Zhitong Financial APP learned that Great Wall Securities released a research report saying that the inventory adjustment of the electronics industry is gradually in place, and the demand side is gradually picking up as a whole. Among them, boosted by AI hardware innovation, the demand for consumer electronics is expected to take the lead in recovery, and Huawei's return has gradually driven the overall demand for smartphones to gradually recover, and the performance of the peak season of consumer electronics in the fourth quarter is worth looking forward to. The demand for automotive electronics is expected to recover, the momentum for cost reduction continues to strengthen, the prosperity of the semiconductor industry is picking up, the utilization rate of wafer foundry continues to increase, and the expansion of advanced packaging and AI demand are driven, and glass-based substrates are expected to usher in a good opportunity for industrial introduction.

The main views of Great Wall Securities are as follows:

The

recovery trend of the electronics industry is obvious, and the revenue and profitability of 24Q3 have grown steadily year-on-year.

24Q3 Shenwan electronic sector revenue was 915.018 billion yuan, +19.10% year-on-year and +14.28% month-on-month; The net profit attributable to the parent company was 40.228 billion yuan, +20.90% year-on-year and +12.62% month-on-month. The top 3 sectors in Q3 revenue growth rate are consumer electronics components and assembly (QoQ+23.92%), printed circuit boards (QoQ+11.65%), and discrete devices (QoQ+8.97%); The top 3 sectors in Q3 net profit attributable to the parent company in terms of month-on-month growth rate were consumer electronics components and assembly (QoQ +39.07%), discrete devices (QoQ +34.01%), and printed circuit boards (QoQ +8.80%).

ODM/OEM: The demand continued to recover in the peak season, driving the revenue of the foundry industry chain to improve significantly compared with the previous month.

Benefiting from the increase in demand for consumer electronics in the peak season and the release of new terminal products, the overall revenue performance of ODM manufacturers in 24Q3 improved significantly year-on-year. In the first three quarters of 2024, Luxshare Precision's revenue grew steadily, mainly due to the increase in demand for consumer electronics in the peak season, the steady growth of traditional products such as computer peripherals, the obvious momentum brought by the release of new products from customer A, and the new additions brought by Qorvo and Cosmo related entities of the company's epitaxial mergers and acquisitions.

Huaqin Technology's Q3 revenue increased year-on-year, mainly due to the upward resonance of multiple business lines, especially the high growth rate of servers, high-speed network switches, AIoT and other businesses, in addition, smartphones, wearable devices and other categories also maintained a good growth momentum. Wingtech Technology's net profit attributable to the parent company in 24Q3 turned losses into profits month-on-month, mainly benefiting from the significant quarter-on-quarter reduction in net profit of product integration business in Q3. In 24Q3, Longcheer Technology's revenue nearly doubled year-on-year, mainly due to the continuous growth of various segments. Goertek's revenue grew steadily in 24Q3, and the bank judged that it was mainly due to the release of new headsets by the company's AR/VR major customers and the release of new headphones by customers A in the third quarter, and the company's new product stocking drove revenue growth.

PCB: Industry demand continued to pick up, and the peak season effect drove the overall revenue growth.

AI technological innovation and market demand recovery jointly drive the recovery of the current round of PCB industry cycle, and AI servers and automotive electronics are the main engines driving the demand for high-end PCB products. Thanks to the recovery of industry demand and the two-wheel drive of AI technology revolution, the PCB industry maintained a recovery trend in the first three quarters of 2024, entering the traditional peak season in the second half of 2024. Earnings declined in some companies due to higher costs in product and line adjustments, as well as fluctuations in raw material prices and exchange rates.

Storage: The storage market has stabilized, with strong demand for large capacity in the second half of the year.

Since the beginning of this year, global technology companies have started a wave of AI construction, and the demand for high-capacity and high-performance storage products has surged. In the second half of the year, the capital expenditure of North American Internet manufacturers continued to increase month-on-month, and the demand for large-capacity QLCSSD, DDR5 and HBM products remained strong. As of September 30, 2024, the DRAM index is 554.78 and the NAND index is 694.15. In addition to the still-buoyant demand for AI and servers, the rest of the market, including mobile phones, PCs and consumer electronics, is expected to be similar to Q3 due to the seasonal off-season.

