MONTAGE TECHNOLOGY(688008)：AN IMPRESSIVE 3Q ON RAPID GROWTH IN DDR5 INTERCONNECT CHIPS

机构：中信证券
研究员：XU Tao/WANG Ziyuan

Montage Technology expects to record operating revenue/attributable net profit (ANP) growth of 80.88%/94.94% YoY in 1-3Q22, driven by the rise in both the volume and price of the memory interface chip business that benefits from a new Double Data Rate 5 (DDR5) product cycle and gradual top-line contributions of incremental business: supporting chips for memory module and PCIe Retimer chips. Meanwhile, the Company continues to expand the product category and has made smooth and industry-leading progress in Memory eXpander Controller (MXC) chips, clock driver (CKD) chips, and register clock driver (RCD)/data buffer (DB) chips for multiplexer combined ranks (MCR), opening up long-term room for growth. We maintain our 2022E/23E/24E net profit forecast of Rmb1.436bn/2.014bn/2.665bn and reiterate the “BUY” rating.
Estimated cumulative revenue/ANP growth of 80.88%/94.94% YoY in 1-3Q22.
Based on preliminary estimates, Montage expects to achieve cumulative operating revenue of Rmb2,881mn (+80.88% YoY), ANP of Rmb999mn (+94.94% YoY), and ex-one-off ANP of Rmb766mn (+112.39% YoY) in 1-3Q22. The Company’s share-based payment expense in 1-3Q22 was Rmb111mn, and dragged down the ANP by Rmb96mn. After excluding the impact of share-based payment expenses, the ANP and ex-one-off ANP would be Rmb1,095mn and Rmb862mn (+77.80%/+85.76% YoY), respectively.
Benefiting from the continuous shipment of DDR5 memory interface chips and supporting chips for memory modules, Montage’s operating revenue from interconnect chips reached a record high in 3Q22, and the Jintide CPU business continued contributing to the top-line.
Estimated quarterly revenue/ANP growth of 10.13%/55.88% YoY in 3Q22.
Montage expects to record operating revenue of Rmb957mn (+10.13% YoY, -6.82% QoQ), and ANP of Rmb318mn (+55.88% YoY, -15.2% QoQ) in 3Q22.
The share-based payment expenses in 1Q/2Q/3Q were Rmb30mn/36mn/ 45mn, and the impact on ANP was Rmb25mn/32mn/39mn, respectively.
Excluding the share-based payment expense, the Company’s quarterly ANP would be Rmb331mn/407mn/357mn, and ex-one-off ANP would be Rmb256mn/294mn/312mn.
Interconnect chips:
Shipment of DDR5 memory interface chips and memory module supporting chips continued, with new products progressing smoothly.
The Company predicts operating revenue of Rmb1.952bn (+74.91% YoY) from the interconnect chip segment in 1-3Q22, including quarterly operating revenue of Rmb575mn/662mn/716mn (+76.22% YoY, +14.20% QoQ for 3Q22).
Memory interface and modules supporting chips: Memory interface chips are the traditional advantageous main business of Montage, with our estimated market share of 40% in 2021, and module supporting chips are the incremental business in the DDR5 era. In 4Q21, the Company achieved mass production of DDR5 memory interface chips and module supporting chips. We estimate that the Company’s DDR5 accounted for about 10%-15% of RCD chips in 2Q22, with steady sequential improvements in 3Q22. Meanwhile, since the mainstream desktop server CPU, which supports DDR5, has been launched, we believe that the penetration rate of DDR5 module supporting chips-matching both servers and PCs-is higher than that of memory interface chips, and the demand for the Company’s memory module supporting chips is booming throughout the year. In May 2022, Montage took the lead in the trial production of the second generation of DDR5 RCD chips in the industry, and is currently working on product quality and customer certification. The Company expects to complete the R&D of the mass-produced version in 2H22. Meanwhile, Montage is carrying out the R&D of the third generation of DDR5 memory interface chips. Looking ahead, we believe that Montage is likely to maintain the industry-leading position in memory interface chips, and to raise the average selling price (ASP) and gross profit margin (GPM) with DDR5’s subsequent penetration in the server market.
Retimer chips: Montage is the only Chinese mainland manufacturer of PCle 4.0 chips, which made a breakthrough and generated Rmb12.2mn operating revenue in 2021. The Company started the R&D of PCIe 5.0 in 1H22 and plans to finish tape-out in 2H22, well-poised to become the first supplier in the Chinese mainland.
Category expansion: Montage leads the exploration of new interconnect products, opening up room for long-term growth. It launched the R&D of three main new interconnect chips this year and formulated an equity incentive plan for it, which is progressing smoothly. 1) MXC chips: In 1H22, Montage launched the first global CXLTM MXC chip, which can greatly expand the memory capacity and bandwidth and has been used by Samsung Electronics to develop its first 512GB CXL DRAM memory.
The memory capacity of Samsung’s previous CXL product is increased by 4 times and the system delay is reduced to a quarter. It is also used by Hynix in its first DDR5 DRAM-based CXL memory sample planned to be mass produced in 2023, which is likely to bring incremental revenue for Montage. 2) CKD chips: In 1H22, Montage completed the design of engineering samples of the DDR5 first-generation CKD chip and planned to tape out in 2H22. We expect that the CKD chip will become a standard PC memory chip in the future, with promising prospects. 3) RCD/DB chips for MCR dual in-line memory modules (DIMM): Montage completed the design of the first generation of DDR5 MCR RCD/DB chip in 1H22. MCR can provide double bandwidth of load-reduced DIMM (LRDIMM) and increase the complexity of the design and the speed of memory interface chip significantly. We forecast that with the penetration of high bandwidth demand, the Company is likely to usher in a rise in both volume and price.
Computing chips: Shipment of Jintide server platform business continues.
In 1-3Q22, Montage expects to achieve operating revenue of Rmb928mn (+94.65% YoY) from this segment, including quarterly operating revenue of Rmb325mn/365mn/238mn (-45.78% YoY, -34.79% QoQ for 3Q22). The Jintide server platform ramped up shipment in 2021 and further increased its market share in 1H22. Its chip products are now widely applied across the financial, transportation, government affairs, energy and other downstream industries. In 1H22, Montage developed the 4th generation Jintide CPU product. We expect that the shipment will gradually ramp up with product upgrading and customer expansion in the future. In addition, Montage is developing microprocessors and near memory computing (NMC)-based AI chips, continues to promote its software and hardware collaboration and performance optimization and prepares for the tape-out of engineering samples, which is likely to realize mass production and make gradual contributions to its bottom line.
Potential risks:
Less-than-expected downstream demand; the containment of the pandemic missing expectations; global trade frictions; disappointing R&D on new technologies/products and brain drain; high concentration of downstream customers; concentration of suppliers and raw material price fluctuations, etc.
Investment strategy:
Montage’s memory interface chip business is well-positioned to benefit from the increase in the shipment and price of new DDR5 offerings, the independently developed server platform stands ready for a ramp-up in shipment, and incremental businesses-such as supporting chips for memory modules and PCIe retimer chips-are gradually contributing to revenue growth. This will likely drive the Company's revenue and net profit into a new cycle of rapid growth. In the meantime, other initiatives, including MXC, CKD, MCR RCD/DB chips, are progressing smoothly and running ahead of peers, opening up room for long-term growth. We maintain the 2022E/23E/24E net profit forecast at Rmb1.436bn/2.014bn/2.665bn, corresponding to EPS forecast of Rmb1.27/1.78/2.35. Since Montage is a high-speed digital-analog hybrid chip maker, we believe its valuation should be benchmarked against domestic high-performance analog chip makers and leading fabless companies with a similar market value. We select SG Micro (300661.SZ) and 3Peak (688536.SH) as comparable companies, which, based on Wind consensus estimates, are trading at 38x/36x 2023E PE, respectively. With the Company’s historical valuation and the valuation of comparable companies as reference, we value Montage at 36x 2023E PE to arrive at a target price of Rmb64, and reiterate the “BUY” rating.