As we all know, semiconductor companies are sprinting A-shares!
Recently, Brite Semiconductor (Shanghai) Co., Ltd. (hereinafter referred to as BriteChip) submitted a prospectus to the Science and Technology Innovation Board and was accepted, and its sponsor is Haitong Securities.
Source: STAR Board official website
The company is said to be the world's fifth largest chip design service company, ranking second in mainland China, and has a deep relationship with SMIC.
In this sprint IPO, the company plans to raise 600 million yuan, planning to invest in "customized solution platform for network communication and computing chips", "customized chip platform for industrial Internet and smart city" and "high-performance analog IP construction platform".
01
SMIC participates
The predecessor of Cancore Co., Ltd., Brite Co., Ltd., was established in July 2008 and was established by Hong Kong Brite with a registered capital of 3 million US dollars. Among them, Hong Kong Cancore was established by Cayman Cancore, which was established in the Cayman Islands.
It was not until 2017 that Cayman Canxin's shareholders reduced their stake back to the limited level of Cancore. Previously, Cayman Cancore conducted multiple rounds of financing activities, introducing a number of external investors such as SMIC, NVP, GOBI II, Windsong, IPV HK, among which SMIC is a holding subsidiary of SMIC.
After the dismantling of the overseas structure, all the shares held by SMIC and SMIC in Cayman Cancore were transferred to SMIC Holdings, and became the largest shareholder of Cancore.
In August 2020, Cancore Co., Ltd. completed another round of capital increase and introduced Hubei Xiaomi, volcanic stone and other institutions.
As of the latest prospectus, Cancore has a total of 29 institutional shareholders, 3 natural person shareholders, no controlling shareholders and actual controllers. Among them, the largest shareholder Zhuang Zhiqing and his concerted actors hold a total of 19.82%; SMIC's shareholding ratio dropped from 46.60% to 18.9761%, making it the second largest shareholder. In addition, Hubei Xiaomi and Yuanhe Puhua hold 4.77% and 3.18% of the company's shares respectively.
In fact, the relationship between Brite and SMIC does not stop there. Currently, SMIC's co-CEO Zhao Haijun is also the chairman of Cancore.
From the related party transactions disclosed by the company, from 2019 to January to June 2022, the company mainly purchased wafers from SMIC, with a cumulative purchase amount of more than 1.8 billion yuan, accounting for more than 80% of operating costs, making it the company's largest supplier.
For Cancore, the company has accumulated a lot of design experience based on SMIC's different processes, which has improved the success rate of customers' tape-out and obtained stable and continuous wafer foundry capacity.
In fact, the strategic cooperation model between fabs and specific design service companies is not uncommon, as is the case with TSMC and Creative Electronics, and Taiwan Union and Faraday.
At present, some of the technologies of Brite need SMIC's process nodes to support, and the gap between SMIC and TSMC is self-evident, take Creative Electronics, which is held by TSMC 34.84%, and currently in the high-speed interface IP-Serdes IP technology can already use 7nm process, and SMIC is still conquering the 7nm process technology, obviously Brite is also slightly inferior in advanced technology.
02
Gross margin much lower than peers?
Let's take a look at the specific business of Brite.
The company is an integrated circuit design service enterprise that provides one-stop chip customization services, including chip definition, IP selection and authorization, architecture design, logic design, physical design, design data verification, tape-out scheme design and other full-process chip design services, and can provide follow-up chip mass production services according to customer needs.
Source: Prospectus
From January to June 2019 to June 2022, the company's operating income was 406 million yuan, 506 million yuan, 955 million yuan and 630 million yuan, and the corresponding net profit attributable to the parent was 5.3086 million yuan, 17.5854 million yuan, 43.8348 million yuan and 56.5056 million yuan respectively, the company's profit scale showed rapid growth, the average annual compound growth rate in the first three years was as high as about 187%, and the profit in the first half of 2022 has exceeded the level of 2021.
During the reporting period, the net cash flow generated by the company's operating activities was higher than the scale of the current profit, which shows that the company's profit realization is good and has a certain "hematopoietic" ability. Of course, this is inseparable from the company's full-process service business model, which can avoid a certain degree of market risk and inventory risk.
From the perspective of revenue composition, taking 2021 as an example, the company's chip mass production business revenue accounted for 65%, and chip design business revenue accounted for 35%.
During the reporting period, the company's comprehensive gross profit margin remained at about 17%, which was much lower than the gross profit margin level of comparable listed companies.
The reason for this has a lot to do with the business structure of each company.
The company selected VeriSilicon, Creative Electronics, Zhiyuan Technology, Shixin Electronics and Ruicheng Xinwei as comparable companies with similar businesses, of which VeriSilicon has been listed on the Science and Technology Innovation Board in 2020, RuiCheng Xinwei submitted a prospectus to the Science and Technology Innovation Board in June 2020, and the other three are all listed on the Taiwan Stock Exchange.
