1. Market Review: The electronics industry has outperformed the CSI 300 Index by 0.06 percentage points year-to-date

The electronics industry has outperformed the CSI 300 Index by 0.26 percentage points year-to-date

In the first half of 2021, the A-share electronics index showed a volatile pattern as a whole. As of June 11, the S&W Electronics Index rose by 0.52%. During the same period, the CSI 300 Index rose by 0.26%, outperforming The CSI 300 Index was 0.26 percentage points, ranking 18th among the first-tier Shenwan sectors. Shenwan Electronics sector PE (TTM) is 38 times

From the beginning of the year to June 11, the PE (TTM) of the Shenwan Electronics sector was 38 times, which was around the 30% percentile in the past five years (the highest value was 76, the lowest The value is 23), which is lower than 50 times the average value of the past year. This is mainly due to the decline in market risk appetite and the overall decline in the overall valuation of the GEM and electronic sectors.

The sub-sectors are clearly differentiated: under the wave of localization of chips, the semiconductor sub-sector leads the list of gains. As of June 11, the prices of semiconductors, optics and optoelectronics, electronic manufacturing, and secondary components increased by 13.22%, 1.14%, -4.75%, and -10.34% respectively.

2. Semiconductors: The boom is high, and attention is paid to the performance elasticity of equipment and materials under the background of production expansion

Background: Under the uncertain external environment, localization is imminent

The technology industry represented by semiconductors is a key focus of the struggle between China and the United States: In April 2018, ZTE encountered a US "sales ban"; on May 15, 2019, The U.S. Department of Commerce stated that it would add Huawei and 70 affiliated companies to the "Entity List"; on the evening of October 4, 2020, SMIC announced on the Hong Kong Stock Exchange that some of its suppliers have received further restrictions from U.S. export control regulations .

Currently, domestic semiconductor demand is strong and domestic supply capacity is insufficient: The domestic semiconductor industry market is growing rapidly, but demand and supply are seriously unbalanced and highly dependent on imports. The self-sufficiency rate of domestic core chips is less than 10%. In the field of integrated circuits, there is broad room for import substitution. In 2020, my country's integrated circuit export value was US$101.6 billion, and its import value was US$350 billion. Since 2015, the import value of integrated circuits has exceeded crude oil for four consecutive years, becoming my country's largest imported commodity. Considering supply chain security and information security, the localization of chips is imminent.

Policy: Tax reduction is the main theme, tilting towards advanced processes

Guofa No. 8 document tilts toward advanced processes: Guofa No. 8 document proposes that the line width of integrated motors encouraged by the state is less than 28 nanometers (inclusive), and the operation period is 15 years The above integrated circuit manufacturing enterprises or projects are exempt from corporate income tax from the first to the tenth year. In Guofa No. 4 document, integrated circuit manufacturers with line widths less than 0.25 microns or investment exceeding 8 billion yuan and operating for more than 15 years will adopt a "five-year exemption and five-year halving" policy from the date of profitability. For domestic high-end process companies, the strength of discounts has significantly increased. Guofa No. 8 also pointed out that for manufacturing enterprises with 65nm and below (inclusive) operating for more than 15 years, a corporate income tax policy of "five exemptions and five halvings" will be adopted, and for enterprises with 130nm and below (inclusive) operating for more than 10 years, "two exemptions" will be adopted. "Three half cuts" policy. Comparing the tax reduction policy in 2018, it is obvious that advanced processes are encouraged and tilted towards advanced processes. On the one hand, the localization of advanced processes and chips is of great significance in the country's strategic position; on the other hand, integrated circuits are also a concentrated expression of the country's high and new technologies.

Market: Global foundry output value is expected to reach US$94.5 billion in 2021

Global semiconductor market size: Global semiconductor sales in 2020 were US$440.4 billion, an increase of 6.8% compared with the same period last year. Among them, the integrated circuit product market sales were US$361.2 billion, an increase of 8.4% over the same period last year. Integrated circuit market sales account for 82% of the global semiconductor market. The market sales of storage device products were US$117.5 billion, an annual increase of 10%, accounting for 27% of the total global semiconductor market; the market sales of logic and analog products were US$133.9 billion and US$64.1 billion respectively, accounting for the total value of the global semiconductor market. 30% and 15% of the value.

