"core" original -- NO. 37

SMIC integration, crystal integration, Huahong semiconductor convergence of the board, open a new chapter. Domestic wafer foundry opens a new chapter.

Wen I Wang YiKe

Report I Core Tide IC

ID I xinchaoIC

Image source pixabay

Core Chao IC reported that on August 7, wafer foundry giant Hua Hong Company (also known as Hua Hong Semiconductor) successfully landed on the board. The issue price is 52 yuan/share, and the opening price is up 13.23 today, with the opening price of 58.88 yuan/share. As of press time, Hua Hong's share price rose 4.90 percent to 54.55 yuan per share, with a total market value of 93.6 billion yuan.

It is worth noting that after this issuance, Huahong Company became the largest IPO project of the-share year and the third largest IPO project in the history of the Science and Technology Innovation Board. The amount of funds raised was second only to 53.23 billion yuan when SMIC (688981.SH) went public and 22.16 billion yuan when Baiji Shenzhou (688235.SH) went public.

Share price screenshot on the day of listing

Hua Hong Semiconductor was founded in 1996, focusing on non-volatile memory, power devices, analog and power management and logic and radio frequency and other "8 inches +12 inches" characteristic process technology continuous innovation, the industry used to call Hua Hong Company "wafer second child". In 2014, the Company was listed on the Main Board of the Hong Kong Stock Exchange. At present, the chips produced by the company have been widely used in various products in different markets (including consumer electronics, communications, computers, industrial and automotive).

Wafer manufacturing, in the square inch between the Gan Kun. With more than 25 years of technology accumulation in the field of semiconductor manufacturing, Huahong Semiconductor has become the world's leading foundry enterprise with characteristic process and the most comprehensive foundry enterprise with characteristic process platform in the industry. At this point, SMIC integration, crystal integration, Huahong semiconductor convergence of the board, open a new chapter.

01

focuses on characteristic technology, with revenue exceeding 16 billion yuan last year

in 1996, Shanghai huahong microelectronics co., ltd., the main undertaking unit of the "909" project, was formally established. at first, it mainly made memory chips. it was transformed into a wafer foundry around 2003, reorganized into huahong semiconductor in 2005, and listed on the hong kong stock exchange in October 2014.

In March 2022, the board of directors of Hua Hong Semiconductor approved the proposal to issue RMB shares and list them on A shares. With the Shanghai Stock Exchange agreeing to IPO, Hua Hong Semiconductor's Hong Kong shares rose more than 10% in intraday trading, and now the market value of Hong Kong stocks exceeds 42.5 billion.

As the world's leading specialty process foundry, Huahong Semiconductor is also the industry's most comprehensive specialty process platform coverage of the foundry.

Generally speaking, wafer manufacturing processes can be roughly divided into advanced logic processes and specialty processes. Among them, the characteristic process does not completely pursue the reduction of the device, but by continuously optimizing the device structure and manufacturing process to maximize the physical characteristics of different devices to improve product performance and reliability. The characteristic process is mainly used to manufacture power devices MCU, smart card chips, power management chips, RF chips, sensors, etc.

unlike SMIC's focus on high-end manufacturing, Hua hong semiconductor has been working on the low-end manufacturing process of the 8-inch production line until 2018. at present, Hua hong semiconductor is more focused on the manufacturing of analog chips and memory chips, with less involvement in digital chips, with the latest manufacturing capability reaching 55nm.

Huahong Semiconductor's secret weapon is its characteristic process expansion in the mature process field. According to TrendForce published data, in the field of embedded non-volatile memory, the company is the world's largest smart card IC manufacturing foundry enterprise and the largest MCU manufacturing foundry enterprise in China; in the field of power devices, the company is the world's largest power device wafer foundry enterprise, and the only enterprise with both 8-inch and 12-inch power device foundry capabilities. The company's power device variety is industry-leading, with the world's leading deep trench super junction MOSFET and IGBT technology achievements.

In the semiconductor down cycle, Hua Hong Semiconductor, which does not rely on the process to win, has achieved significant growth in performance. According to the prospectus, from 2020 to 2022, Huahong Semiconductor's operating income was 6.737 billion yuan, 10.63 billion yuan and 16.786 billion yuan respectively; the corresponding net profit attributable to the parent company was about 0.505 billion yuan, 1.66 billion yuan and 3.009 billion yuan respectively; from January to March 2023, the company's operating income was 4,374.3004 million yuan, an increase of 14.90 over the same period in 2022.

