(Report Producer: Soochow**).
The company is a well-known third-party integrated circuit professional testing enterprise in China, providing high-quality and efficient testing solutions for integrated circuit enterprises and institutions, and its main business is integrated circuit testing and related supporting services.
1.1.The first professional integrated circuit testing service enterprise in China
Founded in 2001, Shanghai Hualing is the first professional integrated circuit testing service enterprise in China, committed to providing all kinds of integrated circuit enterprises with full-process testing technical services such as testing software and hardware development, testing and verification, wafer testing, finished product testing, system-level testing and high-reliability testing. The company focuses on the field of integrated circuit testing, since its inception has broken through a series of high-end chip testing methods and engineering technologies, built a core competitive advantage, has undertaken 8 major national science and technology projects and more than 50 other countries and Shanghai key scientific research projects, independently developed more than 1,000 chip testing procedures covering more than 80% of integrated circuit products on the market, formed a number of core technologies, completed the application and authorization of a number of domestic and foreign invention patents, and the overall technical level has reached the leading position in China.
The company's shareholding structure is stable, and Fudan Microelectronics, as a listed company, has a relatively dispersed shareholding structure, and there is no controlling shareholder or actual controller. Most of the other major shareholders are natural persons. Zhang Zhiyong and Liu Yuanhua are husband and wife. The holding subsidiary of the issuer is Shanghai Hualing Shenci Integrated Circuit Co., Ltd.
1.2.Provide test solutions for the whole life cycle of integrated circuits
Since its establishment, the company has focused on the field of integrated circuit testing, relying on strong technical strength and long-term business experience accumulation, to become a leading and sustainable competitive testing enterprise in this field. The company has a stable core technical team, equipped with international advanced professional integrated circuit testing equipment, established a high-level purification test environment and a first-class real-time production monitoring system, testing capabilities cover a wide range of product fields, service products and processes cover a number of nano-level advanced processes. Integrated circuit testing is essential to the design and manufacture of integrated circuits, and is an indispensable part of the industry. First of all, integrated circuit design needs to verify and analyze the correctness and validity of wafer samples and finished chip samples. Secondly, the production process of integrated circuits includes wafer manufacturing and packaging, in which there may be many factors that will cause integrated circuit defects, so it is necessary to complete wafer testing and finished product testing separately to determine the specific failure cause to improve the design, production and packaging process, and improve product quality and yield.
According to the testing needs of different customers, the company develops different testing solutions to meet the functional and timely needs of multi-category wafers and finished chips for integrated circuit testing. Based on years of industry experience, the company can now provide testing technology services for the whole life cycle of integrated circuit products.
1.3.In recent years, the performance growth has been stable and the profit has increased significantly
The company's performance has increased year by year, and the company's revenue has increased from 1$3.1 billion grew rapidly to 2$8.4 billion. From 2020 to 2021, the company fully seized the opportunity of industrial development, grew rapidly, continuously optimized technologies and products, strengthened market development in key industries, and further improved its market position in the high-end integrated circuit testing business. At the same time, the new production capacity within two years has also been put into operation, resulting in a significant increase in the company's main revenue. The company's net profit attributable to the parent company in 2022 decreased compared with 2021, mainly due to the impact of the macro political and economic environment, the epidemic and other factors, the entire semiconductor industry showed a decline, and the company's revenue decreased due to its impact; At the same time, due to the need for planning and reserving talents, the company's salary included in management expenses has increased.
According to the company's 2023 semi-annual report, the company's operating revenue in the first half of 2023 in the testing services product sales segment was 150/0.2 billion yuan, with a gross profit margin of 536%/48.2%。In the first half of 2023, the revenue from testing services accounted for 987%, which is the dominant position in the company's revenue, is the company's core business that the company deeply focuses on.
