The small chip that the big factory unintentionally made Jinghe Integration pick up a big bargain and fully enjoyed the dividends of the price increase.
Suspected BOE (000725. SZ) panel chip supplier Crystal Integration is coming to market.
On March 10, the Listing Committee of the Science and Technology Innovation Board issued an announcement that the first offering of Hefei Jinghe Integrated Circuit Co., Ltd. was approved. It has only been 10 months since Jinghe Integration first submitted a prospectus on the Science and Technology Innovation Board, and after two inquiries, it finally realized its dream of the Science and Technology Innovation Board. Jinghe Integration, which raised 9.5 billion yuan, will also become the largest IPO raised by the Sci-Tech Innovation Board since 2022.
Crystal Integration is a pure wafer foundry that has now entered the top three of Chinese mainland 12-inch capacity and revenue. It is preceded by the more comprehensive and advanced SMIC (688981. SH;00981.HK) and Huahong Semiconductor (01347.HK).
Compared with the top two integrated manufacturers, the current focus on LCD DDIC (Display Driver Integrated Circuit, panel display driver chip) field, DDIC's wafer foundry revenue accounted for more than 90% for more than three consecutive years.
Source: Crystal Integration Prospectus
And DDIC is a very important control chip in the panel industry.
Through several years of efforts, the mainland panel factories represented by BOE have finally got rid of foreign technology blockades and completed the localization of panel displays.
It is precisely because of the autonomous control and capacity of the downstream panel that the upstream chip suppliers such as Crystal Integration have been revitalized.
Deep binding of downstream large customers is a tried-and-true magic weapon in business. Crystal Integration is no exception, and it has an intriguing connection with BOE.
According to the prospectus of Jinghe Integration, before the issuance, the top three shareholders of the company were Hefei Jiantou, Hefei Chipping and Lijing Technology, and the three held a total of 80.43% of the shares.
After the equity penetration, it was found that hefei SASAC was the ultimate actual controller, holding a total of 53.04% of the shares, and Lijing Technology held 27.44% of the shares, ranking second.
Seeing the "Hefei State-owned Assets Supervision and Administration Commission" and the panel display, it is not difficult for the viewers to think of boe's Hefei 10.5 generation line (Hefei BOE Display Technology Co., Ltd.).
According to the enterprise investigation information, the major shareholder of Hefei BOE Display Technology Co., Ltd. is also Hefei Construction Investment and Hefei Core Screen. The same shareholders, upstream and downstream linkage of the industry, to promote the healthy and orderly development of the local industrial chain. Therefore, the conjecture that Jinghe Integration is the upstream secondary supplier of BOE is highly likely to be in line with the facts.
Source: Qi cha cha
There is another clue to support this. Jichuang North is a leading manufacturer of display touch solutions in China, and BOE is one of its largest customers.
At the same time, Jichuang North is not only a shareholder of Jinghe Integration, but also the second largest customer of Jinghe Integration, accounting for 19.1% of revenue (first half of 2021). It is inferred from this that the downstream customers of Crystal Integration are likely to have BOE.
Nowadays, every 4 intelligent display terminals in the world have 1 display from BOE, and BOE's panel shipments can be directly used as a barometer of crystallization integrated shipments. So, as a panel leader, how is BOE's recent situation?
A panel factory mired in a quagmire
On March 9, 2022, BOE released the 2021 performance express, and the annual performance hit a record high. The annual operating income was 219.44 billion yuan, an increase of 61.89% year-on-year; the annual net profit attributable to the mother was 25.826 billion yuan, a year-on-year increase of 412.86%.
Such a contrarian performance, the stock price trend of the secondary market is a different scene. As of the close of trading on March 10, 2022, BOE A shares closed at 4.39 yuan, down 42% from their highest point in one year, and the market value evaporated by more than 120 billion yuan.
Not only did BOE's stock price plummet, but TCL Technology (000100.SZ), the second leader in the panel industry, fell by more than 50% from its highest point in one year.
In the same period as BOE and TCL stock prices fell sharply, the broader market (Shanghai Composite Index) fell only about 4%. Why did record earnings skyrocket and not save oversold stock prices? The panel double male and double recorded a new low, transformed into a panel double bear.
Source: Oriental Fortune APP
The main reason is that the panel dominated by large size (TV) has once again entered the price decline cycle. The downward cycle of the previous round changed the competitive landscape of the panel.
The continuous price decline has forced back a number of Korean traditional LCD panel manufacturers such as Samsung and LG, and the capacity contraction ushered in a cycle upward.
