Huawei's fifth IPO made more than 2 billion yuan

On January 12, 2022, Tianyue Advanced, the "first share of silicon carbide", was listed on the Science and Technology Innovation Board, and the opening price rose by 8% on the first day, with a market value of more than 38 billion yuan.

Tianyue Advanced is one of the core enterprises of China's third-generation semiconductor industry. In the field of semi-insulated silicon carbide substrates, Tianyue Advanced's market share ranks first in China and third in the world. At present, the concept of the third generation of semiconductors is hot, Tianyue's advanced IPO has attracted much attention, its strategic investor lineup is very luxurious, and NINGDE Times and CAR companies such as GAC and Xiaopeng have subscribed to 49.75 million yuan each.

The most important concern of Tianyue Advanced's shareholders should be Huawei's Hubble investment. In 2019, Hubble Technology invested 110 million yuan in Tianyue Advanced, and has now obtained more than 20 times the return.

Since Huawei set up a wholly-owned subsidiary, Hubble Investment, to invest in the industrial chain in 2019, Hubble Investment has won 5 IPOs, and Tianyue Advanced is the most recent one. The book returns of these five IPOs exceeded 6 billion yuan, which is already twice the amount of money that Huawei has injected into Hubble.

Shandong has come out of a world-class enterprise

Zong Yanmin, the founder of Tianyue Advanced, is a post-60s, Shandong native, graduated from Qilu University of Technology with a bachelor's degree, which is a humble university located in Shandong, neither 985 nor 211. However, Qilu University of Technology has the characteristics of entrepreneurs, and Sun Mingbo, former chairman of Qingdao Beer Group, Chen Hongguo, chairman of Chenming Paper, and others are alumni of the school.

Zong Yanmin majored in materials at university, and after graduating from university, he was initially assigned to work in jinan light bulb factory. Soon the factory closed down, and Zong Yanmin was forced to go to the sea to start a business, starting a company specializing in engineering equipment such as Volvo excavators. The company has been very successful, and Zong Yanmin revealed in an interview with the media a few years ago that it has achieved a scale of "annual sales revenue of more than 3 billion yuan and profits of 1 or 200 million yuan".

Although he made a lot of money doing sales, Zong Yanmin, who was a material professional, always had a scientific research dream. In the period of engineering equipment agency, he built a laboratory of more than 2,000 square meters in the company's compound, using the company's profits as experimental funds and relying on himself to do scientific research. In 2010, the 46-year-old Zong Yanmin decided to put the money he earned in the first half of his life into another adventure and founded Tianyue Advanced, a company that does semiconductor material research and production.

After the establishment of Tianyue Advanced, it briefly took sapphire substrates as the main business direction. Sapphire substrate is a material used for LED chip substrates and belongs to the mature mainstream technology. But soon, Tianyue Advanced discovered a more promising and riskier innovative product, that is, the third generation of semiconductor material silicon carbide.

In 2011, Jiang Minhua, a former academician of the Chinese Academy of Sciences and a professor at Shandong University, passed away, leaving behind a technology that successfully cultivated silicon carbide single crystals in the laboratory. However, because the industrialization problem cannot be solved, this important technology is shelved. Because of a chance, Zong Yanmin learned of this matter, so he went to Shandong University and spent a lot of money to buy this technology from Shandong University.

Zong Yanmin later said: "Professor Jiang Minhua is admirable, if the advanced results of lifelong research are shelved, it has to be said that it is a pity, and China will once again lose a major opportunity in semiconductor technology." ”

In this way, since 2011, Tianyue Advanced has fully invested in the industrialization of silicon carbide semiconductor materials. In 2012, Shandong Tianyue achieved mass production of 2-inch silicon carbide substrates; in 2013, it achieved mass production of 3-inch products; in 2017, it achieved mass production of 6-inch conductive silicon carbide substrates; and in 2019, it achieved semi-insulated 6-inch process mass production.

