(Report producer/analyst: Deppon Securities, Chen Haijin, Chen Rongfang)
01 Longxun Co., Ltd.: Deeply engaged in domestic high-speed mixed-signal chips
1.1. Company introduction: mainly video bridging chips, the three major business areas have accumulated deep experience
Adhere to the field of high-speed mixed-signal chips, customer resources are high-quality. Founded in 2006, Longxun Co., Ltd. is an integrated circuit design enterprise focusing on the R&D and sales of high-speed mixed-signal chips.
The company's main products include high-definition video bridging and processing chips and high-speed signal transmission chips, which have been constantly innovating since its inception, and currently has more than 140 different models of chip products, which can fully support HDMI, DP/EDP, USB/TYPE-C, MIPI, LVDS, VGA and other signal protocols.
In terms of customers, the company has successfully entered the supply chain of well-known enterprises at home and abroad, such as Hon Hai Technology, Shiyuan Co., Ltd., Yealink Network, Facebook, Polycom, Cisco, Garming and so on. At the same time, the world's leading main chip manufacturers such as Qualcomm, Intel, Samsung, and Ambarella have incorporated the company's products into the reference design platform for some of their main chip applications.
The company's main business in the semiconductor industry belongs to the category of high-speed mixed-signal chips, especially digital-analog mixed-signal chips used to process high-speed signals.
The company's high-speed video bridging and processing chip, high-speed signal transmission chip products not only include analog signal reception amplification, analog-to-digital conversion, data clock recovery, digital-to-analog conversion, signal transmission and other related functions of analog circuits, but also include protocol processing, video processing and control and other related functions of digital circuits, while the chip mainly processes high-definition video signals with high-speed characteristics, belongs to a typical high-speed mixed-signal chip.
1.2. Shareholding structure: The chairman of the board of directors is the actual controller of the company, and the core technical personnel are senior members of the team
THE CONTROLLING SHAREHOLDER AND ACTUAL CONTROLLER OF THE COMPANY IS MR. FENG CHEN, THE CHAIRMAN OF THE BOARD. Mr. FENG CHEN, American nationality, permanent residence in China, doctoral degree, successively served as a system engineer of the 38th Research Institute of China Electronics Technology Group Corporation, a senior design engineer of Intel Corporation, a senior design engineer of Accelerant Networks, a senior executive engineer of Intel Corporation, and the chairman and general manager of Longxun Co., Ltd. since November 2006.
AS OF MARCH 2023, MR. FENG CHEN DIRECTLY HOLDS 37.47% OF THE COMPANY'S SHARES, AND THE VOTING RIGHTS OF 3.45% OF THE SHARES HELD BY SHAREHOLDER QIU CHENGYING HAVE BEEN IRREVOCABLY DELEGATED TO FENG CHEN, WHILE CORE WEALTH CONTROLLED BY FENG CHEN HOLDS 3.31% OF THE COMPANY'S SHARES.
THEREFORE, MR. FENG CHEN DIRECTLY AND INDIRECTLY CONTROLS 44.23% OF THE COMPANY'S SHARES.
The company's core technical personnel are all members of the team who joined the company during the initial period.
THE COMPANY'S CORE TECHNICAL PERSONNEL ARE FENG CHEN, SU JIN AND XIA HONGFENG. FENG CHEN IS THE CHAIRMAN AND GENERAL MANAGER OF THE COMPANY, SU JIN AND XIA HONGFENG BOTH JOINED LONGXUN IN 2007, BOTH ARE SENIOR TECHNICAL PERSONNEL OF THE COMPANY. Su Jin has served as an engineer, department manager, technical director, R&D director and deputy general manager of the digital design department of Longxun Co., Ltd., and is currently a director of Longxun Co., Ltd.
Xia Hongfeng has successively served as an analog design engineer, digital design engineer, layout design department manager, analog IP design department manager, deputy director of R&D department of Longxun Co., Ltd., and is currently the director of the company's engineering department. Su Jin and Xia Hongfeng each hold 224,400 shares of the company, each holding 0.32%.
1.3. Financial analysis: a virtuous cycle of high gross profit margin in the industry, profitability and asset quality growth together
The company's profitability continued to improve, benefiting from the explosive growth of the dual factors of the industry and the company in 21 years, and the growth rate in 22 years was slightly flattened. In terms of operating income, the company's operating income from 2019 to 2022 was 105 million yuan, 136 million yuan, 235 million yuan and 241 million yuan, corresponding to a year-on-year growth rate of 29.54%, 30.10%, 72.63% and 2.61%.
