Company Reports

We maintain our fair value estimate for no-moat National Silicon Industry Group, or NSIG, at CNY 3.70 per share after the firm reported disappointing first-quarter results. The letdown is a reminder that aggressive capital expenditure is not enough to chip away leaders’ market share in faster-growing high-performance computing and artificial intelligence applications. Taiwan peers GlobalWafers and its parent Sino-American Silicon Products remain our picks in the sector.

We cut our fair value estimate for National Silicon Industry Group to CNY 3.70 per share from CNY 4.10 after trimming our earnings forecasts to account for near-term cyclicality for 2024, updated expansion schedules for 2024-26, and lack of advanced process exposure for the long term. NSIG is significantly overvalued as market expectations are too high with its lack of exposure to faster-growing high-performance computing and artificial intelligence applications, and hefty capital expenditure for at least the next three years. Taiwanese peers GlobalWafers and its parent Sino-American Silicon Products remain our picks in the sector.

National Silicon Industry Group is a Chinese up-and-coming semiconductor silicon wafer producer. Contrary to its larger peers, NSIG is unlikely to build new sites outside of China because of geopolitical risks and the incremental demand coming from Chinese customers. We expect NSIG to triple its 300-millimeter wafer capacity by 2030, compared with end-2023 levels, partly fueled by China’s pursuit of a self-sufficient supply chain.

After National Silicon Industry Group, or NSIG, announced 2023 GAAP and adjusted net profit figures that bear little surprise, we hold our fair value estimate at CNY 4.10 per share pending the company’s release of complete full-year results. We still find NSIG extremely overvalued even after its share price declined over 20% since our initiation, as the market continues to overlook the vast capital spending required for it to reach its aim of 15%-20% of global market share by revenue from its current 4%.

We maintain our fair value estimates for Globalwafers, Sino-American Silicon, or SAS, Sumco, and National Silicon Industry Group, or NSIG, at TWD 590, TWD 227, JPY 1,940, and CNY 4.10, respectively, after the common message of a sluggish fourth quarter to be followed by a mild recovery in 2024. SAS is our top pick in the sector as they are best positioned to benefit from incremental semiconductor factories in the U.S. and profitability has been resilient despite the current downturn. NSIG is extremely overvalued in our view as its market capitalization is on par with its larger peers despite being only 25% of the size in terms of revenue, and it is unlikely to generate free cash flow before 2027.

We trim our fair value estimates for Sumco and National Silicon Industry Group to JPY 1,940 from JPY 2,220 and CNY 4.10 from CNY 5.50, respectively, after both firms indicated the second half will be tougher than we thought. Sumco remains fairly valued as although its long-term growth outlook trails the industry average, it has strong market share in high-end wafers to support expansion. We reiterate our view that NSIG is extremely overvalued as its market capitalization is on par with its larger peers despite only being 25% of the size in terms of revenue.

National Silicon Industry Group is a Chinese up-and-coming semiconductor silicon wafer producer. Contrary to its larger peers, NSIG is unlikely to build new sites outside of China because of geopolitical risks and the incremental demand coming from Chinese customers. We expect NSIG to quadruple its 300 millimeter wafer capacity by 2030, compared with end of 2022 levels, partly fueled by China’s pursuit of a self-sufficient supply chain.

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.

National Silicon Industry Group is a Chinese up-and-coming semiconductor silicon wafer producer. Contrary to its larger peers, NSIG is unlikely to build new sites outside of China because of geopolitical risks and the incremental demand coming from Chinese customers. We expect NSIG to quadruple its 300 millimetre wafer capacity by 2030, compared with end of 2022 levels, partly fueled by China’s pursuit of a self-sufficient supply chain.