The company's gross profit margin and net profit margin remained stable overall, with a phased decline in 2022. We analyze the reasons for the following aspects: 1) In the whole year of 2022, affected by the macro political and economic environment, the epidemic and other factors, the entire semiconductor industry showed a state of decline, and the company's revenue also decreased by 3 year-on-year1%, the lower utilization rate affects the profitability of enterprises; 2) At the same time, the company increased the purchase of raw materials, probe cards and other low-value consumables, increased investment in major production equipment according to the company's planning, and purchased production and management software to improve production efficiency and management level, resulting in a year-on-year increase in operating costs of 57%, gross margin decreased by 42%。3) Due to the planning of ** policies and the application of new projects in 2022 There is a certain time span, resulting in a decrease in related scientific research projects and a decrease in ** subsidies; 5) The epidemic has delayed the acceptance of the project, resulting in a decrease in project revenue. Combined with the above-mentioned decrease in operating income and the increase in administrative expenses, net profit decreased by 225%, net profit margin decreased by 63 percentage points.
The company's performance in 2023 is gradually picking up. In the first half of 2023, 1) the company's gross profit margin increased by 84 percentage points; 2) Other income increased by 282 over the same period of the previous year due to the increase in subsidies for scientific research2%；3) New Structured Deposit Income 8420,000 yuan; 4) Operating profit increased by 79 percent over the same period last year4%。Net profit increased by 89 percent year-on-year due to higher revenue and other income4%, net profit margin increased by 103 percentage points. The company attaches great importance to R&D investment, through independent R&D and industry-university-research collaboration, focusing on the research and development of high-end integrated circuit products in the market, and at the same time conducting pre-research on forward-looking test technology and test equipment, forming a R&D and production integrated R&D layout of "R&D generation and application generation". The proportion of the company's R&D expenditure in operating income has always maintained a high level, and the proportion of R&D expense rate in the company's management expense rate has always been more than half in recent years. The significant decrease in the expense ratio in 2020 is mainly due to the significant decrease in the management expense rate and R&D expense ratio in that year, mainly due to the change in the financial statistics, which has been used to this day. In the past three years, the company's expense ratio has shown an overall upward trend during the period, mainly due to the company's increased R&D investment in recent years and the increase in short-term anti-epidemic expenditure brought about by the epidemic.
1.1.The company has deep technology accumulation and deep moat
The company has strong R&D capabilities, and has undertaken 8 major national science and technology special projects since its establishment, as well as more than 50 national and Shanghai key scientific research projects. By the end of 2023, it has independently developed more than 1,000 high-end chip testing solutions, completed more than 200 domestic and foreign invention patents, authorized more than 70 invention patents, and registered more than 200 computer software copyrights. The company has assembled a mature and high-quality technology platform. The company has Shanghai Integrated Circuit Testing Engineering Technology Research Center, Shanghai Integrated Circuit Testing Public Service Platform, and Technology Innovation Center, which is a public service platform for testing technology supported by the Ministry of Industry and Information Technology, the Ministry of Science and Technology and the National Science and Technology Major Project, and awarded by Shanghai. As of 2023, the company has gathered outstanding talents in the field of integrated circuit testing technology research and industrial services, such as domestic first-generation large-scale integrated circuit automatic test technology researchers, experts from the 863 expert database of the Ministry of Science and Technology, * allowance recipients, leading talents, discipline leaders, professors, etc., with deep professional background and senior industry experience in integrated circuit packaging and testing technology.
The company has accumulated rich core technical achievements in high-end design and application testing solutions, advanced process product testing solutions, advanced packaging and testing solutions, etc.; It has mastered the testing technology of high-end chips such as high-performance CPU, MCU, CIS, MEMS, FPGA, memory chips, communication chips, RF chips, information security chips, and artificial intelligence chips; The service products cover advanced processes such as 7nm-28nm; It has developed hardware design solutions for advanced process products such as high-density, fine-pitch and high-speed KGD wafer testing. It has completed the development of three-dimensional integrated high-density packaging related test solutions, and has the ability of three-dimensional three-dimensional packaging chip collaborative testing and test program management.