The significant increase in operating income in 2021 is mainly due to:
1) The landing of new technology applications such as AR/VR and vehicle display has brought continuous incremental market space to the company's products, superimposed on the tight production capacity of upstream suppliers, and the sales volume and price of the company's main products have risen.
2) The company's product technology continues to iteratively upgrade, the products maintain good market competitiveness, a number of products gradually through the reliability test and customer certification of well-known end customers such as Hon Hai Technology and CVTE, successfully entered its supply chain, and customers began large-scale procurement in 21 years.
In terms of net profit attributable to owners, the company's net profit attributable to owners in 2019-2022 was 33 million yuan, 35 million yuan, 84 million yuan and 69 million yuan, respectively, corresponding to a year-on-year growth rate of 31.59%, 6.47%, 137.92% and -17.68%. In 21 years, benefiting from the increase in revenue growth and the dilution of costs and expenses caused by scale effects, the net profit attributable to the parent also showed a substantial increase.
The net profit attributable to the parent in 22 years decreased by 17.68% year-on-year, mainly due to the comprehensive impact of the following factors:
1) The company continued to increase R&D investment to enhance the company's competitiveness, and personnel salaries and other R&D investment increased compared with the same period of the previous year;
2) Affected by factors such as product price adjustments and product structure changes, the gross profit margin in 2022 will decrease slightly compared with the previous year;
3) Affected by changes in macroeconomic and semiconductor industry demand, inventories increased compared with the same period, and the company's inventory impairment provision in 2022 increased compared with the same period of the previous year.
The net profit attributable to the parent in the first quarter of 2023 decreased by 69.63% year-on-year to 07 million yuan, mainly due to the cyclical fluctuations of sub-industries, the sales situation was less than expected, the product sales revenue declined, the gross profit margin decreased, and the company's R&D investment and personnel compensation continued to increase.
The industry barriers are high, and the company's gross profit margin advantage is obvious.
The company's high-definition video bridging and processing chips and high-speed signal transmission chip products have high technical content and barriers, and have strong competitive advantages in their market segments, so the company's comprehensive gross profit margin is higher than that of comparable companies.
From the perspective of business,
1) The gross profit margin of the company's display processing chip and high-speed signal transmission chip is higher than that of the video bridge chip, which accounts for the largest proportion of revenue. In 2020, all kinds of products were affected by the pressure of industry competition and product sales structure, and the gross profit margin dropped to the range of 55-60%, but it was still in a good gross profit margin range.
2) In addition to industry factors, the company has always insisted on developing and launching new products, and continuously increasing the proportion of high value-added products. In the future, with the increase, iteration and upgrading of display processing chips and high-speed signal transmission chips with high gross margins, the company's comprehensive gross profit margin still has room for improvement.
The company's expense ratio is declining, and it continues to increase R&D expenses.
The company's overall expense ratio for 2019-2022 is 43.9%, 46.8%, 32.5% and 32.4%.
1) The company adopts the sales strategy of "distribution first, direct sales as supplement", and the sales expense ratio is similar to the average level of listed companies in the same industry, which is within a reasonable fluctuation range.
2) The company's management expense ratio is higher than that of comparable companies, mainly due to the small scale of the business and the higher management cost per unit of revenue.
3) The company's R&D expenses in 2019-2022 continue to increase, and the R&D expense rate in each period exceeds the average level of listed companies in the same industry, mainly because the company attaches great importance to maintaining high investment in R&D teams and R&D technology in order to maintain technological leadership in the industry; In addition, due to the scale of business, the R&D expense ratio was slightly higher.
In the first quarter of 2023, the company's R&D expense ratio reached 26.95%, mainly due to increased R&D investment and increased personnel salaries.
The company's asset quality is high, and it has been greatly affected by the industry prosperity in 22 years.
1) Inventory: From the end of 2017 to the end of 2020, the book value of the company's inventory remained basically stable, and with the expansion of revenue scale, the company's inventory turnover speed continued to accelerate, and the inventory quality was high.
In 2021, the company appropriately increased inventory to cope with the widespread shortage problem in the industry, and the inventory turnover rate decreased.
In 2022, on the one hand, the company added 40nm, 55nm and other high-priced advanced process wafer inventory, and on the other hand, increased the number of wafer stocks, resulting in a further increase in inventory; In addition, due to the general decline in the industry prosperity, the speed of inventory turnover has decreased.
2) Accounts receivable: The company mainly settles from payment to delivery, so the book value of accounts receivable from the end of 2017 to the end of 2021 is small. The company has formulated an accounts receivable management system and reconciliation mechanism to strictly control the recovery risk of accounts receivable and effectively ensure the quality of the company's accounts receivable.
