Goldman Sachs downgrades SICC to Neutral and lowers its target price to Rmb104

Overview

Goldman Sachs published a company research report on SICC, with the key conclusion being a downgrade to Neutral despite positive long-term industry fundamentals. The report views SICC as a global leading SiC substrate supplier, with products covering 4-inch, 6-inch, 8-inch, and 12-inch SiC substrates, as well as semi-insulating and conductive SiC substrates. The company benefits from increasing SiC adoption in EVs, AR glasses, AR HUDs, advanced packaging for AI chips, and power supplies for AI data centers.

Core views

The report remains positive on SICC's long-term growth: 2026-28E net profit CAGR is expected to be +87%, driven by rising SiC penetration across multiple end markets, product mix upgrades toward 8-inch/12-inch products, market share gains through R&D and capacity expansion, and gross margin improvement from yield enhancement. However, Goldman Sachs believes the positive factors are largely reflected in the share price, while declining 6-inch/8-inch SiC substrate prices are putting pressure on revenue and gross margin assumptions. It therefore lowers 2026-28E net profit forecasts by 6%/8%/8%, cuts the target price from Rmb115 to Rmb104, and downgrades the rating from Buy to Neutral.

Analysis framework

The report uses earnings forecast revisions, peer valuation comparisons, and a discounted P/E methodology. Valuation is based on a discounted 2029E P/E, with the target P/E multiple derived from the average ratio of peer trading P/E to forward fundamental indicators (EPS YoY growth and OPM), then discounted back to 2027E using a 12.5% cost of equity.

Methodology notes

• Valuation methodsDiscounted P/E

  Discounting the 2029E target P/E to 2027E

  Based on the ratio of peers' average trading P/E to forward EPS growth and operating margin, Goldman Sachs derives a 2029E target P/E of 32.2x for SICC and discounts it back to 2027E using a 12.5% cost of equity, arriving at a 12-month target price of Rmb104.

• Peer comparisonP/E and fundamental ratio

  Trading P/E / forward fundamentals

  The report compares the trading ratios of peers including InnoScience, ST Micro, Starpower, and Naura, and believes SICC's current ratio of approximately 0.4x is broadly in line with peers, indicating a reasonable relative valuation.

• Fundamental forecastsGS Forecast

  Revenue, EPS, gross margin, and net profit forecasts

  The report revises revenue and gross margin by product, reflecting the combined impact of lower 6-inch/8-inch SiC substrate prices, yield improvement, and product mix upgrades toward larger-size products on earnings.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• 688234.SS

  Research subject

  Strengths

  A global leading SiC substrate supplier covering products from 4-inch to 12-inch, with strong R&D capabilities and sustained capacity expansion potential; benefits from the expansion of EV, AI, AR, and advanced packaging applications.

  Weaknesses

  Declining 6-inch/8-inch SiC substrate prices weigh on revenue and gross margin; previous gross margin assumptions were considered aggressive.

  Comparison

  At the current 43x 2027E P/E, its ratio based on 2027-28E net profit growth and operating margin is approximately 0.4x, broadly in line with peers such as InnoScience, ST Micro, Starpower, and Naura.

  Risks

  The 12-inch SiC substrate ramp-up may fall short of expectations, 6-inch/8-inch price declines may exceed expectations, and gross margin improvement may be slower than expected.

Key data

• 12-month target priceRmb104.00The previous target price was Rmb115.
• Current priceRmb86.65Price disclosed in the report table.
• Implied upside20.0%Based on the Rmb104 target price and Rmb86.65 current price.
• 2026-28E net profit CAGR+87%Goldman Sachs still expects SICC's net profit to grow rapidly.
• 2026E/2027E/2028E revenue forecastsRmb2,851.1mn / Rmb4,088.3mn / Rmb5,683.6mnFrom the forecast table.
• 2026E/2027E/2028E EPSRmb0.99 / Rmb2.01 / Rmb3.49New forecasts.
• 2027E P/E43.1xBased on the current trading level.
• 2026E/2027E/2028E total gross margin33.7% / 39.7% / 46.9%New forecasts, below the previous 34.4% / 41.1% / 48.7%.
• 2026-28E net profit revisions-6% / -8% / -8%Mainly due to lower revenue and gross margin assumptions.
• Target P/E32.2x 2029E P/EDerived from the peer average ratio and SICC's forward fundamentals.

Impact & implications

At the stock level, the report implies that the long-term growth story remains intact, but the rating driver is shifting from upward earnings revisions to valuation digestion. Further short-term share price re-rating would require faster-than-expected volume ramp-up of 12-inch SiC substrates, smaller-than-expected price declines for 6-inch/8-inch products, or faster-than-expected gross margin improvement. At the industry level, 12-inch SiC substrates may expand into new applications such as AI advanced packaging, AR displays, and high-end EV AR HUDs, but commercialization timing and yield ramp-up remain key variables.

Risks

• The 12-inch SiC substrate ramp-up may be faster or slower than expected, depending on the commercialization of 12-inch SiC devices, end-market adoption, and improvements in production yield.
• The decline in 6-inch/8-inch SiC substrate prices may be smaller or larger than expected, depending on the competitive landscape, new entrants, and end-market demand.
• Gross margin improvement may be faster or slower than expected, depending on the pace of yield ramp-up and the product mix upgrade toward larger-size SiC substrates.
• The current valuation already largely reflects the positive factors; if fundamental delivery falls short of expectations, valuation support may weaken.

What to watch

• Mass production and customer qualification progress for 12-inch SiC substrates around 2027E.
• The pace of SiC substrate adoption in new applications such as AI servers, advanced packaging, AR glasses, and automotive AR HUDs.
• Industry price movements and competitive intensity for 6-inch/8-inch SiC substrates.
• SICC's gross margin improvement trajectory, particularly yield enhancement and changes in the share of larger-size products.
• Whether subsequent earnings forecasts continue to be affected by revisions to revenue, pricing, and gross margin assumptions.