It can be seen that in the past three years, Huahong Semiconductor's revenue and net profit have shown explosive growth, with revenue and net profit growth exceeding 50% for two consecutive years.

Hua Hong Semiconductor's performance growth is mainly due to its investment and expansion in the 12-inch production line. By the end of 2022, the company has three 8-inch fabs and one 12-inch fab, with an 8-inch annual production capacity of 2.4852 million, 3.2604 million and 3.8627 million pieces respectively in the past three years, with a compound annual growth rate of 24.67 percent.

In 2022, the 12-inch plant will operate at a high monthly capacity of 65000 pieces. The company plans to release its monthly production capacity to 95000 pieces in 2023, and will start the construction of a new 12-inch production line in due course to continuously increase manufacturing capacity and technology upgrades.

It is worth noting that Huahong Semiconductor's gross profit margin has been lower than the industry average in the past two years. The prospectus shows that from 2020 to 2022, the company's consolidated gross margins will be 18.46 percent, 28.09 percent and 35.86 percent, respectively, with industry averages of 12.50 percent, 31.51 percent and 37.02 percent, and SMIC's consolidated gross margins for the three years will be 23.78 percent, 29.31 percent and 38.30 percent.

Hua hong semiconductor said that in 2021 and 2022, the company will introduce new products and technologies, optimize product mix and raise product prices. at the same time, the scale effect of Hua hong Wuxi 12-inch production line will gradually appear. the unit cost of the company's products will decrease accordingly, and the company's gross profit margin level will increase rapidly. as the company's Hua hong Wuxi 12-inch production capacity is still climbing, the overall gross profit margin level of the company in 2021 and 2022 will be slightly lower than the average of comparable companies in the same industry.

We have to admit that although Huahong Semiconductor and the leading company SMIC are called "China's semiconductor duo", they are quite different from the leading company SMIC in terms of production capacity, technical strength and market share. After the smooth realization of the "A-H" listing, Huahong Semiconductor wants to better achieve domestic substitution, there is still a long way to go.

02

Shanghai SASAC is the actual controller

Big Fund Phase II takes out 3 billion investment

Hua Hong Semiconductor's return to A listing has attracted much attention from the market.

In June 2022, the CSRC issued an announcement agreeing to the registration of the initial public offering of shares of Huahong Semiconductor (I. e. Huahong Hongli). Hua hong semiconductor A- share listing plans to raise 18 billion yuan, the fund-raising will be mainly used for Hua hong manufacturing (Wuxi) project, 8-inch factory optimization and upgrading project, characteristic process technology innovation research and development project and supplementary working capital.

According to the fund-raising calculation of 18 billion yuan, Huahong Semiconductor is expected to become the company with the highest amount of IPO fund-raising in A- shares this year, which naturally attracts the attention of investors from all sides.

In June this year, Huahong Semiconductor announced that Huahong Semiconductor, Big Fund Phase II, Guotai Junan and Haitong Securities signed the "National Integrated Circuit Industry Fund II Subscription Agreement" on June 28. According to the agreement, the second phase of the big fund will act as a strategic investor to participate in the company's A- share issuance subscription, and the total subscription amount will not exceed RMB 3 billion.

The second phase of the big fund is not the first time to invest in Hua Hong Semiconductor. Data show that the second phase of the big fund holds 29% of the shares of Huahong Semiconductor Manufacturing (Wuxi) Co., Ltd., which is the second largest shareholder of the company. The company is a subsidiary of Huahong Semiconductor Holdings and is also the main body of Huahong Semiconductor's fundraising project, Huahong Manufacturing (Wuxi).

In addition, large funds have also appeared in the shareholders of Huahong Semiconductor (Wuxi) Co., Ltd., another subsidiary of Huahong Semiconductor. Big Fund holds 20.58 per cent of the company's shares, making it the third largest shareholder, while Big Fund II also holds 8.42 per cent of the company's shares, making it the fifth largest shareholder.

if the actual issuance scale of huahong semiconductor reaches 0.433 billion shares and the raised capital reaches 18 billion yuan, and the subscription is based on the upper limit of 3 billion yuan, the second phase of the large fund will account for 16.67 of the shares of the issuance and hold 4.15 of the shares of huahong semiconductor after the issuance is completed.