Among them, 3 listed companies on the Taiwan Stock Exchange have advantages in business development time, business maturity, customer resource accumulation, etc., with strong comprehensive strength and relatively high gross profit margin.
Among the main businesses of VeriSilicon and Ruicheng Micro, semiconductor IP licensing business occupies a large share, and its gross margin level (close to 90%) is significantly higher than that of chip customization business.
Specifically, the gross profit margin of BriteChip's one-stop chip customization business is higher than that of two comparable companies, of which the gross profit margin of chip design business is higher than that of VeriSilicon and lower than that of Ruicheng Micro; The gross margin of the chip mass production business is higher than that of the two comparable companies.
03
R&D investment needs to be improved
In fact, until this stage, the self-sufficiency rate of the mainland integrated circuit industry is still low, especially in the field of high-end chips, there is still a phenomenon of dependence on imports.
However, in recent years, a number of high-quality local wafer foundries, packaging and testing manufacturers and IC design companies have emerged. According to statistics, the number of integrated circuit design enterprises in China reached 2,810 in 2021, an increase of 281.8% from 736 in 2015.
Since 2016, the scale of integrated circuit design in mainland China has exceeded that of chip packaging and testing, becoming the sub-industry with the highest proportion in the three major links of design, manufacturing, packaging and testing.
In the IC design market, global supply is highly concentrated. According to IC Insights' report, the sales of the US integrated circuit design industry accounted for 68% of the global integrated circuit design industry in 2021, ranking first in the world; Taiwan and Chinese mainland accounted for 21% and 9% respectively, ranking second and third respectively.
Among them, from 2016 to 2021, the market size of Chinese mainland integrated circuit design services increased from 1.9 billion yuan to 6.1 billion yuan, with an average annual compound growth rate of about 26.8%, which is higher than the global market.
Although the demand for chip customization continues to grow, the design services industry still faces certain challenges. Due to the increasing complexity of integrated circuit design, the design difficulty and tape-out risk also multiply; At the same time, with the gradual evolution of the process, the difficulty of chip design has increased, the cost of sample tape-out, and the design cycle has become longer, resulting in a significant increase in the design risk and cost of chip design companies.
According to the survey, only about 30% of integrated circuit developers achieved a tape-out success rate of more than 90% in 2020. The so-called tape-out is actually to verify whether the integrated circuit is successful, and large-scale mass production can only be made after the tape-out is successful.
Brite said that during the reporting period, the company successfully tape-outed more than 450 times, and the success rate of one tape-out exceeded 99%. None of the other comparable companies disclosed success rates, and only VeriSilicon mentioned in a speech that it had 50 chips tape-out in 2019, of which the success rate of one tape-out was about 98%.
In 2021, Brite occupied 4.9% of the global integrated circuit design service market, ranking fifth in the world and second in Chinese mainland.
However, as mentioned earlier, Brite Co., Ltd. mainly realizes chip customization and mass production based on SMIC's process technology, and there is still a certain gap in the design service experience of advanced process nodes compared with the world's top design service companies.
It is worth noting that in each period of the reporting period, the company's R&D expenses were 32.5705 million yuan, 39.1547 million yuan, 65.9862 million yuan and 34.5835 million yuan, respectively, accounting for 8.03% to 5.49% of operating income, while the average R&D expense rate of comparable companies in the same industry was close to 20%, and the company's R&D expense rate was much lower than the level of comparable companies, and showed a trend of decreasing year by year.
With the intensification of market competition, the Matthew effect of the strong Hengqiang will be further staged, and the head companies will gain more market share, if Cancore cannot achieve the research and development goals as expected, it may be difficult to consolidate its market position in the future.
04
epilogue
There are really many semiconductor companies that have recently rushed to A-shares, not only head wafer foundries such as Hua Hong Semiconductor and SMIC, but also chip subdivision leaders such as Yuanjie Technology, and the industry has received high attention at present, and these two years are indeed a good time for them to go public.
However, many semiconductor listed companies are "debut is the peak", such as the aforementioned VeriSilicon shares, which ranked first in the mainland in the chip design service market, its issue price was 38.53 yuan / share, and the stock price rose to 174 yuan on the first day of listing, and then fell all the way, and also fell below the issue price.
VeriSilicon stock price trend, source: Choice
It can be seen that although the relevant companies have received more attention after listing, it does not mean that they can continue to enjoy high valuations, in fact, the company should increase investment, consolidate its own moat, and avoid "insufficient stamina", after all, the semiconductor industry innovation iteration is too fast, and there may be "corner overtaking" at any time.