WANYE ENTERPRISES(600641)：2021 AND 1Q22 RESULTS MISSED;UPBEAT ON KINGSTONE’S ADVANTAGEOUS POSITION

　　2021 and 1Q22 results miss our forecast

    　　Wanye Enterprises announced its 2021 results: Revenue fell 5.54% YoY to Rmb880mn (including Rmb125mn from Kingstone Semiconductor and Rmb5.17mn from Jiaxin Semiconductor), and revenue from Compart Systems reached Rmb920mn (not included in revenue above). Net profit attributable to shareholders rose 19.42% YoY to Rmb377mn (including -Rmb29mn from Kingstone, -Rmb4.73mn from Jiaxin, and Rmb101mn from Compart Systems). In 1Q22, revenue and attributable net profit dropped 76.53% and 86.21% YoY to Rmb97.43mn and Rmb27.24mn. The firm’s 2021 and 1Q22 results both missed our forecasts, mainly due to: 1) falling revenue from the real estate business dragged by cyclical impacts in sales; and 2) a lower-than-expected number of ion implanters that were recognized when calculating revenue.

    　　Trends to watch

    　　In 2021, Kingstone recognized three ion implanters in its revenue, lower than the expected six units. As a result, revenue was Rmb200mn lower than expected. At present, Kingstone is still in the stage of high investment, so its lower-than-expected revenue minus R&D expenses, depreciation, and amortization items led to a net loss in earnings. According to management, the firm has secured orders from clients or distributors for the remaining ion implanters not recognized in revenue, which we think will likely be calculated in revenue in 1H22. Jiaxin Semiconductor started operating in 2021 immediately after its establishment, but has not reached the breakeven point due to low revenue.

    　　In 2021, G&A expenses of Wanye Enterprises amounted to Rmb140mn, with G&A expense ratio up 5.74ppt YoY to 15.94%, mainly due to rising expenses of the firm’s equity incentive plan (aimed at core members of the parent company, subsidiaries, and associate companies, including Kingstone and Compart Systems).

    　　Kingstone is now able to industrialize its low-energy large-current ion implanters, including standard models and derivative models such as metal and ultra-low temperature models, and has finished R&D on high-energy ion implanters. It is a leading ion implantation equipment manufacturer in China. Year-to-date, it has secured an Rmb680mn order from a major domestic wafer fabricator, and has ample orders on hand. We are upbeat on Kingstone’s advantageous position in the domestic ion implanter market.

    　　Financials and valuation

    　　Given possible impacts from COVID-19, we cut our 2022 and 2023 revenue forecasts 4% and 4% to Rmb1.58bn and Rmb2.14bn based on prudence (implying YoY growth of 80% and 35%), and lower our 2022 and 2023 net profit forecasts 7% and 6% to Rmb480mn and Rmb567mn (implying YoY growth of 27% and 18%). The stock is trading at 31.2x and 26.4x 2022e and 2023e P/E. Maintain OUTPERFORM rating. We cut our TP 25% to Rmb19.43 based on SOTP valuation (we lower our forecast for Kingstone and Jiaxin Semiconductor based on prudence), offering 24% upside.

    　　Risks

    　　Capex of domestic wafer fabricators disappoints; localization of semiconductor equipment slower than we expect; China-US trade frictions intensify; disruptions in production and transportation due to COVID-19.