After nearly ten years of unremitting research and development, Tianyue Advanced has finally gradually caught up with the international advanced level of silicon carbide substrates, becoming the world's fourth enterprise mass production of silicon carbide substrate materials, and individual product technologies have entered the world's top two. At present, the world's leading silicon carbide technology is the American company Wolfspeed, which has achieved mass production of 8-inch process, and Tianyue Advanced has started the research and development of 8-inch process in 2020.

Although the scale of Shandong Tianyue is not large at present, it is already a world-class enterprise with its technical strength in the field of silicon carbide.

After 10 years of burning money, it finally ushered in a performance explosion

More than a decade of research and development is very expensive. In 2020, when Tianyue advanced stock reform, the book undistributed profit was negative 800 million yuan.

During the reporting period, Tianyue Advanced achieved profitability in the first half of 2021, with a net profit of 47.91 million yuan. From 2018 to 2020, Tianyue Advanced lost 42.29 million yuan, 200 million yuan and 640 million yuan respectively. This is also the result of Tianyue Advanced receiving government subsidies ranging from 10 million yuan to 50 million yuan every year.

The biggest difficulty of silicon carbide technology is yield. The melting point of silicon is 1400 °C, and the melting point of carbon is as high as 3000 °C. After melting them at high temperatures, the silicon atoms and carbon atoms are arranged into crystals according to a specific structure. Silicon carbide has more than 200 atomic arrangements, also known as crystal forms, of which only 4H-SiC can be used as a semiconductor. In the process of atom arrangement, there can be no mistakes.

After making the silicon carbide rod, it is also cut into wafers. Silicon carbide crystals are extremely fragile, and cutting this process alone will cause about 75% loss.

Tianyue's advanced prospectus shows that four of its top five customers in 2018 were jewelry companies. This is because Tianyue Advanced sold the crystal rods and unqualified substrates that could not meet the requirements of the semiconductor grade to the jewelry company. Jewelry products made of these silicon carbide by jewelry companies are the so-called cheap version of the diamond "Moissan diamond". In 2018, 38% of Tianyue Advanced's revenue was obtained by selling these defective products to jewelry companies, which is evident in the low yield.

It can be said that in the many years after its establishment, Tianyue's advanced days have been quite hard, and the profitability is far away.

In Tianyue's advanced development process, the role of two customers is very critical. Tianyue Advanced did not disclose specific names in the prospectus, only customer A and customer B. However, given their status in the industry, the real identity is not difficult to guess.

The first is customer A, which is Tianyue Advanced's first mass production customer and the only mass production customer for a long time. The prospectus discloses that customer A belongs to the radio detection industry, mainly serving the aerospace, positioning and navigation and other markets, and occupies the dominant position in industry technology in these markets. In 2018, Customer A contributed 74.29 million yuan in revenue to Tianyue Advanced, accounting for 55% of the latter's total revenue.

What really makes Tianyue's advanced performance take off is customer B. Customer B is a communications leader that purchases silicon carbide substrates from Tianyue Advanced for the manufacture of 5G RF chips. In 2019, Tianyue Advanced passed the qualified supplier system certification of customer B, signed a sales framework agreement, and began to supply it in bulk. After that, the purchase volume of customer B increased rapidly. In 2019, the purchase amount of customer B was 16.33 million yuan, accounting for only 6% of Tianyue Advanced's total revenue. In 2020, customer B's purchase volume increased to 140 million yuan, accounting for 33% of total revenue. In the first half of 2021 alone, the purchase volume of customer B reached 120 million yuan, accounting for 45% of the total revenue, becoming the largest customer. It is the large purchase of customer B that has allowed Tianyue Advanced's revenue to more than triple in just two years, so that it can achieve profitability in the first half of 2021 and land on the science and technology innovation board.

If it is the application of 5G that pushes Tianyue Advanced onto the science and technology innovation board, Tianyue Advanced after the listing will usher in a greater performance growth point, that is, new energy vehicles.

