Reporter | Liang Yi
Recently, another chip manufacturer, Xintianxia Technology Co., Ltd. (hereinafter referred to as Xintianxia), submitted a listing prospectus on the ChiNext board and sponsored the institution, CITIC Construction Investment Securities.
Core World is mainly engaged in the development, design and sales of code flash memory chips, the main products include NOR Flash and SLC NAND Flash, has entered the supply chain system of Samsung, Midea, Coworth, Aidu Technology, ZTE, Sichuan Changhong, Quectel Communications and other manufacturers and achieve mass delivery and use, downstream applications in consumer electronics, network communications, Internet of Things, industrial and medical and other fields.
Benefiting from the rise in chip prices, the operating performance of The Core World soared in 2021, of which the net profit exceeded the threshold of 100 million yuan, while in 2020, only more than one million, the gross profit margin was as high as 45.3%, comparable to the leader Gigabit Innovation (603986. SH）。 However, in the future, when the semiconductor supply chain returns to normal and chip prices fall, can the company's profits be maintained?
In addition, in the code flash memory chip industry in which Core World is located, leading enterprises such as Winbond and Wanghong have a high market share, Gigabit Innovation ranks third, and a number of emerging enterprises have been born, and Dongxin Shares (688110. SH), Puran Shares (688766. SH) and so on. At present, the company's market share is relatively low, in the face of fierce market competition, how much space does the company have to expand?
Performance skyrocketed
From 2019 to 2021, the operating performance of Core World has grown by leaps and bounds, of which operating income was 249 million yuan, 335 million yuan and 790 million yuan, and net profit was 3.341 million yuan, 2.5303 million yuan and 213 million yuan, respectively, especially in 2021, revenue and net profit increased by 135.82% and 8420% year-on-year, respectively.
Image source: Prospectus
By product, in 2021, NOR Flash product revenue was 280 million yuan, an increase of 63.74% year-on-year; SLC NAND Flash product revenue was 415 million yuan, an increase of 299.04% year-on-year, thanks to the increase in volume and price.
In 2021, the comprehensive gross profit margin of Core World increased significantly to 45.3%, compared with 19.23% and 25.46% in 2019 and 2020, respectively. The interface news reporter combed and found that the increase in the company's gross profit margin last year was mainly caused by the increase in sales unit price higher than the increase in cost, of which SLC NAND Flash products were particularly obvious.
Specifically, the gross profit margin of the company's SLC NAND Flash products soared from 17% in 2020 to 50.76% in 2021, and the unit price of sales rose from 4.42 yuan / piece to 8.75 yuan / piece, an increase of 97.99%, while the unit cost increased by only 17.45% in the same period; In addition, the gross profit margin of NOR Flash products increased from 32.85% in 2020 to 41.32% in 2021, and the sales unit price increased by 23.82%. Unit costs increased by 8.19% over the same period.
In terms of sales volume, the number of SLC NAND Flash products in 2021 increased by nearly 0.24 billion to 0.47 billion units year-on-year, and the number of NOR Flash products increased by nearly 100 million to 392 million units year-on-year.
In 2021, the semiconductor industry boom improved, coupled with the impact of the epidemic, the chip market as a whole was in short supply, chip prices soared, and the performance of most chip manufacturers improved in this wave of price increases.
In 2021, GigaDevice achieved operating income of 8.51 billion yuan, an increase of 89.25% year-on-year, and net profit attributable to shareholders of listed companies was 2.337 billion yuan, an increase of 165.33% year-on-year.
It is worth noting that the gross profit margin of Core World in 2021 is close to ThatGabit Innovation. Last year, the gross profit margin of GigaDevice was 46.54%, of which the gross profit margin of memory chips (including NOR Flash, SLC NAND Flash and DRAM) was only 39.71%, far less than that of the "little brother" core world.
In the future, as the global epidemic subsides, the semiconductor supply chain returns to normal, chip prices fall, and the gross profit margin of the core world may decline, and the company's high-growth operating performance is likely to be unsustainable.
In addition, the prospectus also mentions that the early product introduction cycle of The Core World is long, the cost is not yet advantageous, and the continuous research and development and operation investment is large, resulting in the company's unmade up losses in the past. At the end of 2020, the undistributed profit of the parent company was -24.917 million yuan, and it was not until last year that the undistributed profit turned positive to 204 million yuan.
The industry is highly competitive
The industry in which Core World's products are located is the non-volatile memory chip (information retention after power outage) subdivision of memory chips. In the field of non-volatile memory chips, after decades of development, Flash has occupied a mainstream position, according to the different storage technologies, Flash can be divided into NOR Flash and NAND Flash two product types, of which NOR Flash and SLC NAND Flash are both code flash memory chips.
It is reported that in the NOR Flash market, the world's top five companies account for about 80% of the market share. Taiwanese enterprises Winbond and Wanghong are in a leading position, Chinese mainland the memory chip industry leader Gigabit Innovation ranks third, while the market share of American companies Cypress and Micron is gradually shrinking.