The book balance of accounts receivable at the end of September 2022 increased by 3585.34% compared with the end of 2021 to 3.2576 million yuan, mainly due to the failure of some customers to collect payments in time. At the end of 2022, the book balance of accounts receivable fell to 2,404,400 yuan.
1.4. The fundraising and investment projects are closely related to the company's strategy, and the target market space is broad
The company's fundraising and investment projects mainly involve R&D, upgrading and iteration related to the company's main business, with a target market space of tens of billions.
"HD video bridging and processing chip development and industrialization project" and "high-speed signal transmission chip development and industrialization project" will further increase R&D investment on the basis of the company's existing two product lines, promote the upgrading and iteration of the company's core products, and develop more advanced high-definition video bridging and processing chips and high-speed signal transmission chips to meet the escalating market demand in the terminal fields such as security monitoring, video conferencing, vehicle display, display and commercial display, AR/VR, PC and peripheral, 5G and AIoT.
According to CINNO Research, the global market size of the company's high-definition video bridging chips and high-speed signal transmission chips is expected to reach 5.574 billion yuan and 6.337 billion yuan respectively in 2025, corresponding to a CAGR of 20.02% and 13.17% from 2020 to 2025. Diversified application scenarios will bring sustainable market incremental space for the company's products.
It is also worth paying attention to the R&D center upgrade project, and the company's future strategic development direction is clear. The project will further purchase hardware equipment and software, build a complete R&D design platform and upgrade laboratories, and focus on the following technology R&D directions:
1) Next-generation SERDES technology research and development: Based on the company's technology accumulation in the field of high-speed signal transmission, the research and development of 5G high-speed signal high-quality transmission technology is carried out, and a high-speed signal transmission chip that can meet the key requirements of high-speed signal equalization shaping, high-speed clock extraction, and low delay such as high-speed signal equalization shaping, high-speed clock extraction, and low latency is developed to achieve a data transmission rate of ≥ 28Gbps and a transmission delay of ≤0.5ns, which meets the safety and efficiency requirements of 5G transmission.
2) Research and development of ultra-high-definition video transmission and display chips applied to vehicle systems: mainly based on the company's technical basis for video signal transmission, it provides complete chip solutions for ultra-high-definition video transmission and display in the car for the current high-end automotive market for video long-distance transmission and ultra-high-definition video display.
3) 8K ultra-high-definition video processing and display chip: Based on 4K ultra-high-definition video processing technology, research on 8K ultra-high-definition video processing technology is carried out, and competitive 8K ultra-high-definition video processing chips are developed by upgrading key technologies such as high frame rate, wide color gamut and high transmission rate in response to the urgent demand for ultra-high-definition display of intelligent terminal systems such as smart TV, AR/VR, and security monitoring.
4) Enterprise USB, PCIe Hub/Switch series chips: On the basis of high-speed data transmission and video transmission interface technology, research on enterprise-level USB, PCIe Hub/Switch series chips for data communication, interface expansion and ultra-high-definition display of terminal systems.
02 HD video chip industry: the company's corresponding market space exceeds 10 billion yuan
The high-definition video image processing process can be divided into image acquisition, sender image processing, signal transmission, receiving end image processing, image display and other links, each link requires specific function of the video chip to support the realization, mainly including:
1) Display driver chip and display timing control chip, used to support image display on the display end;
2) High-definition video bridging chip, high-speed signal transmission chip, video image processing chip, used to support front-end video conversion, transmission and processing;
3) SoC chips for video encoding and decoding, such as TV SoC, set-top box SoC, network camera SoC and other chips;
4) Semiconductor components such as lens sensors in the image acquisition process.
The main function of the video interface is to output the video signal to an external device, or to collect the video signal collected externally.
Video interface technology consists of physical transmission channels and signal transmission protocols. At present, the mainstream high-definition video interfaces and signal protocols in the industry mainly include HDMI, DP/EDP, USB Type-C, MIPI, LVDS, VGA, which are used in various fields.
The market size of high-definition video chips continues to grow, and the scale of the Chinese market is growing faster.
According to CINNO Research, the global HD video chip market size in 2020 is about 105.2 billion yuan, with the continuous increase in the number of terminal video equipment, the global HD video chip market continues to grow, it is expected that the global HD video chip market size will reach 189.7 billion yuan in 2025, with a compound growth rate of about 12.5% from 2020 to 2025.
In recent years, China's downstream consumer electronics industry has developed rapidly, and with the increase in the localization rate of electronic machine manufacturing and huge local market demand, the localization rate of China's high-definition video chip industry is expected to continue to increase.
