LED business profit is good: Silan Mingxin has successfully developed high-brightness LED chips, and cooperated with Taiwan New Century Optoelectronics to jointly package outdoor display into mass production stage and achieved good sales performance. In 2009, Silan Mingxin further improved the product performance through the optimization process, and timely expanded the production capacity of Zhonghoudao equipment according to the changes in the market situation (from 250 million/month to 500 million/month), and also purchased 31 new products. Two sets of MOCVD equipment (which have arrived at the end of 2009 and are currently under commissioning) have ensured further expansion of their output and enhanced competitiveness.
The integrated circuit/diode foundry business increased profitability: The company said that it is making chips for Diode, Dunnan, and SipEX, Changde, Gushu and other manufacturers, many of which are semiconductor brands (Diode, Dun South, and Sipex), after confirming with market channels (packaging factory, semiconductor distributor, domestic chip maker), we have concluded that Silan Micro has transformed at least half of its semiconductor capacity into a chip foundry, and the market semiconductor production capacity is relatively tight. We believe that Silan's transformation strategy is relatively stable compared to its previous chip sales strategy (mostly similar to the design of foreign big companies, the strategy of grabbing the market at a lower price).
Earnings forecast and valuation: Silan Micro added two 32 MOCVD machines at the end of last year, which is about 60% increase compared with the current capacity. In addition, the company also introduced a capacity of about one month from Japan at the beginning of the year. The 50,000-inch 6-inch line is expected to be installed in the third quarter. This new capacity accounts for about 65% of the existing capacity (current production capacity is 5 å‹ line monthly capacity of about 80,000 pieces and 6 å‹ line capacity 2 10,000 pieces) It is estimated that the company's operating income in 2010 and 2011 will be 1.3 billion yuan and 1.8 billion yuan respectively, and the net profit will be 190 million yuan and 260 million yuan respectively, corresponding to EPS of 0.47 yuan and 0.65 yuan. We gave the company 30 times PE in 2011, with a target price of 19.5 yuan, and gave the investment rating of “Buy A†for the first time.
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