At the symposium of private entrepreneurs in February this year, Yu Renrong, the actual controller of Weir shares, attracted much attention. At that time, he sat between Wang Chuanfu and Lei Jun, and this scene also made many people begin to pay attention to this outstanding entrepreneur and the development trend of the domestic chip industry.

In the near future, Yu Renrong's capital empire is expected to add new members.

Gelonghui New Stock learned that Xinhenghui Electronics Co., Ltd. (hereinafter referred to as "Xinhenghui Electronics"), headquartered in Zibo, Shandong Province, submitted an application for registration to the China Securities Regulatory Commission and was accepted, and its sponsor is Founder Securities Underwriting and Sponsorship Co., Ltd.

Xinhenghui Electronics submitted an application for listing on the GEM to the Shenzhen Stock Exchange on June 21, 2022, and passed the review of the Listing Committee of the Shenzhen Stock Exchange on March 22, 2023.

If it can be successfully listed, it will be the second listed company under Yu Renrong, the "richest man in chips", after Weir shares.

Xinhenghui Electronics is an integrated circuit enterprise integrating R&D, production, sales and packaging and testing services of chip packaging materials.

However, under the impact of online payments such as WeChat and Alipay, the growth of the company's smart card business has attracted the attention of regulators for many times.

So, what is the recent situation of Xinhenghui Electronics? What is the prospect of the smart card chip packaging materials industry? Next, let's find out through the prospectus.

　　01

Focusing on the field of chips, Tsinghua Xueba's industrial territory continues to expand

The predecessor of Xinhenghui Electronics, Xinhenghui Co., Ltd., was established in December 2017, and when Xinhenghui Co., Ltd. was initially established, the actual controller was Chen Tongsheng.

In January 2018, Yu Renrong, Ren Zhijun and Shanghai Si Peng, as investors, acquired 90.29% of the shares of Xinhenghui Co., Ltd. for 465 million yuan; As a result, the actual controller of Xinhenghui Co., Ltd. was changed from Chen Tongsheng to Yu Renrong and Ren Zhijun, and Chen Tongsheng only served as a consultant in Xinhenghui and no longer participated in the specific operation and management of the company.

As of the signing date of the prospectus, Yu Renrong and Ren Zhijun directly and indirectly held a total of 51.25% of the company's shares, and were the joint actual controllers of the company.

Among them, Yu Renrong directly and indirectly holds a total of 31.94% of the company's shares, is the company's largest shareholder, and serves as a director of the company; Ren Zhijun holds a total of 19.31% of the company's shares, is the second largest shareholder of the company, and serves as the chairman of the company.

Yu Renrong, 59, graduated from Tsinghua University, and has worked in Inspur Group, Longyue Electronics (Hong Kong) Co., Ltd., Beijing Huaqing Xingchang Technology and Trade Co., Ltd., and Hong Kong Huaqing Electronics (Group) Co., Ltd. Since May 2007, he has successively served as the director and chairman of Weir Co., Ltd., and since January 2018, he has served as a director of Xinhenghui Electronics.

As a brother company of Xinhenghui Electronics, Weir shares (603501. SH) has a market value of more than 170 billion yuan, with a peak market value of more than 300 billion yuan, and its main business is semiconductor design and distribution. As of August 24, 2024, Yu Renrong and persons acting in concert with him held a total of 35.70% of the shares of Vail.

In 2022, Yu Renrong will rank 132nd on the "Hurun Global Rich List" with a wealth of 95 billion yuan and become the "richest man in China's chips". Not long ago, the Hurun Research Institute released the "2024 Hurun Charity List", in which Yu Renrong won the title of "China's First Charity" for the first time.

Ren Zhijun once served as vice chairman and president of the A-share chip listed company Ziguang Guowei (002049), but he left on January 15, 2018.

It is worth noting that in January 2018, when Ren Zhijun acquired the limited equity of Xinhenghui, the funds mainly came from the loans provided by Yu Renrong. As of the signing date of the prospectus, the principal balance of the debt was 116 million yuan, and the latest repayment date of the loan was January 25, 2029, which also attracted the attention of the regulator.

　　02

During the reporting period, the performance increased, and the largest customer was Unisplendour Tongxin

Since its establishment, Xinhenghui Electronics has been focusing on the integrated circuit packaging materials and packaging and testing services business based on lead frames.

The company's downstream customers are mainly security chip design companies, smart card manufacturers and integrated circuit packaging and testing enterprises, which purchase lead frames, smart card modules and other products from the company, or entrust the company to carry out the packaging and testing of smart card modules or Internet of Things eSIM modules.

Specifically, the company's main business includes three parts: smart card business, etching lead frame business, and Internet of Things eSIM chip packaging and testing business.

Smart cards, also known as integrated circuit cards or IC cards, are security chips embedded in the card base and pressed into the form of cards, including telecommunication cards, bank cards, social security cards, ID cards, bus cards, fuel cards, access control cards, etc.

From January to June 2024, the smart card business accounted for 70.72% of the main business revenue, which is the main source of the company's revenue and profit.

Among them, the flexible lead frame accounts for 34.78%, which is a key special basic material used for smart card chip packaging, which mainly plays the role of protecting the security chip and serving as the communication interface between the chip and the external card device. In addition, the smart card module business produced by flexible lead frames accounted for 34.31%.

In addition, Xinhenghui Electronics expanded two new businesses in 2019: etching lead frame business and Internet of Things eSIM chip packaging and testing business. From 2022 to January to June 2024, the combined proportion of these two new businesses in the main business revenue increased from 14.70% to 28.71%, which has become the company's main revenue growth point.

