Macquarie Research Semiconductors11 December 2018 2Fig 1 China semiconductor industry revenueFig 2China semi industry revenue by sub-segmentSource: CSIA, Macquarie Research, December 2018Source: CSIA, Macquarie Research, December 2018Fig 3 China IC design industry revenueFig 4 China IC manufacturing industry revenueSource: CSIA, Macquarie Research, December 2018Source: CSIA, Macquarie Research, December 2018Fig 5 China IC packaging/testing revenueFig 6 China demand at 45% in 2020E global semi marketSource: CSIA, Macquarie Research, December 2018Source: SMIC, Macquarie Research, December 2018 -1002003004005006007008009001,000 2012201320142015201620172018E2019E2020E (Rmb bn) China semiconductor industry revenue 20% CAGRover 2017-20 29%32%35%37%38% 38%39%40% 41% 23%24%24% 25%26% 27% 27% 27% 27% 48%44% 42%38% 36% 35% 34% 33% 32% 0 100 200 300 400 500 600 700 800 900 1000 2012201320142015201620172018E2019E2020E (Rmb bn) IC designIC manufacturingIC packaging/testing 0 50 100 150 200 250 300 350 400 450 2012201320142015201620172018E2019E2020E (Rmb bn) China IC design revenue 23% CAGRover 2017-20 0 50 100 150 200 250 300 2012201320142015201620172018E2019E2020E (Rmb bn) China IC manufacturing revenue 21% CAGRover 2017-20 0 50 100 150 200 250 300 350 2012201320142015201620172018E2019E2020E (Rmb bn) China IC packaging/testing revenue 16% CAGRover 2017-20 USA 14% Japan 10% China 45% Others 31% Macquarie Research Semiconductors11 December 2018 3Fig 7 Listed companies in which China IC Fund has 5% of holding (as of Nov 2018)Company Ticker China IC Fund's holdingHua Hong1347 HK 18.9%Goke Microelectronics300672 CH 15.8%TongFu 002156 CH 21.7%SMIC 981 HK 15.0%Beijing BDstar Navigation002151 CH 11.4%Sanan 600703 CH 11.3%GigaDevice 603986 CH 11.0%SMIT 2239 HK 10.0%JCET 600584 CH 19.0%NAURA 002371 CH 15.0%Hangzhou Chang Chuan Tech 300604 CH 7.5%Goodix 603160 CH 6.7%ACM Research ACMR US 5.5%Source: Company data, December 2018Fig 8 China IC Fund major shareholders (as of March 2018)Company HoldingThe Ministry of Finance of the PRC 36.5%CDB Capital 22.3%China National Tobacco Corporation 11.1%Beijing Yizhuang International Investment and Development Co., Ltd. 10.1%Wuhan Financial Holdings (Group) CO., Ltd. 5.1%Shanghai Guosheng (Group) Co., Ltd 5.1%China Mobile Communications Corporation 5.1%Others 4.8%Source: Company data, December 2018Fig 9 Local government funds for semiconductor industryLocal government Fund size (Rmb bn)Nanjing 60Shanghai 50Xiamen 50Beijing 30Anhui 30Hubei 30Shaanxi 30Shenzhen 20Wuxi 20Guangdong 15Sichuan 12Liaoning 10Kunshan 10Hunan 5Total 372Source: Company data, December 2018Macquarie Research Semiconductors11 December 2018 4 Important disclosures:Recommendation definitionsMacquarie - Australia/New ZealandOutperform – return 3% in excess of benchmark returnNeutral – return within 3% of benchmark returnUnderperform – return 3% below benchmark returnBenchmark return is determined by long term nominalGDP growth plus 12 month forward market dividendyield, which is currently around 9%.Macquarie – Asia/EuropeOutperform – expected return +10%Neutral – expected return from -10% to +10%Underperform – expected return <-10%Mazi Macquarie – South AfricaOutperform – expected return +10%Neutral – expected return from -10% to +10%Underperform – expected return <-10%Macquarie - CanadaOutperform – return 5% in excess of benchmark returnNeutral – return within 5% of benchmark returnUnderperform – return 5% below benchmark returnMacquarie - USAOutperform (Buy) – return 5% in excess of Russell3000 index returnNeutral (Hold) – return within 5% of Russell 3000 indexreturnUnderperform (Sell)– return 5% below