Global wafer foundry output value is expected to reach US$94.5 billion in 2021: According to Trendforce’s forecast, in the context of the chip market climate cycle, the global wafer foundry industry market in 2021 The scale is expected to reach US$94.5 billion, with an annual growth of 11%.

3. Display: Improved panel competition, focusing on technology upgrades to bring incremental opportunities

On the supply side, Japanese and Korean manufacturers have withdrawn, and there are no plans to build large-scale factories in China

In terms of supply-side capacity withdrawal: South Korea's Samsung's L8-1-1 closed 80K/month (8.5 generation line, large glass substrate) production capacity in 19Q3, Samsung's L8-2 -1 (G8.5 line, large glass substrate) will close 35K/month production capacity in 19Q3, and Samsung’s L8 and L7 production lines are expected to close after 2021Q1. LGD's P7 (7.5 generation line, large glass substrate 1950*2250mm) company closed 50K/month of production capacity in 19Q4 and will continue to close 75K/month of production capacity in 2020. LGD's P8 (8.5 generation line, large glass substrate 2200*2500mm) company closed 140K of production capacity in 19Q4, leaving 100K of production capacity. It is expected that LGD's P7 and P8 production lines will each retain 100K/month of production capacity until the end of 2021.

In terms of supply-side production capacity increase: except for BOE's 10.5-generation line in Wuhan and Huike's 8.6-generation line in Mianyang, which have new production capacity contributions, the other production lines have limited capacity growth.

In the competitive landscape, concentration has increased, and manufacturers’ profits have increased

Domestic integration is coming to an end: In November 2020, BOE acquired 80.83% of Nanjing CEC Panda Display Technology Co., Ltd. through equity transfer, and in December it acquired Chengdu CEC through a capital increase. 35.03% equity of Panda Display Technology Co., Ltd.; in April 2021, TCL Technology purchased 60% equity of Suzhou Samsung Electronics Liquid Crystal Display Technology Co., Ltd. and 100% equity of Suzhou Samsung Display Co., Ltd.

Concentration has increased, with BOE + CSOT expected to have a share of 44% in 2021: It is expected that after BOE and CSOT (TCL Technology) complete their mergers and acquisitions, domestic mergers and acquisitions will come to an end. Among the panel manufacturers, only BOE, China Star Optoelectronics and Huike are the main ones. After the completion of the delivery in 2021, the market share of BOE + China Star will reach 44%, and LG and Samsung will withdraw from the LCD panel market. In the long term, after the integration is completed, panel prices will return to stability, the cyclical nature of panels will weaken, and the LCD panel industry will enter an era where yield comes first and management is prioritized. It is recommended to pay attention to panel manufacturers such as TCL Technology.

Technology upgrade, Mini introduced into the market

The modular nature of Micro LED technology makes the screen size more flexible, allowing users to customize their selections according to the size of the room or display space. Considering that it will take some time for Micro LED to be commercialized, Mini LED, which is relatively less difficult, is on the way: on the one hand, it is to cope with the impact of OLED and improve the contrast of display products; on the other hand, downstream brand manufacturers hope to combine contrast and The upgrade of product resolution serves as an important selling point and increases the added value of the product.

Mini LED surpasses OLED in terms of reliability, brightness, energy saving, durability, etc., especially in terms of product life, far surpassing OLED. In terms of cost, when OLED panel size is enlarged, the production yield will drop significantly, causing the price of large-size OLED to remain high. However, Mini LED can be arbitrarily enlarged in size through splicing without yield problems. Therefore, Mini LED is more competitive than OLED in terms of cost for medium and large-sized (>10”) display products such as tablets, laptops, TVs, etc., and has great potential for cost reduction when entering the mass production stage in the future.