Silicon carbide is a third-generation semiconductor material, and compared with traditional silicon materials, the size of siC devices with the same performance can be reduced to one-tenth, and the energy loss can be reduced by three-quarters. Excellent performance also allows silicon carbide devices to have a broad application field and market space, especially in the field of electric vehicles, the application of silicon carbide devices can improve the driving range of electric vehicles, and greatly shorten the charging time.

In fact, new energy vehicles will be the first major growth point of silicon carbide in the next few years. According to Yolé's forecast, the global silicon carbide device market will increase from $500 million in 2019 to $2.5 billion in 2025, with a compound growth rate of 30%. Among them, new energy vehicles as the main driving force, from 225 million in 2019 to 1.5 billion US dollars in 2025, accounting for 60% of the entire market, corresponding to a compound growth rate of 38%. In this Tianyue advanced IPO, it is no accident that many car companies appear in the lineup of strategic investors.

Huawei did the fifth IPO of VC, and the total return has exceeded 6 billion yuan

In August 2019, Hubble Investment, Huawei's wholly-owned subsidiary, invested 110 million yuan in Tianyue Advanced, holding 10% of the latter's shares. That is to say, Tianyue Advanced's pre-investment valuation was 1 billion yuan. The prospectus shows that this is the first external financing since the establishment of Tianyue Advanced.

Huawei's entry soon made Tianyue Advanced a fragrant feast in the primary market, and VC/PE people came to visit, and valuations began to soar.

Four months after Huawei's investment, Tianyue Advanced launched a new round of financing with a scale of 350 million yuan, and three institutions entered, and the pre-investment valuation rose to 1.8 billion yuan.

In May 2020, Zong Yanmin opened a round of old stock transfers, and he sold 6% of the company's total share capital, cashing out 156 million yuan. That is to say, at this time, tianyue's advanced valuation has reached 2.6 billion yuan. In June 2020, Zong Yanmin transferred another old stock, sold 4% of the shares, and cashed out 240 million yuan, calculating the total valuation of Tianyue Advanced at 5.8 billion yuan.

In October 2020, Zong Yanmin transferred the last old shares before Tianyue Advanced was listed, this time selling 6.6% of the equity and cashing out 670 million yuan, corresponding to the total valuation of Tianyue Advanced of 10.1 billion yuan. So far, in just one year, Tianyue Advanced's valuation has risen by 10 times.

At present, the market value of Tianyue Advanced is as high as 38 billion yuan. Huawei's Hubble investment has reached a return multiple of 20 times in this investment, and the VC/PE in the last round of entry can also get more than 3 times the return.

This battle also allows Hubble Investment to once again sit on the throne of "the first VC of hard technology". From Si Ruipu, Canqin Technology, Dongxin Shares, Juguang Technology and then to today's Tianyue Advanced, Hubble Investment has won 5 IPOs in just over two years, and the highest Sripu has obtained nearly 50 times returns.

In the fourth quarter of 2021, Hubble Investment has reduced its holdings in a small number of shares in Sripu, cashing out 61.25 million yuan.

In 2019, Huawei broke the principle of "no suppliers" and registered a subsidiary Hubble Investment to make large-scale investments in the semiconductor industry chain, shaking the industrial circle and the VC circle. After several capital increases, Hubble Investment's current registered capital has reached 3 billion yuan and more than 40 enterprises have been invested.

Regardless of the strategic value, if Hubble Investment is regarded as a 3 billion yuan fund, the financial return on its investment is also very amazing - just the above 5 IPOs have brought book returns of more than 6 billion yuan, which is more than twice the total size of the fund.

At present, Hubble Investment and Nanocore Micro, Haoda Electronics, Changguang Huaxin and other projects have passed the meeting and are waiting to be listed. Among them, Naxin Micro is a leading analog chip that benchmarks Siripu and is expected to reach a market value of tens of billions. The road to return on Hubble's investments has only just begun. (Text/Tao Huidong, Source/Zhongzhong Network)