We Like GlobalWafers and SAS the Most Among Silicon Wafer Producers, National Silicon the Least

We initiate coverage on semiconductor silicon wafer producers Sumco, GlobalWafers, Sino-American Silicon Products, or SAS, and National Silicon Industry Group, or NSIG, with fair value estimates of JPY 2,220, TWD 590, TWD 227, and CNY 5.50 per share, respectively. GlobalWafers and SAS are the most undervalued relative to our fair value estimates, and hence our picks in the sector. We think the market is worried about pricing pressure amid the current downturn and has discounted the prospects of secular growth in semiconductors. Conversely, NSIG is grossly overvalued to our fair value estimate, with a market cap larger than GlobalWafers today despite only having one-fourth of GlobalWafers' market share. We think the market assumes NSIG will unseat GlobalWafers as the third-largest wafer producer in 10 years’ time despite being technologically behind.