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Here comes the big price increase cycle! Who has the largest increase in components worldwide?

1.Large cycle of component prices: 19H2 reversed into a new round of price increases

From a long-term perspective, the electronics industry exhibits a cyclical pattern. The price of the general-purpose component products with a higher standard is significant. The demand cycle, production capacity cycle, and inventory cycle of a product determine the price cycle. In the last round of the price boom of 16-17 years, global Memory, LCD, Wafer, CCL, MLCC, LED chips, etc. all rose simultaneously. During the price increase cycle, companies in the industry showed great profit flexibility. After undergoing a continuous downward cycle of industry prices in 18-19 years, 19H2 is expected to enter a new cycle of price reversal, which is optimistic about the future price rise trend under the background of 5G / IOT / electric vehicle supply chain demand growth and low inventory levels.

2. The epidemic expanded the industry supply and demand gap, strengthened the logic of price increases, and closely followed the progress of Japan and South Korea's supply chain.

We analyze the impact of the epidemic on the supply and demand of the global electronics industry, and believe that the degree of supply contraction is greater than the decline in demand:

(1) On the supply side, the mainland is a global manufacturing base, and the production capacity of representative industries in the mainland accounts for about 50% of the world ’s total production capacity. During the Spring Festival, the operating rate was low. Under the epidemic situation, the official resumption time was delayed, resumption approval and employee isolation requirements, and upstream materials Bottlenecks and international logistics restrictions have led to significant short-term industry capacity shrinkage;

(2) On the demand side, it is estimated that the mainland accounts for about 20% of the world's total. Demand for domestic consumer terminal products is relatively affected in the short term, but we believe that there will be a delayed release effect of demand, and the supply chain of servers, 5G base stations, and electric vehicles will remain. Higher prosperity

(3) Focus on Japan and South Korea: At this stage we need to pay close attention to the impact of the epidemic on Japan and South Korea's electronics supply chain. Japan is a country of all-electronic materials and passive components, South Korea is a country of global memory and FPD production capacity. The impact may have a greater impact on the global electronics manufacturing supply.

3. Optimistic about panel, memory chip, MLCC, power chip, CCL, crystal, silicon chip, LED chip, etc., the structural opportunity of electric vehicle / 5G / IOT / server is more clear

Judging from the industry price tracking and the trend of the gross profit margin of representative listed companies, we judge that the panel, storage chip, MLCC, etc. are currently in the upward price channel, and the inflection point of power chip, CCL, crystal oscillator, silicon wafer and other products is expected to advance. Taking into account the structural supply and demand situation, we believe that the industry or segmented product opportunities with higher supply chain demand, such as electric vehicles, servers, IoT wearables, and 5G base stations, have clearer opportunities.

The following is the full text

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Large cycle of component price increases: It is expected to replicate 16-17 years, and 19H2 will enter a new cycle of reversal

1.1. Electronic Industry Cyclism: Taking Global Semiconductor as an Example

From a long-term perspective, the global electronics industry has a cyclical pattern. The main affected variables are: (1) global macroeconomic prosperity and fluctuations, (2) downstream electronic terminal product demand prosperity, and (3) global major production capacity expansion progress. (4) Quarterly short-term monthly upstream and downstream finished products, raw materials, and channel inventory. The prosperity of the global semiconductor industry is representative of the global electronics industry. As can be seen from the graph of global semiconductor sales over the years, the electronics industry has shown a clear cycle. Since 2000, the boom cycle mainly includes: (1) US IT around 2000 The bubble, (2) 2003-2005, mobile phone and LCD TV volume, (3) 2010, recovery after the global economic crisis, (4) 2012-2014, high growth rate of smartphones, (5) 2016-2017, Peak smartphone replacement & high growth rate of automotive electronics.

As shown in the figure below, an industry cycle is divided into four phases, which are constantly cyclical. The electronics industry has its own specific periodicity. The reason behind this is the resonance of factors such as demand, supply, inventory, and prices. The electronics industry includes components, modules, and foundry services. Among them, the standard component industries mainly have price cycle rules, such as memory chips and TV panels. The prices of such industries have periodic attributes. We believe that Compared with the decrease or increase in capacity / production / shipment volume / order volume, product prices have a greater impact on the profitability of companies in the industry.
1.2. Component price cycle resumes: 16-17 year boom

Among the electronic components, the sub-sectors with relatively strong price cycle rules in the industry include storage ICs, TV LCD panels, MLCCs, LED chips, copper clad CCL, etc. These products have a high degree of standardization and the supply chain is international. For the global price system, we select representative industries to review the reasons for the price increase, the price increase products, and the price increase range of the 16-17 year boom cycle.

