Beijing Tongmei Crystal Technology Co., Ltd. (hereinafter referred to as Beijing Tongmei), a second-generation semiconductor material manufacturer, is making a sprint for the IPO of the science and innovation board On March 31, the latest status of Beijing Tongmei in Shanghai Stock Exchange was changed to suspension (financial report update).
Beijing Tongmei's main business is the R & D, production and sales of indium phosphide substrate, gallium arsenide substrate, germanium substrate, PBN material and other high-purity materials. The company's IPO raised funds will be used to expand the production of gallium arsenide semiconductor materials and supplement working capital.
The reporter of the daily economic news noted that direct materials account for a relatively high proportion of the operating costs of Beijing Tongmei and are rising year by year. In order to ensure the stable supply of raw materials, Beijing Tongmei and its controlling shareholder AXT also participate in some raw material suppliers. Will the expansion of production lead to a further increase in the amount of related party transactions? In addition, due to the problem of hazardous chemicals, Beijing Tongmei also transferred the GaAs production line to Liaoning and Hebei in 2019, and the gross profit margin and net profit of the company's main business also decreased significantly in that year. At present, some indium phosphide production lines in Beijing Tongmei also have the possibility of relocation. Will this affect the company's future performance?
company's share-holding raw material supplier
Data show that indium phosphide, gallium arsenide and germanium substrates are the main sources of Beijing Tongmei's revenue, accounting for more than 70% in the past two years. From 2018 to 2020, the total revenue of the three products was 290 million yuan, 358 million yuan and 443 million yuan respectively, accounting for 59.43%, 77.39% and 76.05% of the main business respectively, and 72.16% in the first half of 2021.
In terms of operating costs, the proportion of direct materials in operating costs is rising year by year. The proportions of 20182020 and the first half of 2021 are 44.54%, 45.09%, 47.62% and 56.35% respectively. This also means that Beijing Tongmei relies on raw material suppliers, and the price fluctuation of raw materials will affect the performance of the company to a certain extent. Beijing Tongmei also pointed out this risk in the prospectus (declaration draft).
To this end, Beijing Tongmei ensures the stability of procurement through its own and its controlling shareholder AXT's participation in raw material suppliers, especially the suppliers of metal gallium and high-purity arsenic, including Donghai Dongfang high purity electronic materials Co., Ltd., Emeishan Jiamei high purity materials Co., Ltd., Beijing Jiya semiconductor materials Co., Ltd. and Xiaoyi Xing'an gallium Industry Co., Ltd. In the first half of 2021, the total amount of related party transactions of the above four companies accounted for more than 19% of the operating cost.
In this IPO, Beijing Tongmei plans to raise 367 million yuan for related GaAs semiconductor material projects. So will the expansion of production lead to the further expansion of the amount of connected transactions, and then affect the independence of Beijing Tongmei's operation? In this regard, Beijing Tongmei told the daily economic news on April 8, 2022 that Beijing Tongmei has established a long-term mutually beneficial and win-win cooperative relationship with suppliers, and has more than two qualified suppliers for each kind of raw materials to maintain the stability of raw material supply. From 2018 to the first half of 2021, the prices of raw materials such as metal gallium and high-purity arsenic purchased by the company from related parties are market-oriented pricing. There is no case that the price of related party transactions is obviously unfair, nor does it affect the operation independence of the company.
The capacity tends to be saturated
Beijing Tongmei disclosed in the prospectus (application draft) that the raised investment project is mainly used to realize the mass production of 8-inch gallium arsenide substrate of new products and expand the production scale of 2-6-inch gallium arsenide substrate, so as to create conditions for the layout of the company's gallium arsenide substrate in the field of min led and micro led.
According to yole's prediction, the global market sales of GaAs substrates (equivalent to two inches) for mini led and micro LED devices will increase from 2.079 million in 2019 to 6.138 million in 2025, with a compound annual growth rate of 19.77%.
The reporter of the daily economic news noted that the capacity utilization rate of gallium arsenide substrate (equivalent to 2 inches) was 88.63% in 2020, and 93.91% and 88.02% in 2019 and 2018. The raised investment project shows that the company plans to use the raised fund of 367 million yuan to invest in the "gallium arsenide semiconductor material project".
