, intense competition, and potential supply chain issues [16] - Market Volatility: The company's relatively short trading history and the volatile nature of the SiC substrate market may affect valuation [16] Conclusion - Despite a challenging 3Q25 performance, SICC is positioned for long-term growth driven by product upgrades and market expansion in the EV and AI sectors. The current valuation presents a potential investment opportunity, albeit with associated risks from market competition and operational challenges.