4. Consumer Electronics: Starting from 5G mobile phones, focus on leaders in subdivisions

Smart phone shipments are slowing down & concentration is increasing, waiting for the 5G replacement wave

Smart phone shipments have slowed down & concentration has increased: From 2009 to 2012, feature phones transformed into smart phones, and the penetration rate of smart phones gradually increased, driving the growth of mobile phones. Overall sales volume; from 2013 to 2016, the appearance and hardware of smartphones were upgraded, and innovative upgrades of mobile phones led to a new round of growth; from 2016 to the present, the growth of smartphones has been sluggish, and global smartphone shipments in 2019 were 13.71 billion units, down 2.25% from the same period last year. Brand concentration continues to increase: the market share of the top six brand manufacturers such as Apple, Huawei, OPPO, VIVO, and Xiaomi continues to increase, from 67% in 2018 to 70% in 2020.

Pay attention to the structural opportunities brought by 5G: From the perspective of competition, looking at the entire consumer electronics upstream and downstream industry chain, important parts manufacturers including chips have strong competitiveness. Bargaining power. The bargaining power of ordinary parts and assembly manufacturers is weak. It is recommended to focus on brand companies with complete channels and facing C-end users and the growth opportunities in segmented fields brought by 5G.

RF for consumer electronics: typical mobile phone wireless communication system architecture

Communication performance has become an important indicator to measure a mobile phone: the communication industry has experienced gradual iterations from 2G to 3G, and then from 3G to 4G. The development of more frequency bands and the introduction of new technologies have made high-speed networks popular, and mobile phones have also transformed from feature phones for text messages to more diverse smart terminals. As the core component, the radio frequency front end (RFFE) plays an even more important role. Including power amplifier (PA), antenna switch (Switch), filter (Filter), duplexer (Duplexer and Diplexer) and low noise amplifier (LNA), etc., which directly affect the signal transmission and reception of mobile phones.

Among the common mobile phones in China, there are 4 commonly used 2G frequency bands, 3-5 frequency bands in the 3G frequency band, and 9-20 frequency bands in the 4G frequency band (and 43 frequency bands Among them, FDD obtained a total of 20 frequency bands and TDD obtained a total of 11 frequency bands). In the future, with the increasing number of mobile phone users and the application of 5G, the use of frequency bands will further increase.

Consumer electronics cameras | CIS pixel upgrade

Smartphone pixels are constantly improving: The pixels of flagship models are constantly being upgraded. Taking Huawei as an example, the main rear camera has gradually increased from 20 million to 40 million or even 50 million. The front lens has also been gradually upgraded from 8 million to 32 million.

48 million pixels are enough to meet the 4K display level of display devices: even if the current display device reaches the 4K level (3840*2160 or 4096*2160), it will only have less than 9 million pixels. 48 million pixels can output 12 million pixels even under low light conditions. Therefore, 48 million pixels based on 0.8μm pixels can fully meet the 4K display level.

5. Risk warning

1) The spread of the epidemic exceeds expectations: If the epidemic spreads beyond expectations in the future, it will have a greater impact on the resumption of work of some companies and will have a certain impact on companies in the industrial chain;

2) The progress of 5G is not as expected: 5G is a hot spot in the future development of the communication industry. Although communication equipment manufacturers and telecom operators have already begun to lay out the next generation of communication technology, they are also in an orderly manner at this stage. Advance, but the specific time for full commercialization of 5G in the future has not yet been determined, and there may be risks that are not as good as expected in the future;

3) Macroeconomic fluctuation risk: If global economic growth slows down or even stagnates in the future due to the epidemic or other factors, market demand will inevitably slow down or even shrink. Global consumer electronics demand has declined, and the recovery of the semiconductor industry may not be as expected;

4) Product technology update risks: The electronics industry’s product technology is rapidly upgraded, with new technologies and new processes emerging one after another. If the company cannot continue to update products with market competitiveness, it will weaken the company's competitive advantage;