Hua Hong Semiconductor said that the subscription of the second phase of the big fund can enhance the company's relationship with the second phase of the big fund.and to ensure continued support for the Group's business development through capital investment and the provision of other resources.

Big Fund II is just the beginning. On the evening of July 24, Huahong Company disclosed the information of its strategic investors-in addition to the second phase of the National Integrated Circuit Industry Investment Fund, there are also a number of leading companies in the semiconductor industry chain, forming a super war investor.

a number of semiconductor industry chain companies appeared on the list, including juchen shares (688123.SH), Shanghai lanqi bonus, shengmei semiconductor, micro semiconductor, the allocation amount is 0.1 billion yuan respectively; Anji Technology (688019.SH), Shanghai Silicon Industry, the allocation amount is 50 million.

among them, Shanghai silicon industry (688126.SH) is mainly engaged in the research and development, production and sales of semiconductor silicon wafers and other materials, with a subscription amount of 50 million yuan. it has signed a memorandum of strategic cooperation with huahong company and is one of the most important semiconductor substrate material suppliers of huahong company.

and shengmei Shanghai (688082.SH) subscribed for 0.1 billion yuan. As a listed company on the board, Shengmei Shanghai is engaged in the research and development, production and sales of semiconductor special equipment, and has carried out strategic cooperation with Hua Hong Company in semiconductor equipment and other fields. In addition to in-depth cooperation with semiconductor cleaning equipment in the future, it will also provide equipment and technical support for the foundry and ancillary services of Huahong's embedded/stand-alone non-volatile memory, power devices, analog and power management, logic and RF and other diversified process platforms.

in addition, Guotai junan securities investment co., ltd. and Haitong innovation securities investment co., ltd., as sponsors, followed the investment with a ratio of 2% and an amount of 0.424 billion yuan respectively.

in terms of shareholding, by the end of 2022, before the IPO of huahong, huahong international held 26.6 percent, xinxin hong kong held 13.67 percent, and lianhe international held 12.29 percent. After the IPO, huahong international held 19.97 percent, xinxin hong kong held 10.27 percent, and lianhe international held 9.22 percent.

Among them, Hua Hong International actually directly holds 26.60 of the Company's shares and is the direct controlling shareholder of the Company. Hua Hong Group directly holds 100 of the shares of Hua Hong International, and Hua Hong Group indirectly holds 26.60 of the shares of the Company through Hua Hong International, which is the indirect controlling shareholder of the Company. Shanghai SASAC directly holds a 51.59 per cent stake in Huahong Group and is the de facto controller of the company.

03

foundry giants gather together on the board, why?

crystal integration, SMIC integration, Huahong Semiconductor, this year has successfully landed on the board.

On May 5 this year, Hefei Jinghe Integrated Circuit Co., Ltd. (hereinafter referred to as "Jinghe Integration"), the third largest wafer foundry in mainland China, successfully landed on the Science and Technology Innovation Board. Founded in May 2015, Jinghe Integration is the first 12-inch wafer foundry enterprise in Anhui Province with an investment of over 10 billion yuan. At present, it has realized the mass production of 12-inch wafer foundry platform with 150nm ~ 90nm process node, and is currently carrying out the risk mass production of 55nm process technology platform.

Jinghe integration has a good background. The actual controller is Hefei SASAC, the controlling shareholder is Hefei Construction Investment, and Lijing Technology and Midea Innovation are its second and fourth largest shareholders respectively. Therefore, the establishment of crystal integration is not long, but the speed of development is very rapid.

Crystal Integration is mainly engaged in 12-inch wafer foundry business, mainly to provide customers with panel display driver chips (DDIC) and other process platform wafer foundry services. During the reporting period, the sales volume of 12-inch wafer products manufactured by Jinghe Integrated OEM was 264069, 602712 and 1060498 respectively, showing a rapid growth trend, with an average annual compound growth rate of 100.40 in the last three years.

According to Frost & Sullivan, by the end of 2020, Jinghe Integration has become the third largest domestic pure wafer foundry enterprise (excluding foreign-controlled enterprises) in terms of revenue and the third largest 12-inch wafer foundry capacity, effectively improving the autonomy level of the domestic wafer foundry industry. According to the statistics of TrendForce, a market research institution, in the second quarter of 2022, crystal integration revenue ranked ninth in the world among the global wafer foundry enterprises.

and on may 10, the 5th day after jinghe integration went on the market, SMIC from Shaoxing, Zhejiang province also successfully landed on the sco board.