According to CINNO Research, the market size of Chinese mainland HD video chips in 2020 was about 46.7 billion yuan, and it is expected that the market size of Chinese mainland HD video chips will reach 96.9 billion yuan in 2025, with a compound growth rate of about 15.7% from 2020 to 2025.
2.1. HD video bridging and processing chip: a bridge for video signal transmission
2.1.1. HD video bridging chip
The high-definition video bridge chip is the bridge between the transmission of video signals from the display source to the display terminal.
As video applications continue to evolve to high-definition video and ultra-high-definition video technology, different high-definition video compression formats are derived and iterated from high-definition data transmission, so that different use scenarios and specific types of device sources and display terminals usually adopt different video signal interfaces and protocols, thereby giving rise to the demand for video bridging chips.
High-definition video bridge chip is mainly used between the device source and the display terminal, according to different video protocol standards for format conversion, so that the display terminal can receive the device source video signal integrated circuit, mainly divided into sending chip, receiving chip, conversion chip. Among them, the sending chip and the receiving chip are mainly used for high-definition video external interfaces, the transmitting chip is usually located in the device source, the receiving chip is usually located in the display terminal, and the current common high-definition video external interfaces are HDMI, DP, etc.
The conversion chip is mainly used for high-definition video internal interface, the conversion chip is still located between the device source and the display terminal, but the device source and the display terminal are located in the same device, and the current common internal video interfaces are eDP, MIPI, LVDS, etc.
The HD video bridge chip enables the conversion of HD video signals between different data formats. As shown in the figure below, the left is the video bridge chip input video interface data stream format, the right is the video bridge chip output interface data stream format, although the data format of the input video data stream and the output video data stream are different, the data content of the high-definition video signal before and after transmission remains unchanged.
Chinese mainland high-definition video bridging chip market size is slightly higher than the global market size growth rate during the same period.
According to CINNO Research, the global high-definition video bridging chip market size was about 2.238 billion yuan in 2020, and the market size is expected to reach 5.574 billion yuan in 2025, with a compound growth rate of about 20.02% from 2020 to 2025.
In 2020, the market size of Chinese mainland HD video bridging chips is about 881 million yuan, benefiting from the continuous demand in AR/VR, education and video conferencing, displays and commercial displays, and the market size of Chinese mainland HD video bridging chips is expected to reach 2.413 billion yuan in 2025, with a compound growth rate of about 22.33% from 2020 to 2025.
Texas Instruments occupies an absolute market share, and Longxun has a place in the market.
According to CINNO Research, the company accounted for 4.2% of the global high-definition video bridging chip market in 2020, ranking sixth and ranking first among Chinese mainland companies. In the Chinese mainland HD video bridging chip market, the company accounted for 6.2%, ranking fifth.
2.1.2. Display processing chips
The display processing chip is a video processing chip with the main function of improving the image display effect, which is characterized by changing the video data and display content. For example, the processing chip that supports LCD display is responsible for transmitting the received LCD graphics data to the driver and generating the corresponding control signal, so as to realize a series of complex graphic display functions such as graphic display, flipping, overlay, and scaling.
As shown in the figure below, the difference between the display processing chip and the video bridge chip is that the display processing chip contains a processing unit inside to process video data.
The global display processing chip market tends to be saturated, while the Chinese mainland market still has great growth potential.
As one of the front-end core chips of the liquid crystal display system, the display processing chip has been widely used, and the market is relatively mature and stable.
Chinese mainland display processing chip market is still in the early stage of development, in 2020, the Chinese mainland display processing chip market size of about 1.794 billion yuan, benefiting from the continuous demand in AR/VR, education and video conferencing and commercial display and display fields, it is expected that the market size of Chinese mainland display processing chip will reach 3.094 billion yuan in 2025, with a compound annual growth rate of about 11.52% from 2020 to 2025.
The field where the display processing chip is located is a subdivision with a low degree of localization at present.
Among them, the display control chip market is mainly dominated by MediaTek, Realtek and Novatek; Video processing chips (refers to ASIC chips used for frame rate conversion, video rotation and other special functions) belong to the characteristic market segment, and the main suppliers are Macro Image in South Korea, iChips in Japan, and Chrontel in the United States.
The company is one of the few local manufacturers with the same type of chip independent design capabilities, the company's display processing chip sales scale is small, and there is still a gap between the market position and technical level compared with overseas advanced manufacturers.
2.2. High-speed signal transmission chips: The digital age is driving the demand for high-speed signal transmission
High-speed signal transmission chip refers to the chip that plays an auxiliary transmission role in various high-speed interface channels and is a bridge for signal transmission. The main features of high-speed signal transmission chips are: the input/output interface is the same, the transmission data format is unchanged, and the data content is unchanged. According to different functions, high-speed signal transmission chips can be subdivided into relay chips, switching chips, distribution chips, and matrix switching chips.