1.2.1. Case 1- Panel: Incremental demand for OLED, supply-side production capacity withdrawn, price increase by more than 30%

The panel price cycle depends on the capacity cycle plus the inventory cycle. In the long run, the demand for downstream LCD TVs is stable, and the demand for panel area is growing steadily. We believe that the supply-side capacity cycle determines the change in the supply-demand relationship, which in turn determines the long-term price change, and the inventory cycle affects product prices in the quarter.

2016H1-2017H1 is the stage of price increase. The tight supply side has pushed up prices. In 2016, SDC closed part of its G7 production line and switched to OLED production. In preparation for the launch of the iPhone X, Hon Hai reduced its shipment of Samsung TV panels after the acquisition of Sharp, adding fewer new capacity during the year, which caused a tight supply side. Panel prices began a round of price increases. Representative products have 32-inch panels. From the lowest USD 52 / piece all the way up to USD 74 / piece and maintained at a high level for a long time, the industry as a whole maintained a high prosperity.

In the upward price cycle, the performance of high-quality companies is highly elastic. Taking domestic leading BOE and South Korean LGD companies as examples, in the last round of price increases, BOE's operating income began to accelerate in 2016Q2, and net profit attributable to non-returning mothers bottomed out and rebounded in 16Q3. The revenue growth rate remained above 40%, and the non-net profit deducted in the quarter exceeded RMB 1.5 billion. LG Display's quarterly revenue continued to grow within a year of 16Q4-17Q3, and its net profit turned losses and maintained at a high level.


2017H2-2019H2, the mainland capacity release cycle, oversupply has caused prices to continue to fall. 2017H2 began to release new production capacity in the mainland, and BOE, TCL Huaxing and other mainland manufacturers continued to invest in high-generation production lines. The overall industry capacity was oversupply and oversupply, and product prices entered a long-term downward cycle.


The industry bottomed out in Q4 2019 and the bottom reversal started in 2020. In 2019Q4, various indicators of the industry bottomed out. The gross profit margin and net profit margin of the companies in the industry fell back to the low point of the previous cycle, the backward production capacity was cleared, and the price stabilized. The price of the representative product 55-inch LCD TV panel began to rise in 2020M1, and the bottom reversal started.

1.2.2. Case 2-Memory chips: DRAM, NAND, Nor all work together, demand is leading, the increase is up to 150%

Looking back at the previous round of price increases, due to strong demand from downstream companies, prices of various types of DRAM memory began to increase in mid-2016 and continued until early 2018. Among them, DRAM: DDR3 4GB 512Mx8 1600MHz has the largest increase, exceeding 150%.


We combed the changes in the profitability of representative companies such as Micron and Taiwan Wanghong in different price cycles. We can see that there is a significant synchronization between the gross profit margin and product prices in the single quarter. After the price bottomed in 19 years, demand from downstream companies increased. The prices of DRAM and NAND Flash rose in 19H2. The leading companies in the memory chip industry Micron Technology and Wanghong showed signs of revenue reversal in the last two quarters. The gross profit margin is expected to continue to increase in 2020.

1.2.3. Case 3-CCL: Strong demand for new energy and large capacity gap

As a substrate material in PCB manufacturing, CCL is widely used with the development of PCB technology. The demand for CCL varies with PCB demand and is cyclical. CCL has no public price data. We can see from the quarterly financial data of the company on behalf of the industry that 16-17 is an upward cycle of CCL. The company ’s gross profit margin has increased significantly. .

The reason for the last round of CCL price increase was mainly due to the shortage of raw materials, and the high-end demand downstream of electric vehicles was driven significantly. Shengyi Technology is the industry leader of CCL and ranks high in the global copper laminate industry. In March 2017, the company's gross profit margin and net profit margin both reached their then highs, 25.0% and 12.2%, respectively. Between 2016 and 2017, the gross profit margin and net profit margin were in an upward phase.

Kingboard Laminate is a company that produces copper-clad panels, including epoxy glass fiber copper-clad panels, paper copper-clad panels, and CEM copper-clad panels, and is the industry leader in CCL. Starting from the end of 2015 and the beginning of 2016, the company's gross and net profit margins began to rise, and reached historical highs in mid-2017 and end-2016, respectively, 31.70% and 28.02%.



CCL price fluctuations are cyclical. After bottoming out in 2016, we ushered in a price increase cycle in 2017. At the same time, it can be seen that the changes in the gross profit margin and net profit margin of industry leaders Shengyi Technology and Kingboard Laminates and the CCL price fluctuate synchronously, which means that the price of the company's main products has a positive correlation with the company's profitability.

