In recent years, with the increasing demand for chips in the fields of automotive electronics and industrial control, especially for power management chips, it has driven the rise of a large number of power management chip enterprises in China. One of them is the core Dragon technology, which is sprinting the IPO of Kechuang board.
As a power management chip enterprise, core Dragon Technology covers many fields, such as automotive electronics, industrial control, communication equipment, consumer electronics and household appliances. Interestingly, the R & D expense rate of Xinlong technology is lower than that of comparable peers, and the gross profit margin of multiple products is higher than that of comparable listed companies.
Gross margin higher than comparable peers
According to the report of cheetah Research Institute, China has become the world’s largest analog chip market, but the self-sufficiency rate is low. According to the data of China Semiconductor Association, the self-sufficiency rate of analog chips in China is only 12% in 2020. Under the tide of domestic substitution, Kechuang board ushered in a large number of analog chip IPO enterprises.
According to the functional division, analog chips can be divided into power management chips and signal chain chips. Among them, power management chips are mainly used for power management. At present, the global power management chips are mainly occupied by Texas Instruments, dialog, Qualcomm, Italy France semiconductor, Infineon and other enterprises. In the Chinese market, the power management chip market is also occupied by European and American enterprises, and the market share of Chinese manufacturers is relatively low.
According to the prospectus of core Dragon Technology (application draft), in 2020, Shanghai Bright Power Semiconductor Co.Ltd(688368) , Sg Micro Corp(300661) , Wuxi Chipown Micro-Electronics Limited(688508) , Fuman electronics and Shenzhen Sunmoon Microelectronics Co.Ltd(688699) accounted for 1.32%, 1.09%, 0.55%, 0.88% and 0.66% of China’s power management chip market respectively. The market share of Xinlong technology is only 0.20%.
Photo source: prospectus of Xinlong Technology (application draft)
Although the market share is not high, according to the product data provided by Xinlong technology, the performance of some of its products is comparable to that of international leading enterprises such as Texas Instruments and higher than that of Chinese peers. Xinlong technology said: “the performance parameters of the main products developed and designed by the company with completely independent intellectual property rights have been at the leading level in China, and the performance indexes of some products have reached or exceeded the similar products of international well-known manufacturers such as Texas Instruments and adeno, realizing the import substitution of relevant products.”
At present, the competition for low-voltage and low-power products of DC-DC power chips in the Chinese market is fierce, and the gross profit margin is low. Medium and high-voltage chips have higher requirements for circuit design ability, withstand voltage technology level of wafer manufacturing process and reliability of packaging process. The Chinese market is mainly occupied by overseas manufacturers such as Texas Instruments and adeno.
In terms of gross profit margin, Xinlong technology was 43.51%, 43.42% and 42.18% respectively from 2018 to 2020, which were higher than the average value of comparable peer listed companies. In this regard, Xinlong technology said: “the company’s products are medium and high-end products among similar products, and the gross profit margin is higher than that of comparable companies.”
The price of core Dragon technology products is also higher than that of comparable peers. The unit price of its LED lighting management chip in 2020 is 0.7433 yuan / piece, while the unit price of China’s leading Shanghai Bright Power Semiconductor Co.Ltd(688368) general LED driver chip in 2020 is 0.1643 yuan / piece, and the unit price of intelligent LED driver chip is 0.3144 yuan / piece. It can be seen that the price of LED lighting management chip of core Dragon technology is significantly higher than that of Shanghai Bright Power Semiconductor Co.Ltd(688368) .
In terms of power management chips, the unit prices of medium voltage power chips and high voltage power chips of core Dragon Technology in 2020 are 0.6090 yuan / piece and 0.7636 yuan / piece respectively, while the unit price of 3Peak Incorporated(688536) power management chips in 2020 is 0.1769 yuan / piece, and the unit price of Shenzhen Sunmoon Microelectronics Co.Ltd(688699) power management chips in 2020 is 0.3609 yuan / piece.
Photo source: prospectus of Xinlong Technology (application draft)
Low R & D expense rate
It is worth noting that although the product unit price and gross profit margin of Xinlong technology are high, its R & D expenses and R & D expense rate are not high during the reporting period, and there are not many R & D personnel. From 2018 to 2020, the R & D expenses of core Dragon technology were 6.4934 million yuan, 7.3353 million yuan and 10.0625 million yuan respectively. In contrast, in 2020, Shanghai Bright Power Semiconductor Co.Ltd(688368) and Sg Micro Corp(300661) R & D expenses will be 158 million yuan and 207 million yuan respectively.
Photo source: prospectus of Xinlong Technology (application draft)
In terms of R & D expense rate, Xinlong technology from 2018 to 2020 was 6.36%, 6.59% and 6.37% respectively, while the average of comparable peers was 14.60%, 12.28% and 11.81% respectively. It can be seen that the average R & D cost rate of comparable peers is significantly higher than that of core Dragon technology.
In terms of R & D personnel, as of December 31, 2020, the issuer has a total of 20 R & D personnel, of which only one is a master, that is, Li Ruiping, founder, chairman and general manager of the company. In other words, many of China’s leading products of core Dragon technology were previously completed by more than a dozen undergraduates led by a master’s student. However, as of the first inquiry reply, the number of R & D personnel of the company has increased to 35, of which 3 are masters or above, 1 is newly added with a master’s degree and 1 is newly added with a doctor’s degree. They were employed in July 2021 and August 2021 respectively, and the remaining 32 are undergraduates.
Under the background of low R & D expenses, core Dragon Technology’s products are relatively high-end, even comparable with Texas Instruments and Arnold. The price and gross profit margin of the company’s related products are also higher than those of comparable peers. How can core Dragon Technology’s product price be significantly higher than those of comparable peers with less R & D investment? In this regard, the reporter of the daily economic news called the Secretary Office of Xinlong technology on the afternoon of December 31, and then sent the interview outline to his mailbox.
Xinlong technology replied on the same day: “thank you very much for your attention and support to our Xinlong technology! We have made relevant replies and submitted them in the audit inquiry of Shanghai Stock Exchange, but we have not publicly linked to the internet yet.”
It is worth mentioning that Xinlong technology mainly adopts the sales mode of buyout distribution and “payment to delivery”, and 99.75% of the sales revenue in 2020 will come from the distribution mode. “Buyout” distribution means that the distributor buys out the ownership of the goods from the company at one time, and the ownership will be transferred after the delivery of the goods, and the distributor will independently bear all business risks.
The reporter noted that the book strength of Shanghai Yiheng Electronic Technology Co., Ltd. (hereinafter referred to as Shanghai Yiheng), the largest customer of Xinlong technology in 2020, is not strong. According to qixinbao information, the paid in capital of Shanghai Yiheng is only 500000 yuan, and the number of social security people in 2020 is only 2.
On the afternoon of December 31, the reporter of “daily economic news” called Shanghai Yiheng enterprise contact number, but the other party said: “I am not in charge of this company.” The reporter asked whether he was an employee of Shanghai Yiheng or had nothing to do with Shanghai Yiheng. He hung up the phone for convenience.
The core Dragon Technology prospectus also disclosed the risks of the distribution model: “Power management analog integrated circuits have broad application fields, scattered end customers and high requirements for dealers and their sales promotion personnel. If dealers are difficult to meet the development needs of the company, or their own business conditions change, resulting in the obstruction of the company’s product sales, it may have an adverse impact on the company’s product sales.”
(Daily Economic News)