IC design: digital chips maintained year-on-year growth, and analog chip profits were under pressure year-on-year.

In 24Q3, the digital chip design sector improved year-on-year, and the analog design chip sector was under pressure year-on-year. In the digital chip design sector, with the recovery of downstream terminal demand such as smartphones, the market size of the global CIS industry will show a steady growth trend. In the analog chip design sector, the industry is still continuing to adjust inventory, and China's electric vehicles are developing strongly.

Panels: The LCD terminal market has picked up, and the overall profitability of panel factories has improved year-on-year.

According to the data of consulting agencies, in 2024, LCDTV panel prices have risen across the board since February, turned down in July, and stabilized in October. In the first three quarters of 2024, BOE, a major panel manufacturer, has recovered in the LCD terminal market, and TV products have been affected by the "trade-in" policy, and the market demand has been boosted, and the trend of large-size products has continued; The sales of IT products increased year-on-year, driven by the demand for e-sports and the "trade-in" policy. The smartphone terminal market is gradually recovering. BOE benefited from the recovery of LCD end market demand and the optimization of product structure, and the company's profit in the first three quarters improved significantly year-on-year.

TCL Huaxing also said,Under the influence of seasonal fluctuations in downstream stocking demand,TV panel prices rose moderately in the first half of the year,Fell slightly since the third quarter,It is currently flat; Benefiting from the innovation of hardware products and the demand for replacement, small and medium-sized panel products maintained a narrow range after structural price increases. Benefiting from the increase in the prices of major products compared with the same period last year, TCL Huaxing's operating performance improved significantly year-on-year.

In addition, Shenzhen Tianma said that in the first three quarters of 2024, with the continuous improvement of product specifications, the continuous optimization of product structure, and the continuous promotion of extreme cost reduction, the company's overall gross profit margin has maintained an increase month-on-month, among which the profit of the flexible AMOLED smartphone display business, which has a greater impact on profits, has improved better than the previous quarter, and the TM17 flexible AMOLED mobile phone display business has achieved a positive single-quarter gross profit in Q3. In addition, the scale development and value enhancement of the company's automotive business have also led to the further expansion of the profit scale of the automotive display business. On this basis, the company's net profit attributable to shareholders of listed companies in Q3 turned around in a single quarter. Looking forward to 2025, the recovery of consumer demand is expected to drive panel prices to stop falling and stabilize, and the gradual increase in OLED penetration rate is expected to drive the performance of domestic panel factories to improve.

Semiconductor foundry: AI drives strong demand for advanced processes, and the consumer electronics field drives the industry to stabilize and recover.

In the third quarter of 2024, global silicon wafer shipments continued the upward trend that began in the second quarter of this year. Inventory levels across the supply chain have been reduced but remain relatively high. Specifically, demand for advanced silicon wafers for AI applications continues to be strong. In contrast, the demand for silicon wafers in automotive electronics and industrial applications is still weak, while the demand for silicon wafers for mobile phones and other consumer electronics products is showing some signs of recovery. TSMC said at a recent conference that there is strong demand for TSMC's 3nm and 5nm smartphones and artificial intelligence-related technologies.

In 24Q3, the semiconductor market benefited from some consumer electronics and other fields, driven by the signs of stabilization and recovery, and the performance of mainland manufacturers, SMIC, Huahong, Jinghe Integration, and Xinlian Integration all showed varying degrees of recovery. In 24Q3, SMIC further optimized its product structure, improving ASP, overall capacity utilization, and gross profit margin. Huahong's revenue and gross profit margin are better than the guidance, the capacity utilization rate has also reached full production in all directions, the demand for consumer electronics and some emerging applications is improving, and the improvement of demand for power semiconductors remains to be seen; Since March this year, the production capacity of Jinghe Integration has continued to be at full capacity, and the OEM prices of some products have been raised, and the company's revenue and product gross profit have steadily increased; Benefiting from the recovery of new energy vehicles and the consumer market, the company's new products such as SiC and 12-inch silicon-based wafers have been rapidly introduced and mass-produced by leading customers, promoting the steady growth of the company's performance.