2.1.Industry segmentation trends are driving the growth of the professional testing market
The integrated circuit manufacturing industry chain mainly includes chip design, wafer manufacturing, packaging and testing, etc., the packaging and testing industry is located in the middle and lower reaches of the industrial chain, the business essentially includes packaging and testing two links, but because the general packaging manufacturers also provide testing services, it is generally called the packaging and testing industry. The business model of the integrated circuit industry mainly includes two types: IDM model and Fabless model. IDM model refers to the vertical integration model, in which enterprises can independently complete all aspects of integrated circuit design, wafer manufacturing, packaging and testing, which is the most common model in the early development of the integrated circuit industry, but because the IDM model has high requirements for the company's R&D strength, production management capabilities, financial strength and business scale, it is currently only adopted by a few large enterprises. Fabless mode refers to the fabless model, in which enterprises are mainly engaged in the design and sales of chips, and the wafer manufacturing, packaging and testing links are outsourced, without having to invest a lot of money in the construction of wafer production lines, packaging and testing factories, etc. Compared with the IDM model, the FABLESS model has a lower capital and scale threshold for integrated circuit design, which effectively reduces the financial risk caused by large-scale fixed asset investment, and enables enterprises to better concentrate their resources on design and development, maximize the operational efficiency of enterprises, accelerate the development of new technologies and new products, and enhance comprehensive competitiveness. This model is currently adopted by the vast majority of integrated circuit companies in the world.
The integrated circuit testing industry is located in the middle and lower reaches of the industrial chain, with high technical content and capital-intensive characteristics, in the emphasis on the professional division of labor industry trend, the relatively heavy assets of the integrated circuit testing industry gradually independent, the emergence of many third-party professional testing enterprises. The separation of professional testing from packaging and testing can reduce repeated capacity investment, reduce product testing costs with scale effect, reduce industrial costs, and provide customers with professional testing services stably; In addition, under the professional division of labor, third-party professional testing companies can further focus on technology upgrading and experience accumulation, which is conducive to the improvement of professional testing standards; In addition, the third-party professional testing company has independence, which can avoid the test results being affected by other interest factors, and can ensure timely feedback to the upstream, which can get the double trust of customers and responsible parties.
2.2.The localization of integrated circuits has helped the scale of the domestic test market to rise
Since 2015, the United States has adopted a series of restrictive measures on China's chip industry, in order to overcome the difficulties of independent development, China has further strengthened the importance of the integrated circuit industry, formulated a number of guiding policies and target plans, vigorously supported the research and development and industrialization of core key technologies of integrated circuits, and strived to achieve a breakthrough in the localization of core chips. According to data released by the China Semiconductor Industry Association, China's integrated circuit industry exceeded one trillion yuan for the first time in 2021, and the annual sales of the integrated circuit industry were 1,045.8 billion yuan, a year-on-year increase of 182%。From 2016 to 2021, the sales scale of China's integrated circuit industry grew rapidly.
With the deepening trend of independent development and domestic substitution of high-end chip products such as CPU, FPGA, and large-capacity storage in China, as well as high-reliability fields such as automotive electronics, avionics, medical electronics, and military electronics, the requirements for test quality, test items, and test frequency in a series of test procedures such as testing, verification, and screening of integrated circuit products will be further improved. In this context, while the demand for professional testing services in the integrated circuit industry continues to grow, the requirements for testing methods, testing technologies and testing efficiency of testing services are constantly improving. With the continuous development of the integrated circuit industry towards the trend of professional division of labor, the market demand for specialized integrated circuit testing is very extensive. In recent years, China has vigorously promoted the development of the IC industry, and the number of domestic IC design enterprises and the scale of wafer manufacturing have continued to grow. According to the statistics of the Industrial Technology Research Institute in Taiwan, China, and the data of the China Semiconductor Industry Association, the revenue scale of China's integrated circuit testing in 2021 will be about 3163.3 billion yuan, a year-on-year increase of 1960%。
In the context of the increasingly detailed division of labor in the industry, third-party professional testing companies with their advantages of focusing on the testing field are undoubtedly a better choice for a large number of semiconductor companies that have sprung up in China in recent years, focusing on product development and market promotion. At present, the scale of domestic professional testing enterprises is small, and there is a general lack of production capacity, which cannot meet the needs of many industrialized tests, and the future development space of the industry is huge. In the future, there will be three main driving forces for the development of domestic professional testing: first, the incremental market brought about by upstream IC design and wafer foundry capacity expansion; Second, the domestic third-party professional testing industry will gradually mature and replace overseas testing manufacturers; Third, after the division of labor in the domestic semiconductor industry is clear, more design, manufacturing, and packaging manufacturers choose third-party testing.