1.3. Since 19H2: Enter a new cycle of reversal, bringing opportunities for cyclical growth stocks

From the quarterly data of representative listed companies in various sub-sectors, we can see that around 16-17Q3 is the overall upward price channel of the electronic component industry. At the same time, most industries began to gradually decline after the profit level peaked at the end of 17 or early 18, we believe that the main The reasons are: (1) the gradual release of production capacity in the second half of 17 on the supply side, and (2) the downturn in the downstream demand of the global electronics industry in 18-19. From the industry price data and the quarterly profitability indicators of listed companies, we judge that the overall price of the electronic component industry has entered a reversal cycle in 19H2. The main characteristics are as follows: (1) Product prices have fallen significantly in 18-19 years, and companies in the industry have systematically appeared. (2) The 19Q3 gross profit margin of companies in the industry narrowed, and even the gross profit rate rose, and the absolute value of some companies' gross profit margins was close to the bottom level of the previous round of industry; (3) some products began to appear in Q4. Price, such as MLCC, LCD and memory chips.
In terms of specific companies, the giant's gross profit margin dropped from 32.58% in 19Q2 to 30.96% in 19Q3; the gross profit margin of Jinan Guoji fell from 20.51% in 19Q2 to 16.24% in 19Q3; the gross margin of Rich Electronics increased from 21.96% in 19Q2 to 19Q3 The gross profit margin of Innolux decreased from 3.71% in 19Q2 to 1.86% in 19Q3. In 19Q4, there was an extreme case of negative gross profit margin.

We judge that after 2019H2, the global electronic components as a whole have entered the bottom and reversal stages. According to the supply and demand pattern and competition structure of different industries, some industries are the first to enter the upward price cycle, such as MLCC, LCD and memory chips (especially Memory chips), the current price of some industries has bottomed out and is in the final stage of destocking.

2 The epidemic intensifies the gap between supply and demand, strengthens the logic of price increases, and makes structural opportunities more clear

2.1. Measurement of the impact of the epidemic on demand and supply: the impact of supply is greater

As a country with a large population, China is a country with a large demand from the electronics industry. We estimate that the proportion of the global downstream demand for electronic terminals, the mainland can be estimated according to about 20% -25%: Representative electronic products smartphones and PCs, according to From 2017 to 2019, the domestic mobile phone and PC shipments accounted for the proportion of global shipments. In 18 years, mainland PC shipments accounted for 20% of the global shipments and PCs accounted for 27.95%.

As a large manufacturing country in the world, in addition to having many local electronics manufacturing companies, China is an important production base for many multinational manufacturing companies. It is estimated that China's supply in the entire electronics industry accounts for more than 50%. Taking the PCB and LCD panel industry capacity as For example, in 2018, mainland PCB production capacity accounted for more than 51% of the world's total, and in 2017, mainland LCD production capacity accounted for more than 46%.

Affected by the epidemic, the provincial and municipal governments have successively issued notices requiring enterprises to postpone the resumption of work. Except for Hubei Province, an important epidemic area, which requires companies to resume work no earlier than 24:00 on February 20, other provinces and cities have resumed work in an orderly manner. Compared with the situation in which the previous year's production capacity can be restored on the eighth day of the previous month, the domestic industrial enterprises' start of work in 2020 will be delayed by at least one week.

In addition, the requirement that foreign employees need to be quarantined for 14 days before resuming work has also affected the company's ability to recover. Since the outbreak in January, many cities have introduced measures to limit the movement of people due to prevention and control requirements. By sorting out the relevant policies of each city, we have summarized several constraints for return workers to return to work:

First, employees in high-incidence areas (such as Hubei Province) have suspended their return to work; employees with fever and respiratory symptoms must not return to work and be quarantined on-site.

Second, returnees from other provinces and those who have been exposed to cases of fever and respiratory symptoms in the province are quarantined for 14 days, and real-time health records of returnees are established. Some cities require a government health certificate before they can go to work.

Third, review and investigate employee information to understand the health status of returnees and returnees, where the Spring Festival is going, party conditions, return time and transportation methods. After confirming that there is no problem, you can return to work.

Fourth, newly recruited personnel, transferred personnel, and returning workers on vacation need to receive safety training and education before returning to work.

Fifth, many cities have strictly implemented closed management of communities (villages), and some cities still have a one-size-fits-all persuasion to cut off external traffic and foreign vehicles and personnel. This makes some return workers unable to return to their original residential quarters (villages) and work units.

From the perspective of the return of migrant workers to major provinces, the scale of Beijing, Shanghai, Guangdong, and Jiangsu after the festival accounted for only 10% to 30% of the same period last year, and the scale of Shanghai and Guangdong after the festival this year was relatively high It was basically more than 20% of the lunar calendar last year, while Jiangsu was relatively low, only about 10% of last year.

Judging from the Spring Festival move out of Henan and Anhui provinces, the scale of the post-holiday move out is mostly lower than 20% of the same period last year.

Judging from the passenger flow of returning workers across the country, the current rate of resumption of work and production is only
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