Semiconductor packaging and testing: The market demand for end applications is differentiated, and advanced packaging leads the performance growth.

In the first three quarters of 2024, the explosion of AI demand will drive a rapid rebound in demand for logic and high-end storage, and the market demand in the fields of communications and consumer electronics will recover significantly. The demand in the automotive and industrial sectors was weak in 24H1, and the demand in 24Q3 showed a recovery trend, and the demand in the packaging and testing industry was mainly driven by advanced packaging. In the first three quarters of 2024, driven by the application trend of the downstream market of memory, artificial intelligence and high-performance computing, the three giants of mainland packaging and testing, Changdian Technology, Tongfu Microelectronics, and Huatian Technology have frequent performance highlights. In addition, there is still a gap in advanced packaging capacity, and TSMC said at a recent legal conference that CoWoS advanced packaging capacity continues to be tight. Manufacturers such as Tongfu Microelectronics, Huatian Technology, and Yongsi Electronics have successively announced that they will invest resources in advanced packaging-related technologies and expand production capacity, and related projects point to AI applications such as high-performance storage and high-performance computing.

The

demand for advanced packaging technology products is expected to maintain a rapid growth trend in the next few years, and packaging and testing manufacturers are expected to benefit from the gap in advanced packaging capacity demand, thereby achieving long-term performance growth.

Power semiconductors: Benefiting from the recovery of downstream demand, the overall revenue grew steadily.

In the context of economic recovery, the prosperity of the downstream industry is rising, the demand for power semiconductors is growing, the production capacity of major wafer foundries is close to full load, the product prices of some power semiconductor companies are raised, the inventory continues to be optimized, the overall revenue is growing steadily, and the performance of the profit side is differentiated. In Q3 of 2024, the performance of the four major power semiconductor market segments, Silan Microelectronics, Xinjie Energy, Yangjie Technology, and Jiejie Microelectronics, all showed a year-on-year upward trend.

Benefiting from the gradual recovery of the downstream market, the demand for emerging application fields has increased significantly, the inventory digestion has accelerated, and the sales of new clean energy have continued to improve, which in turn has promoted the steady growth of performance. Thanks to the gradual improvement of the semiconductor market demand, the gradual recovery of consumer electronics and industrial market demand, and the rapid growth of the automotive electronics business, Yangjie Technology's performance in the first three quarters of 2024 has also achieved steady growth. In the first three quarters of 2024, affected by factors such as cyclical adjustment of the industry and increased R&D investment, the net profit of CR Micro declined year-on-year.

Market review: Valuations are in high range.

From the beginning of 2024 to November 8, the Shanghai Composite Index has risen by 16.05%, the Shenzhen Component Index has risen by 17.19%, the CSI 300 Index has risen by 19.61%, and the Shenwan Electronic Sector has risen by 24.29%. The electronic sector index PE-TTM (excluding negative values) is 47.92, and the valuation is in the continuous recovery range. From the beginning of 2024 to November 8, the top five sub-industries with the highest increase were semiconductor equipment (46.94%), printed circuit boards (38.43%), optical components (36.72%), integrated circuit packaging and testing (33.25%), and digital chip design (32.23%), and the top two decliners were brand consumer electronics (-4.94%) and analog chip design (-0.99%).

Investment advice

Recommend Huaqin Technology (603296.SH), Yunzuka Technology (688260.SH), Nanxin Technology (688484.SH), Yongsi Electronics (688362.SH), Guanghong Technology (300735.SZ), Smartway-W (688213.SH), Geke Micro (688728.SH), Xingrui Technology (002937.SZ), Zhongjing Technology (003026.SZ), Crystal Integration (688249.SH), Huahong Company (688347.SH), Jingfeng Mingyuan (688368.SH), Voge Optoelectronics (603773.SH).

Risk warning: market volatility risk, intensified market competition, AI progress is less than expected, and Sino-US friction intensifies.