2.3.The development of computing power has promoted the rise of the chip industry chain
In the context of the continuous iteration of AI large models and the continuous improvement of computing power demand, combined with the new export control regulations upgraded in the United States in October 2023, the domestic acquisition of advanced AI chips is restricted, and the urgency of independent and controllable AI chips is strengthened. According to CSDN reports, Microsoft needs to connect tens of thousands of NVIDIA A100 chips to build the infrastructure for ChatGPT's computing power. According to the Shenzhen Artificial Intelligence Association, the size of China's AI chip market will reach 178 billion yuan in 2025, and the GAGR will reach 42 from 2019 to 20259%。Major domestic Internet companies have launched large models. In March 2023 and 360, after the release of Wenxin Yiyan and self-developed large models, in April 2023, Internet giants Alibaba, Huawei, JD.com and other large models entered an intensive release period, and some of the parameters even exceeded the scale of ChatGPT. However, due to the new regulations on semiconductors in the United States, the performance of AI chips authorized to be purchased by local Chinese companies is limited to no more than the level of NVIDIA's L40GPU. According to the Financial Times, major manufacturers such as ByteDance, Tencent and Alibaba have ordered $5 billion worth of chips from Nvidia to provide computing power for the continued development of large language models. With the implementation of U.S. sanctions, the urgency of developing domestic advanced process production capacity has been strengthened, which is expected to accelerate the expansion of advanced process production capacity. Chip manufacturing enterprises have benefited from the acceleration of the localization process and maintained rapid growth in performance. We, as a testing enterprise in the downstream of the industrial chain, will also rise and usher in a new market.
According to the data of the American Semiconductor Industry Association, as of October 2023, China's semiconductor sales have been growing month-on-month for 8 consecutive months.
3.1.The company's technical highlights
The company's technical team has more than 10 years of industry technology research and development experience, providing domestic excellent innovative research and engineering technology capabilities, which can assist customers in formulating efficient and low-cost test solutions and achieving rapid mass production. The test development team has rich experience in the development of high-speed digital, mixed-signal, high-precision analog, RF and SoC test programs, and has developed more than 1,000 different types of product test programs over the years, covering more than 80% of the integrated circuit products on the market. In terms of wafer testing, the company offers numerous test platforms for wafer-level testing, with a test temperature range of -55 150 and the ability to test 12-inch wafers.
In terms of finished product testing, the company provides advanced finished product testing solutions, through the independent OCR system, the traceability function of test data and finished products can be realized, the test platform comes from the international advanced manufacturers, and the testing capacity covers 3 mm x 3 mm 70 mm x 70 mm products, covering the following package types: QFP, LQFP, TQFP, QFN, DFN, BGA, LGA, CSP, SIP, POP, and the test temperature is -55 125.
In terms of IT services, the company independently developed the "chip test cloud" system, virtualized and cloud-based test-related data collection and management, calculation and analysis functions, strengthened the user test experience, and improved the quality control of offline integrated circuit testing. The company deploys multi-type and multi-purpose control, calculation, and analysis modules in the cloud to provide standardized basic analysis and expanded analysis of more functions, making it more convenient for users to control and analyze chip test results and processes. At the same time, the cloud deployment of early warning, prediction, backtracking and other modules has been carried out.
