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研报TP $99.40003月19日 · Morgan Stanley

Greater China Technology Semiconductors: Prefer SiC over GaN

688234.SS2577.HK
中文EN⚠ quality lint: see notes

SICC's SiC Leadership and EV Drive Outweigh InnoScience's Delayed GaN Catalysts

Core Conclusion

We upgrade SICC Co Ltd (688234.SS) to Overweight and maintain Equal-weight on Innoscience (2577.HK), reflecting a preference for SiC over GaN in the Greater China semiconductor space. This stance is based on SICC's improving competitive position and clear demand drivers from electric vehicles (EVs), contrasted against a postponed timeline and heightened competition for InnoScience's AI data center (AIDC) GaN opportunity. We raise SICC's price target to Rmb99.40 and lower InnoScience's to HK$69.00.

Evidence Chain

SiC benefits from strong, visible demand growth in electric vehicles. The penetration of SiC devices in China's EV market provides a robust, multi-year demand foundation for substrate suppliers like SICC. Penetration increased to approximately 37% in 2025 from around 30% in 2024 and is forecast to reach 45% by 2027. This secular growth is driven by declining device costs, enabling adoption in mainstream EV models. The investment implication is a predictable, high-growth revenue stream for leading upstream players, supporting SICC's aggressive capacity expansion.

SICC's competitive position is strengthening as the global leader retrenches. SICC is poised to gain global market share in SiC substrates due to a divergent capacity strategy with its key rival. While Wolfspeed slashed its FY2026 capital expenditure by over 90% to below $0.3 billion, SICC is actively ramping Phase II capacity in Shanghai and adding new capacity in Malaysia. SICC was already the world's second-largest SiC substrate supplier by revenue in 2024 with a 15% share. The investment implication is a favorable shift in industry structure, where SICC’s expansion aligns with rising demand while a primary competitor scales back, enabling market share gains.

SICC's margin profile shows resilience despite industry pricing pressure. SICC's profitability is expected to stabilize and recover, not collapse, amid the industry's transition to 8-inch wafers and associated price declines. The company anticipates its technology breakthroughs will lower costs, offsetting the impact of falling average selling prices and supporting gross margin stability. After a net loss in 2025, the company is projected to return to profitability with net income of Rmb740 million in 2026. The investment implication is that earnings leverage is set to inflect positively, driven by volume growth and cost improvements rather than being permanently impaired by pricing.

InnoScience's key AIDC catalyst is delayed, and competition is intensifying. The ramp-up timeline for GaN in AI data centers, a critical growth vector for InnoScience, is pushed back to 2027, later than previously anticipated. Concurrently, the competitive landscape is becoming more challenging. TSMC's licensing of its GaN technology to multiple companies, including Rohm and GlobalFoundries, will enhance the capacity and manufacturing capabilities of InnoScience's competitors. While InnoScience retains an IDM model advantage, the investment implication is a delayed monetization path and increased risk to its potential market share in the AIDC segment.

Key Risks

  • SiC substrate price competition intensifies beyond expectations, eroding industry profitability.
  • Global EV demand softens due to macro factors, slowing the pace of SiC adoption.
  • GaN adoption in AIDC and other key applications like EVs proceeds slower than forecast.
  • InnoScience fails to secure its expected design-win share in NVIDIA's 800V high-voltage direct current (HVDC) power solution.

Valuation and Trade Implications

We upgrade SICC to Overweight with a price target of Rmb99.40, implying 6.7x 2026e P/B, one standard deviation above its three-year historical average. This rerating reflects our expectation for continued global market share gains and a clearer competitive landscape. For InnoScience, we maintain Equal-weight but lower our price target to HK$69.00, implying 26x 2026e P/S, near the average of its trading range since listing. The target reduction reflects the postponed AIDC ramp to 2027 and increased competitive pressures.

Appendix: Data Summary

SiC Substrate Market Share (2024 Revenue)

  • Wolfspeed: 26%
  • SICC: 15%
  • Coherent: 13%
  • SiCrystal (ROHM): 13%
  • Tankeblue: 13%
  • SK siltron css: 7%
  • SemiSiC: 6%
  • Others: 11%

SiC Penetration in China EVs (Forecast)

  • 2024: ~30%
  • 2025: 37%
  • 2027E: 45%
  • 2030E: >50%

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