Although Chip World did not announce its own market share, according to CINNO Research data, Gigabit Innovation's market share in the global NOR Flash market reached 15.6% in 2020, ranking third, and GigaDevice achieved revenue of 4.497 billion yuan in the same period, of which memory chip revenue was 3.283 billion yuan. Therefore, it is not difficult to speculate that the market share of the core world is relatively low, the business scale is relatively small, and the company's business development in the future will also face the challenge of intensified competition in the industry.
In terms of process, the mainstream process of ETOX process in the industry NOR Flash products is 65nm/55nm, and gradually evolves to the 50nm/4xnm node; the mainstream process of SLC NAND Flash products is 3xnm/2xnm.
Overall, the product process of Core World is closely related to the industry. Among them, the mainstream products of NOR Flash products are at the level of 65nm/55nm process technology, and the company's 50nm/4xnm process products are under development; the company mainly purchases SLC NAND Flash storage wafer process of 2xnm from manufacturers such as Jiaoxia and Micron, and has mastered the design capabilities of 2xnm single-chip SPI NAND storage wafers.
In this IPO, Core World intends to raise 497 million yuan, of which 168 million yuan is used for the research and development upgrade and industrialization of NOR Flash products, 140 million yuan is used for the research and development upgrade and industrialization of NAND Flash products, 89.444 million yuan is used for the construction of storage research and development centers, and the remaining 100 million yuan is used to supplement working capital.
Among them, in the NOR Flash product development and upgrading and industrialization project, it is planned to further develop nor Flash products with 55nm/50nm/4xnm process on the basis of the existing NOR Flash product line; in the NAND Flash product development and upgrading and industrialization project, it is planned to develop single-chip SPI NAND products and ultra-low-power SLC NAND products with 2xnm process on the basis of the existing SLC NAND Flash product line Flash products.
In terms of R&D investment, during the reporting period, the R&D expenses of Core World were 20.4495 million yuan, 39.6572 million yuan and 65.5244 million yuan, accounting for 8.22%, 11.84% and 8.29% of the operating income, respectively, and the industry average was 10.78%, 8.05% and 7.95%.
As of the end of 2021, the company has a total of 20 employees, of which R & D personnel accounted for 52.74%, has obtained 93 patents, including 68 invention patents, but also has 36 integrated circuit layout designs and 22 software copyrights, and in 2021 by the Ministry of Industry and Information Technology identified as the third batch of specialized new "little giant" enterprises.
It should also be added that the mainland memory chip manufacturers, including Gigabit Innovation, Dongxin Shares, Puran Shares, and Hengshuo Shares, including Core World, mainly adopt the Formulas model, that is, only engage in chip design business, and entrust the wafer manufacturing, packaging and testing to the fab and the packaging and testing plant to complete, which has also become the company's cost source.
During the reporting period, the proportion of wafer procurement costs in The Core World continued to be stable at more than 80%, the proportion of chip packaging and testing services remained above 10%, and the company's wafer and packaging and testing service providers were mainly well-known large enterprises in the industry such as SMIC, Shanghai Huali, Huatian Technology, etc., of which SMIC was the largest customer, accounting for 36.17%, 31.45% and 23.49% of the procurement amount of the top five suppliers, respectively.
It is reported that last year, a number of wafer manufacturers have increased prices and expanded production, and SMIC announced that the price of products will increase across the board after April 1. Some insiders believe that the wafer price increase will continue in 2022.
At the same time, The core world has also increased its stocking efforts. In 2021, the book value of the company's inventory was 226 million yuan, of which the wafer amount was as high as 106 million yuan, while the inventory in 2020 was only 105 million yuan and the wafer was only 0.39 billion yuan.
Favored by capital
In the memory chip industry, the core world can be described as a "new star". The company was established in April 2014 by Qianhai Baili (Long Dongqing 100%) and Shen Yue with a capital of 5.6 million yuan and 2.4 million yuan respectively.
Since its establishment, Core World has received investment from sequoia China, SDIC Venture Capital, Shenzhen Venture Capital (CS), Danen Capital and other well-known institutions.
Image source: Prospectus
Before the IPO, Long Dongqing directly held 32.69% of the company's shares, as the company's controlling shareholder, Shen Yue, Wang Bin, Ai Kanglin have signed a concerted action agreement with Long Dongqing, Long Dongqing and Shen Yue jointly control 61.18% of the shares, as the company's joint actual controller.
Sequoia China, SDIC Venture capital and Shenzhen Venture Capital hold 9.61%, 8.99% and 11.87% of the company's shares respectively (including those held by Red Clay Galaxy Venture Capital and Luohu Laterite Venture Capital), of which Pu Xun, vice president of Sequoia Capital, Xu Futian, vice president of SDIC Venture Capital, and Zhou Xiaokang, senior investment manager of Shenzhen Venture Capital, serve as directors of Core World.
At the same time, the actual controller, Long Dongqing, also has a listing VAM agreement with the investment institution.
The interface news reporter also noted that because the net profit of The Core World in 2020 did not meet the standard of item (1) of the GEM listing, the company chose the (2) listing standard: "The expected market value is not less than 1 billion yuan, the net profit in the latest year is positive and the operating income is not less than 100 million yuan".
If we take Gigabit Innovation's dynamic price-to-earnings ratio of 30 times as a reference, the rough valuation of the net profit of 213 million yuan in 2021 is 6 billion yuan.
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