2021 results in line with our expectations

Sino Wealth Electronic announced 2021 results: Revenue grew 47.6% YoY to Rmb1.49bn; attributable net profit and recurring net profit rose 77.0% and 88.4% YoY to Rmb371mn and Rmb361mn, implying a diluted EPS of Rmb1.19. The firm’s 2021 results are in line with our expectations. The firm projects that 1Q22 earnings will improve and attributable net profit will increase 50-65% YoY to Rmb101-112mn, implying an EPS of Rmb0.33-0.36, mainly thanks to increased revenue driven by the firm’s rising capacity.

Trends to watch

Steady sales growth; overall gross margin （GM） improved. We believe the impacts on the firm’s revenue from the tight supply chain in the global semiconductor market in 2021 are twofold. Firstly, the firm managed to pass on the cost pressure of rising chip prices caused by the supply shortage to downstream clients through price increases thanks to their growing demand. Secondly, capacity shortage for upstream wafers also weighed on the firm’s sales growth, especially that of home appliance chips. Overall, the firm’s sales maintained steady growth, with 2021 GM of main businesses up 6.86ppt YoY to 47.41% and earnings growth outpacing sales.

Fastest-growing AMOLED display driver chips to unleash growth potential. The firm’s new product for cellphone displays （FHD+ AMOLED display driver chip）， has been used by multiple display panel manufacturers for mass production. Moreover, its wearable chip product also hit the brand market. In March 2022, the firm’s AMOLED display driver chips intended for cellphones finished tape-out and is currently undergoing internal validation. Overall, we believe AMOLED enjoys strong growth potential on the back of visible growth in the demand for cellphone displays.

Sales of lithium-ion batteries （LIB） management chips strong; R&D of automotive MCU underway. The firm’s revenue from LIB management chips intended for power batteries continued to maintain rapid growth, thanks to the development of LIBs used in electric bicycles meeting new national standards and the energy storage market. Meanwhile, the firm’s LIB management chips have been mass-produced for many domestic cellphones and TWS earbud brands, and those used in laptop batteries are in the stage of market share expansion as a result of import substitution. Further, the firm accelerated R&D of automotive electronics products and its first automotive MCU intended for body control project is underway according to its 2021 annual report.

Financials and valuation

We maintain our 2022 earnings forecasts and introduce 2023 forecasts. We project 2022 and 2023 revenue will grow 55.7% and 22.3% YoY to Rmb2.33bn and Rmb2.84bn, and 2022 and 2023 attributable net profit will increase 34.1% and 26.6% YoY to Rmb497mn and Rmb630mn. The stock is trading at 37.5x 2022e and 29.6x 2023e P/E. We maintain our TP at Rmb72.76, offering 21.3% upside. Maintain OUTPERFORM.

Risks

Demand for smartphones and/or efforts to attract laptop clients disappoint; tighter supply of upstream wafers.