SMIC Integration was established in 2018, jointly funded by Yuecheng Fund, SMIC Holdings and Shengyang Electric, and is a contract manufacturing company under SMIC. In terms of specific business, SMIC is mainly engaged in wafer foundry and packaging testing in the fields of MEMS and power devices, providing customers with one-stop service for foundry manufacturing solutions, and is one of the few foundry companies in China that provide automotive-grade chips.

In the automotive field, SMIC has established a full-process quality management system from research and development to mass production, and has established cooperative relations with a number of leading enterprises in the industry. In the fourth quarter of 2022, its wafer foundry business accounted for nearly 40% of revenue from the automotive sector; in the MEMS sector, SMIC has the largest and most technologically advanced MEMS wafer foundry in China.

Among the wafer foundries listed this year, SMIC has the shortest establishment time and is slightly inferior to the first two. At present, SMIC has only one 8-inch wafer foundry, the company's production capacity in 2021 is 898000 pieces, capacity utilization rate, production and sales rate of 93.36 percent, 92.20 percent, respectively. According to Chip Insights's 2021 Global Exclusive Wafer Foundry Rankings, SMIC's revenue ranks 15th in the world and 5th in mainland China.

crystal integration, Hua Hong semiconductor, SMIC integration have their own characteristics, but they all choose to be listed at similar time nodes, which is worth studying.

In recent years, lower demand in the consumer electronics market has put deep pressure on the semiconductor and foundry industries. Earlier, it was reported that the loss of Samsung's foundry department in the first half of this year may reach 1 trillion won, and TSMC has just lowered its revenue forecast for this year. This happens to give domestic wafer foundries the opportunity to achieve domestic substitution.

In addition to the consumer electronics sector, emerging markets such as new energy vehicles, 5G, artificial intelligence, the Internet of Things, and industrial control are developing rapidly, driving the overall growth trend of the global semiconductor industry market. In particular, as the world's largest semiconductor market, the domestic semiconductor market is also growing in size under the call for domestic substitution.

According to the statistics of China Semiconductor Industry Association, from 2017 to 2021, the size of the semiconductor market in mainland China will increase from 541.13 billion yuan to 1,045.83 billion yuan, with an average annual compound growth rate of 17.91. Yu Xiankang, vice chairman of the China Semiconductor Industry Association, said at the 2023 World Semiconductor Conference recently that my country's semiconductor industry is in a stage of rapid development, and the compound growth rate of the market size in the past three years has reached 7.6.

Driven by strong market demand, in the face of the rapid growth of domestic demand for wafer foundry capacity, Huahong Semiconductor said that it will continue to expand the capacity of its production line in 2023. In addition, China's largest wafer foundry manufacturer SMIC is also accelerating the expansion of production.

According to the statistics of the China Semiconductor Industry Association, from 2017 to 2021, the size of the semiconductor market in mainland China increased from 541.13 billion yuan to 1,045.83 billion yuan, with an average annual compound growth rate of 17.91. Yu Xiankang, vice chairman of the China Semiconductor Industry Association, recently stated at the 2023 World Semiconductor Conference that my country's semiconductor industry is in a stage of rapid development, and the compound growth rate of the market size in the past three years has reached 7.6.

Driven by strong market demand, we are facing the rapid growth of domestic demand for wafer foundry capacity. Carefully combing through the above three prospectus side found a common feature: are actively expanding production capacity. Not only that, China's largest wafer foundry manufacturer, SMIC, is also accelerating its expansion.

therefore, while the semiconductor industry is still in a downward cycle, huahong semiconductor, SMIC, crystal integration and SMIC have been overstocked with grain reserves and expanded production against the trend, thus sending a positive signal: there is a large gap in local wafer production capacity, and the demand for domestic wafer foundry production capacity will continue to grow at a high speed in the future.

The interweaving of multiple factors such as AI wave, politics, economy, market conditions, and models has caused the global wafer foundry pattern to face an unprecedented change. Wafer foundry market changes, which wafer foundry can take the opportunity to win the new territory? We will wait and see.

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