It is particularly important to ensure product quality in all aspects of semiconductor production. Once a defect occurs, the cost of a single product can reach thousands of dollars, so each chip must be tested to ensure normal use. Therefore, chip testing plays an essential role in the integrated circuit industry chain.
Hualing shares (430139.NQ) on the NEEQ is an independent professional integrated circuit (IC) testing company. The company was established in 2001 by the legal person Shanghai Fudan Microelectronics and seven natural persons. It is located in Shanghai Zhangjiang Hi-Tech Park.
The company mainly provides integrated testing solutions and value-added services for various integrated circuit companies. Its business includes integrated circuit testing program development, design verification, wafer testing and finished product testing. Testing capabilities cover many product areas such as mobile smart terminals, information security, digital communications, Beidou navigation, FPGA, CIS, financial IC cards, automotive electronics, IoT devices, MEMS devices, three-dimensional high-density devices, new materials and new structures.
With the evolution of the competition pattern of the integrated circuit industry, the huge industrial system is not conducive to the development and growth of the entire industry. Therefore, the integrated circuit industry structure has transformed to a high degree of specialization, forming a situation where the design industry, manufacturing industry, packaging industry and testing industry are independent. . Among them, integrated circuit testing runs through the entire process of integrated circuit design, chip manufacturing and packaging, and has the characteristics of high technical content and intensive knowledge. As a leader in the domestic IC testing industry, the company’s business has covered the entire industry chain, and the testing production line basically covers 80% of the mainstream IC products in the market.
From the perspective of the company’s revenue composition in the past three years, the test service revenue accounted for more than 96%, and the gross profit margin has always been maintained at more than 50%, which is the company’s main source of income. In 2020, the company began to carry out its own equipment leasing business, but the revenue accounted for a relatively small proportion.
The development of the test program is based on the customer’s application requirements, through the research on the internal modules and performance of the chip, select the model that meets the test requirements of the chip, and complete the writing and design of the test program. Design verification is a prototype test. It is an inspection, test and analysis after the design is completed and before mass production. Reliability testing and time-efficiency analysis are performed on chip samples to improve the design process.
Wafer testing is a production test, also called integrated circuit mid-test. After the wafer is completed and before packaging, the function and electrical parameters of the bare chip on the wafer are tested through the use of the probe station and the tester. The purpose of this link is to ensure that invalid chips are screened out as much as possible before chip packaging to save packaging costs. The company has a 1000-level purification plant with automatic temperature and humidity control, which can meet the widest range of wafer-level testing requirements for various types of chips. In recent years, there have been important product iterations in wafer testing, and performance can be expected in the next two years.
Finished product testing also belongs to production testing, also called integrated circuit testing. After the chip is packaged, the function and electrical parameters of the packaged chip are tested through the use of a sorting machine and a testing machine. The purpose of this link is to ensure that the functions and performance indicators of each integrated circuit that leaves the factory can meet the design specifications.
With the continuous expansion of the company’s customer base, in order to improve the quality of service and meet the diverse testing needs of customers, the company uses cloud technology to independently develop the “chip test cloud” system, which enables chip testing through cloud-based analysis and processing of test-related data The means of realization are more cloud-based, modern, and lower in cost. After two consecutive years of accumulative investment of 80 million yuan, the “chip test cloud” service model based on big data and cloud computing architecture began operation in 2016. The number of active customers that year increased by more than 35% over the same period last year, and the effect was remarkable. In 2019, the company continued to optimize technology and products, strengthened market development in key industries, and brought 23 new customers, breaking through new fields and new directions such as artificial intelligence, localized substitution, and domestically-made chips.
As an integrated circuit testing service company, the company purchases integrated circuit testing equipment, develops and verifies testing procedures according to customer needs, and provides downstream customers with wafer testing and finished product testing services. To put it bluntly, the company’s positioning is the development and application of test software. The core of operation lies in capital, technology and talents.
The company’s main supplier is an integrated circuit test equipment manufacturer. In order to ensure that the company’s testing level is synchronized with the development of the industry, it needs to invest a large amount of money every year to purchase international mainstream and high-end integrated circuit test equipment. The company’s equipment is mainly imported from the United States, Japan and other international semiconductor equipment giants such as Advantest Corporation, Tokyo Precision and Epson. Upstream suppliers are more competitive, and currently no supplier accounts for more than 50% of purchases, and there is no dependence on a few suppliers.
Equipment materials are most closely related to the last three sub-sectors of manufacturing, packaging, and testing. At present, equipment materials are monopolized by the United States, