Supply Continues to Be Tight, Upgrading Silan Micro to Buy
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Supply Continues to Be Tight, Upgrading Silan Micro to Buy
UBS believes that China’s power semiconductor supply will remain tight for an extended period, with SiC’s penetration accelerating across electric vehicles, energy storage, and data centers. We are optimistic about IDM manufacturers with guaranteed capacity, upgrading Silan Micro’s rating to Buy and raising earnings forecasts for several covered companies.
- Global supply chain feedback indicates that, due to strong capital expenditure discipline and resilient demand, supply constraints will remain ‘tight for longer.’
- With its superior cost-performance ratio, Silicon Carbide (SiC) is seeing accelerated penetration across electric vehicles, energy storage systems, and AI data centers.
- We favor power IDM manufacturers (such as Silan Micro and China Resources Micro), as they have guaranteed capacity and better profit margins than Fabless firms.
- We upgraded Silan Micro’s rating to ‘Buy’ with a target price of RMB 46.20; we maintained ‘Buy’ ratings for China Resources Micro and New Clean Energy.
- We lowered Star Semiconductor’s earnings forecast to reflect the depreciation burden from its Fab-lite transformation, but we remained optimistic about its SiC R&D capabilities.
Report interpretation
Overview
This report highlights that China’s power semiconductor industry is currently in a cycle of persistently tight supply, which may last longer than expected. Key drivers include the resilience of downstream demand for new energy, grid infrastructure, and AI applications, as well as the disciplined nature of capital expenditures in the upstream sector. Meanwhile, Silicon Carbide (SiC), thanks to its superior cost-performance ratio compared to traditional silicon-based products, is experiencing accelerating penetration in electric vehicles (EVs), energy storage systems (ESS), and artificial intelligence data centers (AIDCs). Based on these developments, UBS has raised earnings forecasts and target prices for Silan Micro, China Resources Micro, and New Clean Energy, and upgraded Silan Micro’s rating from ‘Neutral’ to ‘Buy.’ Although we lowered Star Semiconductor’s short-term earnings forecast to account for the depreciation burden associated with its transition to a Fab-lite model, we remain optimistic about its long-term SiC growth potential.
Core views
The ongoing tightness on the supply side is the core feature of this cycle. Through global supply chain research, UBS found that major power semiconductor IDM manufacturers continue to exercise cautious capital spending, while downstream demand remains strong in the fields of new energy, grid infrastructure, and physical AI. For example, Infineon has already announced a second price increase in 2026. This imbalance between supply and demand allows IDM manufacturers with their own production capacity—such as Silan Micro and China Resources Micro—to enjoy better profitability visibility and expansion potential compared to Fabless firms. SiC penetration is entering an acceleration phase. After years of declining prices, SiC’s advantages in terms of efficiency, reliability, and thermal resistance have made it increasingly cost-effective. In the EV sector, the adoption of 800V architectures in lower-end models is driving the application of SiC modules; in the energy storage sector, leading companies such as Sungrow Power, Tesla, and BYD are all adopting SiC to enhance lifecycle cost-effectiveness; in AI data centers, as we move toward 800V DC platforms, the value of power semiconductors per rack has increased significantly, making SiC a new growth engine. On individual stock levels, UBS is particularly optimistic about Silan Micro and China Resources Micro. As an early entrant into the SiC market, Silan Micro’s 6-inch and 8-inch SiC production lines are already at full capacity, with ample orders. It is projected that ROE will rise from 3.3% to 12.0% between 2026 and 2028, prompting us to upgrade its rating to Buy. China Resources Micro’s manufacturing business is poised to capture more external customer shares amid tight supply conditions, and its valuation still has room for reevaluation. New Clean Energy benefits from improved MOSFET pricing and expanded applications in data centers, robotics, and other high-end sectors. Although Star Semiconductor faces short-term depreciation pressures due to its transformation, its strong R&D capabilities and high-growth SiC revenue still support its long-term outlook.
Analysis framework
UBS employed an analytical approach combining a ‘supply-demand framework’ with ‘industrial chain validation.’ First
Methodology notes
Supply-Demand Framework
By analyzing upstream capital expenditures (supply) and downstream demand in applications like EVs and AI, we determine industry sentiment. This report emphasizes that ‘supply discipline’ leads to long-term shortages, which serves as a key driver for boosting IDM manufacturer profit margins.
Penetration S-Curve
This curve is used to describe the adoption process of new technologies like SiC in the market. The report notes that after price declines, SiC’s cost-performance advantage drives accelerated penetration, especially in the EV and energy storage sectors where it shows a steep upward trend resembling an S-shaped curve.
PB Valuation
For heavy-capital IDM manufacturers like Silan Micro and China Resources Micro, the report uses the price-to-book ratio (PB) for valuation, and combines this with expected improvements in ROE to assess the potential for valuation reevaluation. The reasoning is that rising ROE should drive an expansion in the PB multiple.
PE Valuation
For light-capital or rapidly growing Fabless firms like New Clean Energy, the report uses the price-to-earnings ratio (PE) for valuation, focusing on comparing its EPS growth rate with its historical average PE level.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Silan Micro (600460.SS)Benefit: IDM models benefit from profit margin expansion amid tight supply, with SiC production lines operating at full capacity and ample orders.
- Strengths
- An early entrant into SiC, possessing both 6-inch and 8-inch production lines, with significant ROE improvement expectations.
- Weaknesses
- -
- Comparison
- Compared to Fabless firms, its guaranteed capacity provides greater certainty during an upward cycle.
- Risks
- Slower capacity construction, with downstream demand falling short of expectations.
- China Resources Micro (688396.SS)Benefit: Manufacturing services under tight supply conditions are poised to capture external customer shares, with valuations below historical averages.
- Strengths
- Leading IDM+manufacturing service model with high capacity utilization.
- Weaknesses
- -
- Comparison
- Similar to Silan Micro, benefiting from IDM’s revaluation logic.
- Risks
- Intensifying domestic competition, with products failing to meet market demand.
- New Clean Energy (605111.SS)Benefit: Improved MOSFET pricing environment, coupled with progress in high-end applications such as data centers and robotics.
- Strengths
- Strong R&D capabilities and product portfolio upgrades.
- Weaknesses
- -
- Comparison
- As a Fabless firm, its valuation restructuring depends on increasing the share of high-end applications.
- Risks
- Consumer electronics and industrial demand recovery is slow, with overcapacity in wafer production leading to intensified competition.
- Star Semiconductor (603290.SS)Benefit/Impact Interwoven: Short-term depreciation from Fab-lite transformation, but long-term benefits from SiC’s leadership position.
- Strengths
- Domestic IGBT leader, strong SiC revenue growth, and robust R&D capabilities.
- Weaknesses
- Heavy short-term depreciation burden, cautious pricing for automotive IGBTs.
- Comparison
- Valuation method shifted from PE to PB to align with its Fab-lite attributes.
- Risks
- SiC penetration in EVs is slower than expected, and geopolitical factors hinder overseas expansion.
Key data
- Silan Micro’s 2026–2028 EPS Increase5–14%Higher than the consensus expectation of 8–23%
- Silan Micro’s 2028 ROE Forecast12.0%Significantly higher than 3.3% in 2025
- China Resources Micro’s 2027–2028 EPS Compared to Consensus ExpectationsHigh 16–31%Reflects a more optimistic view on profit margin prospects
- New Clean Energy’s 2026–2028 EPS CAGR37%Significantly faster than the previous forecast of 24%
- Star Semiconductor’s 2026–2028 EPS Decrease25–37%Reflects the higher depreciation burden brought by its Fab-lite transformation
- AI Data Center Power Semiconductor Content/GWIncreased from USD 80 million to USD 180 millionFrom Rubin NVL72 to Rubin Ultra NVL576 racks, driven by 800V DC
Impact & implications
The report believes that China’s power semiconductor stock prices are currently lagging behind their global peers (up to 34% year-to-date vs. 135% globally), presenting opportunities for catch-up gains, especially for IDM manufacturers with guaranteed capacity. As supply tensions persist and SiC penetration rises, companies with self-owned SiC production lines and strong downstream new energy/data center customer bases will reap excess returns. Investors should focus on those companies that can smoothly ramp up production capacity and secure design wins in high-end applications.
Risks
- EV and green energy transitions are moving slower than expected
- Downstream application demand falls short of expectations
- Domestic competition intensifies, especially as wafer production capacity is overbuilt leading to price wars
- Capacity construction and ramp-up speeds fall short of expectations
- Geopolitical tensions escalate, hindering overseas business expansion
- Rapid technological changes and macroeconomic cycle fluctuations
What to watch
- Price adjustments among global power semiconductor peers
- Actual penetration data for SiC in EVs, energy storage, and data centers
- Changes in capacity utilization and capital expenditure plans of major IDM manufacturers
- Progress in ROE improvements at companies like Silan Micro and China Resources Micro
- Impact of Star Semiconductor’s Fab-lite transformation on yield rates and depreciation costs