The digital age is driving the demand for high-speed signal transmission.
With the emergence and development of digital emerging industries such as the Internet of Things, cloud computing, artificial intelligence, 5G communication, and unmanned driving, the amount of data transmission has shown an exponential upward trend, and various high-speed transmission protocols have been continuously updated and upgraded, and the demand for high-speed signal transmission chip solutions in terminal applications has also continued to rise.
In 2020, the global high-speed signal transmission chip market size was about 3.414 billion yuan, and it is expected that the global high-speed signal transmission chip market size will reach 6.337 billion yuan in 2025, with a compound growth rate of 13.17% from 2020 to 2025.
In 2020 Chinese mainland market size of high-speed signal transmission chips is about 750 million yuan, benefiting from the development of downstream fields such as vehicle displays, the market size of Chinese mainland high-speed signal transmission chips is expected to reach 1.569 billion yuan in 2025, with a compound growth rate of about 15.91% from 2020 to 2025, and the overall growth rate is higher than that of the global market.
Texas Instruments and Spectrum occupy most of the market share, and Longxun's market share is relatively low.
According to CINNO Research, the company accounted for 0.9% of the global high-speed signal transmission chip market in 2020, ranking eighth and ranking second among Chinese mainland companies.
In the Chinese mainland high-speed signal transmission chip market, the company accounted for 3.3%, ranking sixth.
2.3. Downstream applications are widespread, and growth opportunities in AR/VR and automotive display fields are grasped
The main application markets of high-definition video bridging and processing chips and high-speed signal transmission chips can be divided into: security monitoring system market, education and video conferencing market, vehicle display market, commercial display and display market, AR/VR market, PC and peripheral market and other application markets.
Market size share:
1) HD video bridging and processing chips: From the perspective of global market size, vehicle display, AR/VR, PC and peripherals are the largest markets for HD video bridging and processing chips, which are expected to occupy 28.85%, 24.99% and 19.69% of the global market space in 2025, respectively. From the perspective of Chinese mainland market size, except for commercial displays and displays, the proportion of various application fields is similar, of which AR/VR corresponds to the largest market space, which is expected to account for about 27.48% of the total market space in 2025.
2) High-speed signal transmission chip: The largest application field of high-speed signal transmission chip is expected to occupy 86.10% and 70.77% of the global and Chinese mainland market space in 2025, respectively.
Market size growth rate:
1) HD video bridging and processing chips: AR/VR is the fastest growing market size between 2020 and 2025, corresponding to CAGRs of 59.43% and 97.61% in the global and Chinese mainland markets, respectively. In addition, education and video conferencing also have a CAGR growth rate of more than 20%.
2) High-speed signal transmission chips: Education and video conferencing are the fastest growing areas of market size between 2020 and 2025, corresponding to CAGRs of 23.57% and 25.18% in the global and Chinese mainland markets, respectively. In addition, the field of automotive display, commercial display and display also has a rapid growth rate contribution.
On the whole, the high-definition video chip industry should grasp the AR/VR field in the high-definition video bridge chip market, as well as the vehicle display field in the high-speed signal transmission chip market, seize the development opportunities in the existing and incremental markets, and accelerate the penetration of products to customers in major fields.
03 Company competitiveness analysis
3.1. The product matrix is rich and complete, and the focus is clear and clear
3.1.1. Three major businesses: clear strategic focus, tilted towards high barriers and high value-added products
1) Video bridging chip: Video bridging chip is a product line that the company has been focusing on for a long time and has established strong technology and market advantages. From 2019 to 2021, the proportion of the company's video bridging chips in the total operating income was 58.66%, 69.52% and 78.86%, respectively, and the contribution to the company's performance increased year by year.
2) Display processing chip: display processing chip is the company's technology accumulation and industrial experience on the video chip, gradually developed new product line, due to the current business scale is small, and also rely on the company's independent characteristics and competitive video bridging technology, so in the product classification still belongs to the high-definition video signal bridging and processing chip product category.
The company is optimistic about the market prospects of display processing chips in the application fields of gaming display, home projector, vehicle display and other applications, and has gradually expanded its product line in recent years, and is one of the few local manufacturers in China with independent design capabilities of the same type of chip.
3) High-speed signal transmission chip: From 2019 to 2021, the company's high-speed signal transmission chip operating income was 34 million yuan, 31 million yuan and 34 million yuan, respectively, corresponding to a year-on-year growth rate of -8.21%, -8.39% and 7.37%.