Compared with gallium arsenide substrate, indium phosphide substrate (equivalent to 2 inches) and germanium substrate (equivalent to 2 inches) have higher capacity utilization rates in 2020, which are 92.24% and 92.41% respectively.
In fact, indium phosphide and germanium substrates also face incremental market space in the fields of wearable devices, radar and Cecep Solar Energy Co.Ltd(000591) batteries for enterprises. Beijing Tongmei quoted yole's forecast data in the prospectus (application draft) that the market scale of indium phosphide substrate applied in the field of wearable devices, automotive radar and other sensor devices will reach US $32 million in 2026, with an average annual compound growth rate of 30.37% from 2019 to 2026.
Beijing Tong Mei told reporters in April 8th that the company pays close attention to the commercial promotion of the future global 6G communication RF devices, medical wearable devices, L4~L5 automatic driving radar, and AR, VR visual transparent glasses and other products. The company will lay out the corresponding semiconductor substrate products in advance before the commercialization and popularization of these new technologies, new devices and new application scenarios.
repeatedly punished by the management
In 2015, the State Administration of work safety included gallium arsenide in the list of hazardous chemicals, which means that the production process of Beijing Tongmei will face stricter control. Since then, Beijing Tongmei has repeatedly exposed the problem of lax production management and was punished by the Public Security Bureau, the ecological environment bureau and the Emergency Management Bureau.
The prospectus (application draft) disclosed that on April 17, 2020, Beijing Tongmei was fined for failing to report the variety, quantity and flow direction of explosive hazardous chemicals to the public security organ of the local people's government at the county level for the record within the specified time; In 2018 and 2019, Beijing Tongmei was fined twice for failing to set hazardous waste storage marks on hazardous waste storage drums; In March and April 2021, Beijing Tongmei was fined by Tongzhou District Emergency Management Bureau for failing to inform employees of the investigation and treatment of potential accidents and failing to regularly organize drills in accordance with the emergency rescue plan.
In addition, the inclusion of raw materials in hazardous chemicals also led to the relocation of production lines in Beijing Tongmei.
In 2016, Tongzhou District, where Beijing Tongmei is located, issued the implementation plan for the industrial adjustment and withdrawal of Tongzhou District, which pointed out that the adjustment and withdrawal of all industries and "small scattered pollution" enterprises in the region that do not meet the functional positioning of Beijing's urban sub center, including the production and operation of hazardous chemicals and enterprises with major potential safety hazards.
The prospectus (application draft) disclosed that in 2019, Beijing Tongmei relocated the GaAs production line from Beijing to Chaoyang, Liaoning and Baoding, Hebei.
The relocation of the production line had a great impact on the production capacity and performance of gallium arsenide in Beijing Tongmei that year. In 2019, the production capacity of Beijing Tongmei GaAs substrate decreased from 2.705 million in 2018 to 1.905 million, and the gross profit margin decreased to - 9.13% from 21.53% in 2018. Affected by this, the net profit of Beijing Tongmei also suffered a loss in 2019, with a net profit attributable to the parent company of -33.389 million yuan, and the gross profit margin of its main business also fell to 19.43% from 30.81% in 2018.
It is worth noting that the relocation of Beijing Tongmei's plant may not be over. Beijing Tongmei disclosed in the prospectus (application draft) that some buildings of the company in Tongzhou have not obtained the property right certificate, and these buildings involve some indium phosphide production lines. Relevant departments may require the plant to stop production on this basis, and the company will relocate this part of indium phosphide production line to Chaoyang plant in Liaoning Province. So, will this have a certain impact on the company's future performance? In this regard, Beijing Tongmei told reporters on April 8, 2022 that at present, the company's Indium phosphide substrate material production line is in normal operation. If the indium phosphide substrate material production line is relocated, the company has accumulated experience in the relocation of gallium arsenide production line, and the company also has enough experience and plans to deal with this matter, so as to ensure the normal production of indium phosphide substrate materials of the company. At the same time, the company has established a production base of the company's main products in Kazuo County, Chaoyang City, Liaoning Province to ensure the production and operation of the company.