Coinciding with the new capacity of domestic panel factories climbing, while the high generation line (10.5 or 11 generation line) to help economic cutting efficiency, from mid-2020 to mid-2021, domestic panel manufacturers volume and price rise, creating a performance myth.
In recent years, the high-generation line has frequently opened up new production capacity, while the growth of the demand side is weak, and the phenomenon of oversupply has once again appeared.
IHS data shows that the demand (area) of TV panels in 2020 accounted for 71.36% of the total panel market. Therefore, most of the revenue and profit of panel factories are focused on TV panels. Large-size TV panels have fallen by 30-50% since mid-2021 and are not seeing signs of stabilization at the moment.
Whether in terms of the number of uses or the realizable process, TV panels are also the most important downstream applications of GDS at present. The low price of TV panels reflects the downturn in the downstream market to a certain extent.
The market's low expectations for panel factories will also be transmitted to the upstream DDIC, and the road ahead of future crystallization integration is also clouded with a layer of fog.
But now Jinghe Integration does not have to worry about overcapacity, and the price increase of the industry boom cycle and the surge in the amount of high-definition panels make it earn a lot of money.
The small and beautiful DDIC caught up with the "lack of core" outlet
The production process of the display panel is very complex and is divided into many steps.
In layman's terms, the panel is assembled by a number of films with different functions that are bonded together, plus a frame and backlight.
On the whole, it can be divided into a panel body and a control circuit. The most important link in the control circuit is DDIC, which is used to realize the process of displaying from scratch and precise control.
Source: GekeWei (688728. SH) prospectus, collated by Alpha Workshop Research Institute
Take the LCD display panel as an example, the panel itself does not have the ability to emit light, and it is necessary to drive the circuit to control the backlight LED and adjust the brightness and color of the screen before it can output a colorful picture.
The working principle of DDIC is: to receive the information sent by the motherboard, and to form instructions for analog digital processing and algorithm processing of the information, and then adjust the deflection angle of the liquid crystal molecules by controlling the output voltage, so as to achieve the purpose of controlling the screen display effect.
In today's mature process, the barriers of panel components such as polarizers, filters, liquid crystals, glass and so on are more biased towards the material end.
That is to say, as long as there are raw materials, the production capacity of these products is sufficient. However, after the world entered the "lack of core" tide, all kinds of chips are in a tight supply and demand environment.
The problem of the lack of core in the car has also been analyzed before: "Semiconductor Cycle, another weakness of new energy vehicles".
Driven by automotive electronics, supplemented by the Internet of Things and artificial intelligence, the growth rate of the global semiconductor market will reach a cyclical peak in 2021. It is not uncommon for a chip to be hard to find.
The tide of "lack of cores" began in the automotive industry and eventually spread to the entire electronics industry. Various chip products are crowded out of each other within the limited production capacity, resulting in a tight supply of the whole industry.
Especially for DDIC for LCD, this specification is relatively versatile and the technical content is relatively low, due to its low added value (low gross profit margin), wafer manufacturers prefer CIS, MCU and other higher value-added chips.
At the same time, the designers of high-margin chip products are more willing to make an advance payment to pre-order the future production capacity of the fab, and the fab is more willing to advance the placement of high-margin chips. For example, SMIC and Huahong Semiconductor will basically achieve full production and full sales in 2021, and both will deliver record performance.
Suffering is the process is relatively backward, the gross profit is relatively low general-purpose chips, DDIC belongs to this category.
On the one hand, production capacity is limited, and on the other hand, demand has increased significantly.
Thanks to BOE's high-generation line and the research and development of new display technology, 4K/8K large-size TVs have gradually become popular in the market, and the sales of notebooks and high-end TVs have increased significantly year-on-year, superimposed on the home/remote work demand brought about by the epidemic.
For example, 8K TV panels require more than 20 DDIC, whether it is new terminal demand or replacement demand, all of which are transmitted to more DDIC requirements.
According to CINNOResearch industry forecast data, the global DDIC market size reached 13.8 billion US dollars in 2021, an increase of more than 50% year-on-year, becoming one of the important subdivisions in the global integrated circuit chip market.
Overall, DDIC's process range is relatively wide, from high-end 28nm process to low-end 150nm process coverage.
THE DDIC of OLED panels (including mobile phones and TVs) requires a relatively advanced 40-28nm process, the TDDI (Touch and Display Driver Integration, touch and display driver integration) of LCD phones and tablets requires a process node of 90-55nm, and the DDIC of LCD notebooks, monitors and TVs requires 150-90nm process nodes.
This process range perfectly matches the "range" of the crystallization integration, and the main product process during the reporting period is exactly 150-90nm. In the past two years, the global 8-inch wafer production capacity increase is limited, and the capacity shortage corresponding to the 150-90nm process node is more obvious.