Some of the company's high-speed signal transmission chip products with low technical barriers are used in the field of computer and TV peripherals, with the addition of more competitors, the homogenization competition is more fierce, resulting in the market price and gross profit margin of some models of the company's products showing a downward trend, and the profit margin is shrinking.
Under the background of tight production capacity, the company strategically adjusted its product structure, reduced sales of low-value-added chips, and mainly produced high-value-added chips. Therefore, the company's shipments of high-speed signal transmission chips have declined in recent years, while the unit price level has improved significantly in 2021, corresponding to the company's year-on-year negative revenue in 2021.
The ironing cycle fluctuates, and the added value of the company's products shows an upward trend.
In 2020, the company lowered the prices of some products with simple functions and fierce market competition, and at the same time, affected by the downstream market demand, the proportion of sales of high-definition video bridging and processing chip products with relatively simple functions and relatively low unit prices increased, resulting in a slight decrease in the sales price of the company's products in 2020.
In 2021, the sales price of the company's high-definition video bridging and processing chips increased from 7.77 yuan / piece to 11.45 yuan / piece, and the sales price of high-speed signal transmission chip increased from 5.72 yuan / piece to 8.75 yuan / piece, the overall sales price of the company's products showed an upward trend, mainly because:
1) There is a shortage of production capacity in the semiconductor industry, and the company has raised the price of products according to market conditions;
2) The company has successively launched upgraded products of the original model, which have been improved in terms of specifications and performance, and the sales price is higher;
3) The company reduces the shipment of products with fierce market competition and lower sales unit price in high-speed signal transmission chips.
The strategic goal is to adjust to high-barrier products, and focus on building a technological moat.
1) High-definition video bridging and processing chips: The sales amount and sales quantity of high-barrier products in this type of chip have grown rapidly. From 2019 to 2021, the sales amount of high-barrier products in this type of chip accounted for 29.50%/41.18%/54.94%, and the sales volume accounted for 13.92%/18.88%/34.02% respectively. The company's product structure has been continuously optimized, and the market recognition of high-barrier products has been continuously improved.
2) High-speed signal transmission chip: The company's sales revenue of this type of chip remained stable as a whole, and the product structure was optimized under the condition that the revenue scale remained stable overall.
From 2019 to 2021, the sales amount of high-barrier products in this type of chip accounted for 25.31%/27.04%/56.10%, and the sales volume accounted for 12.63%/13.74%/39.79%.
From 2020 to 2021, the company has completed the capacity switch of this type of chip inclined to high-barrier products, and the application fields such as video conferencing, commercial display, and security monitoring have shown strong demand for the company's iterative high-barrier matrix switch chips, switching chips, and relay chips, and this type of chip high-barrier products have achieved rapid growth.
3.1.2. Seven areas: Multiple areas jointly drive performance, with a focus on in-vehicle display applications
The company's current revenue structure is still dominated by PC and peripheral with lower ASP, display and commercial display and video conferencing systems, and the AR/VR field in high-definition video bridging and processing chips and 5G and AIoT fields in high-speed signal transmission chips currently contribute relatively little to the company's revenue. The company has gradually accumulated advantages in products and customers, and is expected to gradually shift to higher value-added fields.
Automotive electronics is one of the future application directions that the company focuses on.
The company's many video bridging and processing chips supporting DP, TYPE-C, HDMI, MIPI and LVDS protocols have entered the field of automotive display applications with good compatibility and stability, and some models have passed the AEC-Q100 test; The company has expanded its end customers to include BMW, Bosch, Changan, BYD, Lili, etc.; The 4K/8K ultra-high-definition video signal bridging and processing series chips developed by the company support HDMI2.1, DP1.4 and other protocol specifications, which have entered the stage of trial production and verification, and some models have achieved small batch shipments, which are expected to become one of the few single-chip solution products that can be compatible with a variety of ultra-high-definition signal protocols, supporting video processing functions including visually lossless video compression technology, video scaling, rotation and segmentation and 8K display single-chip solution products, meeting the upgrading needs of a new round of 4K/8K displays and AR/ Market demand for VR, ultra-high-definition commercial displays.
Automotive display applications have become a new market growth point. In vehicle display applications, the video source is the camera, which is transmitted to the central control through the high-speed video interface, transferred to the SoC after the video, and the output video signal is transferred to the display through the video, and the video signal needs to be bridged and transmitted in the process.
In recent years, the automotive industry is constantly changing and innovating in the direction of electronics and intelligence, so that automobiles have rich intelligent terminal functions such as entertainment, office, and communication. With the commercial landing of electric vehicle technology and autonomous driving technology, on-board display has become a new market growth point for many types of chips.