The composition of the company's main business income, source: prospectus

Driven by the two new businesses, the revenue of Xinhenghui Electronics increased during the reporting period.

In terms of financial data, from January to June 2021, 2022, 2023 and 2024 (reporting period), Xinhenghui Electronics achieved operating income of 548 million yuan, 684 million yuan, 767 million yuan and 414 million yuan respectively, and the net profit attributable to the parent company after deducting non-profits was 81.6842 million yuan, 104 million yuan, 149 million yuan and 93.1349 million yuan respectively.

In 2024, the company will achieve operating income of 842 million yuan, a year-on-year increase of 9.83%; The net profit attributable to the parent company after deducting non-profits was 173 million yuan, a year-on-year increase of 16.25%.

From January to March 2025, the company expects operating income of 2.1 to 225 million yuan, a year-on-year increase of 8.84% to 16.61%, and a net profit attributable to the parent company after deducting non-profits of 46.5 million yuan to 49 million yuan, a year-on-year increase of 3.1% to 8.64%.

Key financial data, source: prospectus

During the reporting period, the gross profit margin of Xinhenghui Electronics' main business was 33.76%, 33.10%, 38.53% and 38.37%. In 2023, the gross profit margin of the company's main business will increase by 5.43 percentage points, mainly due to the company's increase in product prices for overseas smart card module customers and the improvement of the yield rate of etched lead frame products.

On the procurement side, in each period of the reporting period, the amount of procurement from the top five suppliers accounted for more than 55%, and the concentration of major suppliers was high.

On the sales side, in each period of the reporting period, the sales revenue of Xinhenghui Electronics to the top five customers accounted for 45.07%, 55.54%, 46.88% and 42.79% respectively.

Major customers include Unisplendour Guowei (002049. SZ), China Power Huada, Fudan Micro (688385. SH), Datang Microelectronics, etc., and a number of well-known security chip design manufacturers, as well as Hanbao Co., Ltd. (002104. SZ), Chu Tianlong (003040. SZ), Dongxin Peace (002017. SZ), IDEMIA and other well-known smart card manufacturers at home and abroad.

Among them, Ziguang Tongxin, a subsidiary of Ziguang Guowei, is the largest customer, accounting for 13.48% of revenue from January to June 2024.

It is worth noting that Unigroup acquired the French company Linxens in 2018 and transferred part of the order demand to Linxens, France.

Although at present, Xinhenghui Electronics' sales revenue to Unisplendour has not declined significantly, but if Unisplendour continues to reduce purchases from the company in the future, the company's overall operating performance is likely to be adversely affected.

　　03

The

growth of the smart card business has attracted attention

The integrated circuit packaging materials and packaging and testing services business operated by Xinhenghui Electronics is a part of the integrated circuit industry chain.

According to the production process, the integrated circuit industry chain can be divided into three main links: integrated circuit design, integrated circuit manufacturing, integrated circuit packaging and testing.

Among them, integrated circuit packaging and testing is the last link of integrated circuit production, which is to place, fix and seal the chip with specific packaging materials and process technology, and connect the contacts on the chip to the packaging frame to realize the external extension of the internal functions of the chip.

The position of Xinhenghui Electronics in the smart card industry chain, source: prospectus

The

materials required for integrated circuit packaging are a more subdivided field, mainly including: packaging substrates, lead frames, bonding wires, molding materials, etc.

Relevant data show that the global semiconductor materials market size in 2022 will be about 72.7 billion US dollars, a year-on-year increase of 8.9%, and the global semiconductor materials market sales in 2023 will be 66.7 billion US dollars, down 8.2% from 2022, mainly due to weak semiconductor demand, coupled with manufacturers' active adjustment of inventories, wafer factories are underutilized, resulting in a decline in semiconductor material consumption.

In the market distribution of semiconductor packaging materials, packaging substrates account for the highest proportion at 40%, followed by lead frames and bonding wires accounting for 15% respectively.

Market distribution of packaging materials, source: prospectus

Xinhenghui Electronics' products are mainly used in the field of smart cards, mainly including telecom SIM cards, bank chip cards, licenses and industry application cards.

In recent years, the global smart card industry has entered a mature period of development, and the market size has been difficult to grow.

You must know that this business still accounts for as much as 70%, and if it cannot grow or even decline in the future, the company will inevitably face certain pressure.

In this regard, the regulator has also repeatedly inquired about the growth of the smart card business: "In the context of the widespread use of online payment methods such as WeChat and Alipay and electronic social security cards, it is further fully demonstrated whether the smart card market space has been squeezed, whether there are major adverse changes in the development prospects of the industry, and the growth of the issuer's business."

In terms of industry competition, the barriers to entry in the flexible lead frame industry are high, and there are currently three main flexible lead frame manufacturers in the world with a large number of stable supply, including France's Linxens, the company and South Korea's LGInnotek. In addition, Shanghai INESSOON, Changhua Technology (Taiwan, China), Kangqiang Electronics (002119. SZ) and other companies also have some businesses that overlap with the company.

In the field of domestic flexible lead frame products, French Linxens is the company's main competitor, and the company estimates that in 2021, the market share of French Linxens and Xinhenghui Electronics in the domestic market will each account for about 50%.

In the future, whether Xinhenghui Electronics can develop the overseas market of smart card business, steadily promote the second growth curve, and achieve continuous growth in operating performance, Gelonghui will maintain its attention.