The small volume of DDIC has proved its importance to the market with price increases, and the volume and price increase in 2021 will drive the global DDIC revenue scale to increase by about 53%.
Source: CINNO Research, collated by Alpha Workshop Research Institute
Grandma does not hurt, uncle does not love, the big factory unintentional small chip, just let the crystal integration pick up a big bargain, fully enjoy the dividends of price increases.
The comprehensive gross profit margin of Jinghe Integrated in the past four years was -276.55%, -100.55%, -8.57% and 45.13%, respectively, with the release of production capacity and price increase, the gross profit margin improved significantly.
At the same time, the net profit was basically a loss of about 1.2 billion yuan in the previous three years, and in the first half of 2021, it directly turned a sharp loss into a profit, and the profit reached 122 million yuan.
Although the business scale and market share are far lower than those of industry leaders such as TSMC (TSM.US) and SMIC, Jinghe Integration has caught up with the "lack of core" while binding the panel factory, and its performance has improved significantly, which is in stark contrast to the crazy decline of downstream customers BOE.
The road to expansion is imperative
In the future, the market and customers have increasing requirements for wafer foundry, and whether the crystal integration can catch up with the step is worth exploring in depth.
The proportion of GCC's fixed assets and projects under construction was 49.16% of total assets, far greater than SMIC's 38%. It is fully proved that at this stage in the early stage of the expansion line, the company's production capacity is already in a state of full production and full sales, and it is imperative to expand production capacity and expand categories, but there is great uncertainty in the research and development progress of future products.
At present, in terms of technical level, crystallization integration only realizes mass production of 150-90nm process nodes, and the 55nm process is still in the customer product verification stage. At the same time, global industry leaders such as TSMC and SMIC have reached 5nm, 14nm and other process nodes, and the gap is not a little and a half.
The 150-90nm mature process of Crystal Integration basically starts from The Bottom of Force Crystal Technology, and the independent research and development road of Crystal Integration has not yet been tested by the market.
Dating back to 2015, the Hefei Municipal Government, according to the integrated circuit industry development plan and the industrial development strategy of "core screen device combination", hopes to use the synergy effect of Hefei's new display industry to take the display driver chip as the entry point and eventually drive the development of the chip industry.
"Screen" refers to BOE, and "core" refers to crystal integration. Crystal integration came into being.
In the same year, according to the "Technology Transfer Agreement" signed with Jinghe Integration and Hefei Construction Investment, Lijing Technology provided the basic technical documents and specification files of the 90nm, 110nm and 150nm process related to the FOUNDG of LCD display driver chips to Jinghe Integration.
Although Jinghe Integration has carried out improvement, optimization and innovation and upgrading on the basis of receiving imported technology, the main core technology has been inherited from Lijing Technology, and further independent research and development after that needs to rely on its own strength, still faces great difficulties.
According to Crystal Fusion's prospectus, Crystal Fusion's R&D expenses were 131 million yuan, 170 million yuan, 245 million yuan and 140 million yuan respectively (in the first half of 2021). Although the absolute value of R&D expenses has indeed increased year by year, the growth rate of R&D expenses has lagged far behind the growth rate of revenue.
Especially for wafer manufacturers in a single category, the future hope is destined to expand the category, if you can not strengthen research and development, it is difficult to enter the supply chain as a new supplier.
Jinghe Integration also realized that this road is the only way to go, and this time it is expected to raise 9.5 billion yuan, which will be used to expand production capacity and expand categories, respectively, while strengthening the research and development of advanced processes.
55nm post-illumination CMOS image sensor chip process platform, 40nm MCU process platform, 40nm logic chip process platform, 28nm logic and OLED chip process platform are all the direction of future development, and the market space is huge.
Take OLED DDIC as an example, which has been monopolized by South Korea and Taiwan, Samsung, TSMC and UMC provide nearly 90% of the global supply, and the space for domestic substitution can be imagined.
Mainstream panel factories are making a big fuss on the OLED production line, and have opened factories to expand production capacity as the main development direction in the future. BoE alone has 3 advanced OLED production lines, and will have a production capacity of 144,000 OLED substrates per month after production, close to the leading big brother Samsung.
With OLED production capacity as a guarantee, the price is several times that of LCD TV DDIC, and the future growth space of OLED DDIC is unlimited.
Even if the market space is sexy enough, it is still unknown whether the crystal integration can catch up.
After experiencing the "chip famine", major fabs have expanded production, with the release of new capacity on the supply side and the rational return of demand, the supply and demand relationship of DDIC is expected to be alleviated in 2023, and the real test of crystal integration after the tide is low.