BATELAB(2149.HK)：KEY DOMESTIC ANALOG PATTERNED WAFER PLAYER WELL POSITIONED TO HAVE MULTIPLE YEARS OF GROWTH AHEAD-格隆汇

机构：招银国际
研究员：Lily YANG/Kevin ZHANG

　　BaTeLab is one of the leading analog IC patterned wafer providers in China, focusing on the industrial-grade market. The company has developed the only full-stack design platform in China, integrating EDA, IP and design. We favor BaTeLab on 1) its unique position in the market (three differentiations from peers), 2) robust growth in revenue (38.0% 2023-26E CAGR, CMBIGM estimate) and the ability to maintain its margins (GPM/NPM at ~54%/23% in 2024/25E), 3) attractive valuation (the company currently trades at 10.3x 2024E P/E and 7.2x 2025E P/E, compared to 30.8x 2024E P/E of its HK-listed peers). Initiate with BUY and TP at HK$49.8.
　　BaTeLab is one of the leading analog IC patterned wafer providers in China. According to Frost & Sullivan (F&S), the company was the largest provider of analog IC patterned wafers in China by revenue in 2022, accounting for 1.7% of the total market. In terms of revenue, BaTeLab is only 0.4%/0.5% the size of the market's global leaders (suppliers of finished analog ICs), Texas Instruments (TXN US, NR) and Analog Devices (ADI US, NR) in 2023. BaTeLab mainly leverages resources from its partners to grow in the patterned wafer market at the current stage. The benefits are apparent: 1) it has achieved high revenue growth (73.6% 2020-2023 CAGR), 2) lowered operating cost (SG&A expenses only accounted for 7% of total revenue in 2023 vs. avg. 14% for its domestic and overseas peers), and 3) maintained a high margin (GPM was stable at 55%-57% during 2020-23).
　　BaTeLab focuses on the industrial-grade market, a long-tail market with high growth potential, diversified demands and relatively less intensified competition than consumer-grade market. According to F&S, the TAM of industrial-grade analog IC market in China is expected to grow at a 9.5% 2024E-27E CAGR, reaching RMB242bn by 2027E, benefiting from the trends of intelligent automation and digital transformation in industrial applications. BaTeLab ranked No.5 in China with 0.4% market share in 2022, with the industry leader commanding a mere 0.8% market share in a highly fragmented market. We believe the market share will be consolidated towards the leaders.
　　BaTeLab operates a full-stack analog IC design platform, empowered by proprietary EDA software tools and reusable IP library (over 400 IP modules). This helps it 1) ensure efficiency in IC design and wafer delivery, 2) mitigate the impacts from geopolitical challenges, and 3) achieve cost advantage.
　　We initiate coverage on BaTeLab (2149 HK) with BUY and TP at HK$49.8, based on 19x 2024E P/E (1-year historical avg. forward P/E of its HK-listed semi peers). Its share currently trades at 10.3x 2024E P/E, which is attractive in our view, for investors investing in H-share China semi names. We expect BaTeLab’s revenue to grow 40% YoY in 2024E, while its peers’ avg. revenue is estimated to grow only 1.6%, per Bloomberg consensus. Potential risks: 1) volatile economic conditions; 2) change in relationship with its core customers or suppliers; and 3) slower-than-expected introduction of new product categories.