In the first year after BOE's "ownership", HC Semitek's revenue increased but the loss expanded, and the restricted shares of some incentive recipients were invalidated.
On the evening of April 1, HC Semitek's annual report showed that the operating income in 2023 will be 2.903 billion yuan, a year-on-year increase of 23.28%, but the net profit will be -846 million yuan, compared with -147 million yuan in 2022.
It is worth noting that in the five years from 2019 to 2023, HC Semitek lost money in 3 years and made profits in 2 years, but the total loss amount was relatively larger. The company's five-year net profit attributable to the parent company totaled a loss of 1.928 billion yuan, and the non-net profit was a loss for five consecutive years.
After 18 years of development, HC Semitek has become the second largest supplier of LED chips in China and the largest supplier of LED chips for display in China.
Net profit fell 475.16%
HC Semitek said that the main reasons are the slow recovery of the global economy, fierce market competition, weak demand for LED end markets, slow overall inventory depletion, intensified competition after new players entered the game, market prices were under pressure, and volume increases and prices fell, resulting in a greater impact on the gross profit margin of the company's products.
Figure: HC Semitek's 2023 annual report
In August 2023, BOE invested nearly 2.1 billion yuan to obtain the status of the controlling shareholder of HC Semitek. After the panel giant with a market value of 160 billion yuan "became the owner", the market's expectations for HC Semitek to get out of the downturn in performance were disappointed.
It is worth noting that BOE's performance in 2023 is unsightly, with a net profit of 2.547 billion yuan, a year-on-year decrease of 66.22%, and less than 10% of the amount in 2021, and a net profit of -633 million yuan after deducting non-profits, failing to achieve a turnaround, compared with -2.238 billion yuan (adjusted) in the previous year, a loss reduction of 71.74%.
In 2023, HC Semitek will deduct non-net profit of -932 million yuan, a year-on-year decrease of 126.26%, the company's operating income will drop sharply, and the profitability of its main business will be insufficient. net profit -848 million yuan, down 475.16% year-on-year.
With the blessing of the giant BOE, the loss is still so huge, from the two aspects of the decline in government subsidies and the decline in gross profit margin.
Government subsidies have been declining
The government subsidies included in the current profit and loss will only be 103 million yuan in 2023, and from the perspective of government subsidies in the past three years, they are in a state of shrinkage, and the government subsidies in 2023 will be less than one-third of those in 2022 and one-quarter of those in 2021. As a high-tech company, its net profit is very dependent on government subsidies, which is the most "thirst-quenching" source of funds.
Figure: HC Semitek's 2023 annual report
HC Semitek's non-operating revenue from 2021 to 2023 will be 364 million yuan, 265 million yuan, and 86.04 million yuan, respectively, showing a downward trend. Non-operating income is an important part of the company's net profit, and the sharp decline in non-operating income in 2023 has dealt a heavy blow to the company's net profit, resulting in a year-on-year decline in net profit that far exceeds the decline in non-net profit.
BOE赋能难阻挡毛利率下跌
HC Semitek's main business is the R&D, production and sales of LED chips, LED epitaxial wafers, sapphire substrates and third-generation semiconductor compound GaN power electronic devices. In the LED industry, the weak demand of the end market has slowed down the overall inventory, and the competition has intensified after new players enter the game, the market price has been under pressure, and the volume has increased and the price has fallen.
According to product classification, the revenue of LED chips and LED substrates accounts for a relatively large proportion, and the sales volume of the two major products in 2023 will increase by 110.66% and 2.93% year-on-year respectively. In 2023, HC Semitek, empowered by the BOE brand, significantly improved its marketing capabilities for lighting BU, direct display BU, backlight BU, and overseas major customer BU, achieving a significant increase in sales volume and revenue.
Figure: HC Semitek's 2023 annual report
However, HC Semitek's gross profit margin has turned from positive to negative, with the overall gross profit margin in 2023 being -8.5%, a decrease of 16.66% from 2022, of which the gross profit margin of LED chips and LED substrates will be -12.59% and -32.87% respectively. This has led to a significant increase in HC Semitek's revenue level in 2023, but a significant increase in losses.
HC Semitek has developed high value-added products such as Mini LEDs and automotive LEDs, but this is not enough to make up for the impact of price reductions on the gross profit of the company's products.
Figure: HC Semitek's 2023 annual report
In terms of HC Semitek's Mini/Micro LED business, after BOE becomes the controlling shareholder of the Company in 2023, it can be fully empowered in terms of upstream and downstream resources and industrial synergy to jointly expand Mini/Micro LED cutting-edge technologies and products.
It can be seen that becoming the controlling shareholder of HC Semitek in BOE in 2023 will not be able to save the decline in performance by empowering the company's business
The restricted shares of some incentive recipients will be invalidated
In 2020 and 2023, HC Semitek used most of the funds in its Mini/Micro LED business in both additional offerings. HC Semitek's 2020 additional issuance and investment project "Mini/Micro LED R&D and Manufacturing Project" will result in a loss of RMB 78.096 million in 2023, due to the lower than expected downstream demand for the corresponding products, resulting in the overall benefit of the project not meeting expectations.
In view of the failure to meet the company-level performance appraisal in 2023, HC Semitek's board of directors decided to cancel a total of 3,171,100 restricted shares (excluding departing employees) that have been granted but not yet vested in the third vesting period of the company's 2021 restricted stock incentive plan.
For investors in the secondary market, the invalidation of restricted shares of some of the incentive recipients of the invested company is good news, which helps to increase the intrinsic value of the stocks. In addition, restricted shares can also be repurchased by shareholders and then cancelled to reduce the circulation. For the repurchase and cancellation of restricted shares held by employees.
In addition, the announcement disclosed that HC Semitek plans not to distribute cash dividends, not to give bonus shares, and not to use provident fund to increase share capital.
In 2023, HC Semitek's directors, supervisors, and senior management will be compensated with a total of 14.513 million yuan. Zhang Zhaohong, chairman of the board of directors and chairman of the executive committee, received a total pre-tax remuneration of 1.469 million yuan from the company, An Peng, member of the executive committee, vice president and chief financial officer, received a total pre-tax remuneration of 447,000 yuan from the company, and Zhang Chao, vice president and secretary of the board of directors, received a total pre-tax remuneration of 1.317 million yuan from the company.
Figure: HC Semitek's 2023 annual report