3.2. The technology is both comprehensive and advanced, and the domestic substitution strength is strong
From the perspective of protocol, the company's chip products can cover most mainstream high-definition video signal protocols in the market, and the coverage reaches the industry-leading level, and the technology is comprehensive.
The only uncovered protocol in the table is V-By-One, which was introduced by THine Electornics, Japan, and the main reason why the company's products do not support this agreement is that it has not obtained the copyright.
In addition to the mainstream protocols listed in the table, the company's products can also cover other video signal protocols such as digital RGB and DVI, and have international competitiveness in the coverage and compatibility of mainstream protocols.
From the perspective of technology and products, the company's products can be divided into three categories: transmitter/receiver/repeater.
There are differences in the functions and technical implementation methods of the transmitter and receiver of audio and video signals, and the comprehensive technical capabilities in this area play an important role in the high-definition video bridging and processing chip, as well as the distribution chip, switching chip and matrix switching chip in the high-speed signal transmission chip.
The repeater chip in the high-speed signal transmission chip is mainly used for medium and long-distance transmission, focusing on the key indicator of transmission bandwidth (product of single channel rate and channel number), and at the same time paying attention to the repair of electrical signals to solve the attenuation problem of high-speed signals in transmission, and the functional requirements of high-definition video protocols are relatively simpler.
The company's products can support the industry's highest version of all mainstream HD video protocols, and the products and technologies are advanced. In addition to the protocol types listed in the diagram, the company can also support the highest standards in LVDS and VGA interfaces.
The technical level of the company's transmitter/receiver/repeater products for most protocols has reached the industry's advanced level. Taking the HDMI protocol as an example, compared with similar products of leading enterprises in the subdivided industry, the company's product support version with HDMI transmit/receive/relay function has reached the highest level in the industry, and has reached the advanced level of similar products in the industry in many functional indicators.
In addition, there is a certain gap between the company's DP Repeater products and similar advanced products in the industry, mainly because the market segment of DP repeater chips is small, and the company has not invested in product iterative development, so the company's products in this segment are still far from the world's advanced level.
In addition to the high-definition video signal protocol specification support capabilities, the company's product technical level is also reflected in other functional processing capabilities.
Compared with the highest technical level in the industry, the product technical level of the company's high-definition video bridging and processing chip is only slightly different in color depth indicators, and the company's gap in high-speed signal transmission chip products is large. Compared with the mainstream technology level of the industry, the company still has a leading edge in two types of products.
From the comprehensive comparison between the company and the leader in the high-definition video chip industry, there is still a certain gap in revenue scale and market share. However, the company's net profit growth rate, gross margin, net profit margin and other indicators are higher than the industry average, and the profitability is strong.
From the perspective of growth, the company is in a period of rapid development, with the company's revenue YOY reaching 72.63% in 2021 and a CAGR of 49.86% from 2019 to 2021, ranking at the forefront of the industry.
From the perspective of R&D and technical strength, the company's R&D expense rates in 2019-2021 are 30.01%, 27.39% and 21.23%, respectively, and the R&D expense ratio indicators are in the forefront of the industry, with a comprehensive high-definition video chip product matrix and industry-leading product performance.
3.3. Customer barriers are gradually built and cooperation opportunities with main chip manufacturers are actively expanded
The company's business scale has grown rapidly and has rapidly increased its volume among well-known customers.
The company has successfully entered the supply chain of well-known enterprises at home and abroad, such as Hon Hai Technology, Shiyuan, Yealink Network, Facebook, Polycom, Cisco, Jiaming and so on. From 2019 to 2021, the company's sales among the above well-known enterprises will be 857,200 yuan, 3,165,700 yuan and 26,364,100 yuan, accounting for 1.17%/2.46%/12.27% of the total revenue. From the aspects of revenue, volume and structure, there has been a significant increase.
With the continuous improvement of the company's market and technology recognition, Qualcomm, Intel, Samsung, and Ambarella have incorporated the company's products into some video application-related reference design platforms.
The reference design platform usually refers to a system-level solution composed of the main chip as the core, with various special chips such as interface chips, memory chips, and power chips, for specific application scenarios, usually formulated and released by the main chip manufacturer.
As a dedicated chip provider, the company can cooperate with the main chip to form a complex system-level solution to achieve video access, format conversion, video transmission and other functions, which is an important part of the video-related reference design platform.