Russell 3000index returnVolatility index definition*This is calculated from the volatility of historicalprice movements.Very high–highest risk – Stock should beexpected to move up or down 60–100% in a year– investors should be aware this stock is highlyspeculative.High – stock should be expected to move up ordown at least 40–60% in a year – investors shouldbe aware this stock could be speculative.Medium – stock should be expected to move upor down at least 30–40% in a year.Low–medium – stock should be expected tomove up or down at least 25–30% in a year.Low – stock should be expected to move up ordown at least 15–25% in a year.* Applicable to Asia/Australian/NZ/Canada stocksonlyRecommendations – 12 monthsNote: Quant recommendations may differ fromFundamental Analyst recommendationsFinancial definitionsAll Adjusted data items have had the followingadjustments made:Added back:goodwill amortisation, provision forcatastrophe reserves, IFRS derivatives & hedging,IFRS impairments & IFRS interest expenseExcluded:non recurring items, asset revals, propertyrevals, appraisal value uplift, preference dividends &minority interestsEPS = adjusted net profit / efpowa*ROA = adjusted ebit / average total assetsROA Banks/Insurance = adjusted net profit /averagetotal assetsROE = adjusted net profit / average shareholders fundsGross cashflow = adjusted net profit + depreciation*equivalent fully paid ordinary weighted averagenumber of sharesAll Reported numbers for Australian/NZ listed stocksare modelled under IFRS (International FinancialReporting Standards).Recommendation proportions – For quarter ending 30 September 2018 AU/NZAsia RSAUSA CA EUROutperform 51.56% 59.51% 45.05% 46.88% 67.86% 46.70% (for global coverage by Macquarie, 3.70% of stocks followed are investment banking clients)Neutral 33.20% 28.92% 37.36% 47.70% 25.00% 42.73% (for global coverage by Macquarie, 2.04% of stocks followed are investment banking clients)Underperform 15.23% 11.57% 17.58% 5.42% 7.14% 10.57% (for global coverage by Macquarie, 0.47% of stocks followed are investment banking clients)2330 TT vs TAIEX, & rec history (all figures in TWD currency unless noted) QCOM US vs S&P 500, & rec history (all figures in USD currency unless noted) MRVL US vs S&P 500, & rec history (all figures in USD currency unless noted) 6723 JP vs TOPIX, & rec history (all figures in JPY currency unless noted) 1347 HK vs HSI, & rec history (all figures in HKD currency unless noted) Note: Recommendation timeline – if not a continuous line, then there was no Macquarie coverage at the time or there was an embargo period. Source: FactSet, Macquarie Research, December 2018 12-month target price methodology2330 TT: NT$270.00 based on a PER methodologyQCOM US: US$75.00 based on a PER methodologyMRVL US: US$18.00 based on a PER methodology6723 JP: 1,150 based on a Price to Book methodology1347 HK: HK$33.00 based on a Price to Book methodologyCompany-specific disclosures:1347 HK: Macquarie Capital Limited makes a market in the securities of Hua Hong Semiconductor.Important disclosure information regarding the subject companies covered in this report is available at macquarie/research/disclosures. Target price risk disclosures:2330 TT: Any inability to compete successfully in their markets may harm the business. This could be a result of many factors which may includegeographic mix and introduction of improved products or service offerings by competitors. The results of operations may be materially affected by globaleconomic conditions generally, including conditions in financial markets. The company is exposed to market risks, such as changes in interest rates, 。。。。。。