3.2.The company's fundraising and investment projects have opened up supply bottlenecks
For the whole year of 2022, the company invested a total of 46.2 billion yuan, the purchase of 221 sets of advanced test core equipment and supporting devices, as of December 31, 2022, 118 sets of test capacity has been formally formed, a total increase of more than 400,000 machine hours, a significant increase of more than 30% year-on-year. In one fell swoop, the situation of losing original customers due to insufficient production capacity and potential customers switching to competitors due to long unsuccessful waiting. On September 23, 2022, in order to increase the production capacity of integrated circuit testing services to meet the growing demand of the downstream market; Strengthen the testing capabilities of high-end integrated circuits and enhance differentiated competitive advantages; Seizing the opportunity of the industrial cluster in the Lingang area and enhancing the service capacity of the target market, the company decided to raise additional funds to build an integrated circuit testing industrialization base in the Lingang New Area. In this additional issuance plan, the company plans to issue 40,000,000 ordinary shares, and the issue ** is 1350 yuan shares, the actual net amount of funds raised is 50.1 billion yuan. The total planned investment of the fundraising project is 9800 million yuan, of which 800 million yuan is planned to be raised by public issuance of shares, and 1 is self-raised$800 million. According to the actual net amount of funds raised and combined with the situation of each fund-raising project, the company will adjust the amount of funds to be raised in the fund-raising project, and it is planned to invest 4200 million yuan for the Lingang integrated circuit test industrialization project, 0800 million yuan for the construction of R&D center.
The company expects the Lingang project to be in mass production by the end of 2023. The company plans to build an integrated circuit technology R&D and industrial application base in the Lingang New Area, which will match the development needs of the domestic high-end integrated circuit industry, and build a one-stop, high-quality testing service platform and a characteristic packaging R&D center through the construction of a 5nm28nm 12-inch test line and a characteristic packaging R&D platform. On the one hand, the implementation of the project can quickly improve the company's testing capabilities, break through the development bottleneck of the company's existing testing business, and meet the needs of customers and markets; On the other hand, the project will further improve the quality of the company's integrated circuit testing services, enhance the ability of integrated circuit testing services in emerging fields and high-reliability fields, and help increase the company's market share in the field of high-end integrated circuit testing, consolidate the company's market position in the field of integrated circuit testing, and enhance profitability. In addition, the project will provide a R&D platform for the company's development of new technologies and new products in integrated circuits through the introduction and R&D investment of professionals in the field of characteristic packaging, testing equipment and consumables, and establish a foundation for the company's industrial chain extension and new industry cultivation in the integrated circuit industry, so as to help the company's sustainable development.
3.3.Actively carry out equity incentives, and have won many science and technology awards
As of May 30, 2023, a total of 44 incentive recipients have been granted for the first time in the company's equity incentive plan, and the number of ** options granted for the first time is 7.33 million. The equity incentive targets include seven senior executives and 37 core employees. The total number of ** options to be granted is 7.95 million, accounting for about 2 of the company's total share capital on the date of the announcement of this incentive plan98%, of which 7.33 million were granted for the first time and 620,000 were reserved. As of December 27, 2023, all of the 620,000** options reserved have been granted to an additional 11 core employees of the Company. The company's exercise assessment year for the ** incentive is three fiscal years from 2023 to 2025, and each fiscal year is assessed once to achieve the performance appraisal target as the exercise condition of the incentive object. The first grant of ** options under this incentive plan has a 4:3:3 ratio for each exercise period. Based on the operating income in 2022, the compound annual growth rate required for the revenue to achieve the 2023, 2024 and 2025 annual assessment targets is 198%/19.9%/19.9%。
This article is for informational purposes only and does not represent any investment advice from us. To use the information, please refer to the original report. ）
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