In order to ensure the quality, effect and stability of the overall chip solution, the main chip manufacturer customers usually choose the on-board chips listed in the reference design platform for procurement. In recent years, the company has actively communicated and cooperated with main chip manufacturers, and its products have been included in the reference design platform of a number of main chip applications, helping the company better grasp the cutting-edge technology trends and market opportunities in the industry.
3.4. Future strategic development and continuous improvement of business territory
Expand the depth of existing production lines vertically and expand the territory of new production lines horizontally. The company will adhere to the field of high-speed mixed-signal chips, and strive to become the world's leading provider of high-speed mixed-signal chips through the iterative upgrading of existing product lines and the diversification of new product lines.
Based on the deep understanding of the high-definition video application market and high-speed mixed-signal technology, the company will also be committed to diversifying its product lines in the future, further enriching the chip product line related to high-definition video applications, and developing high-speed data transmission chips for high-performance computing, next-generation communications and other fields, providing a more comprehensive portfolio of high-speed mixed-signal chip solutions.
Vertical depth: The high-definition video transmission protocol that the company has not yet supported is mainly the highest version released in recent years, and it takes two to three years from the launch of the protocol to the clarification of the functions on the demand side and the research and development of supply-side technology. The company actively invests in research and development for DP2.0, eDP1.5, USB Type-C PD R3.1, MIPI D-PHY v3.0, MIPI C-PHY v2.1 and other protocol types that are still in the market promotion and development stage of companies in the industry, and builds more solid technical advantages and barriers in the field of high-definition video transmission protocols, and is expected to complete the research and development of related technologies and the mass production of the first generation of products in the next one to five years.
Horizontal expansion: In addition to the mainstream high-definition video transmission protocol mainly focused on the current products, the company also plans to expand its technology and product line in the future, develop PCIe protocol that supports high-speed data transmission, and supports related technologies of high-definition video codec standards (such as H.264/265), and the company plans to complete the research and development of related technologies and the mass production of first-generation products in the next three to five years.
At present, the company's high-speed data transmission chips for high-performance computing, new generation communication and other fields are progressing in an orderly manner, and it is expected that related products have broad application prospects.
04 Earnings forecasts and valuations
4.1. Profit Projections
1. High-definition video bridging and processing chip: The company's high-definition video bridging and processing chip is mainly composed of two major businesses: high-definition video bridging chip and display processing chip.
With the continuous increase of high-definition video display scenarios, the continuous improvement of resolution requirements, and the continuous upgrading of high-definition video signal protocols, the market demand for high-definition video bridging and processing chips is also rising.
The company's high-definition video bridging and processing chip can realize the conversion between various mainstream video signal protocols, and has rich video processing functions.
The company's product matrix is rich and perfect, and it is rapidly increased among well-known customers. We expect that the revenue of the company's high-definition video bridging and processing chip business is expected to increase by 36.20%/47.39%/60.78% from 2023 to 2025, and the gross profit margin is 55.72%/56.88%/57.97%, respectively.
2. High-speed signal transmission chip: The company's high-speed signal transmission chip can realize the functions of high-speed transmission, copying, adjustment, amplification, distribution, switching and other functions of signals.
With the emergence and development of digital emerging industries such as the Internet of Things, cloud computing, artificial intelligence, 5G communication, and unmanned driving, the growth of data transmission has spawned the demand for high-speed signal transmission chip solutions for terminal applications.
The company's general-purpose high-speed signal extension chip based on single-channel 12.5Gbps SERDES technology has been localized in the field of 5G communication, and the fundraising project will also be oriented to the research and development of next-generation SERDES technology to achieve higher technical requirements such as data transmission rate ≥ 28Gbps and transmission delay ≤ 0.5ns.
We expect that the revenue of the company's high-speed signal transmission chip business is expected to increase by 34.45%/59.50%/74.55% from 2023 to 2025, and the gross profit margin is 55.00%/60.00%/64.00%, respectively.
4.2. Valuation
We select Amlogic Corporation, Rockchip, Thrip and Shengbang as comparable companies, and the comparable companies are all leading enterprises in China with analog/digital-analog hybrid chips. The average PE multiple of comparable companies in 2023-2025 is 58.08/40.51/30.94, and we expect the company's net profit attributable to parents in 2023-2025 to be 0.89/1.30/243 million yuan, corresponding to the current PE multiple of 76.53/52.26/27.93.
05 Risk warning
The risk of cyclical and policy fluctuations in the semiconductor industry, the risk of high dependence on video bridge chips for revenue growth, the risk of intensified market competition, the risk of trade friction and changes in trade policies, the risk of technology iteration, the risk of large inventory balance and impairment, and the high risk of supplier concentration.
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Report from [Foresight Think Tank]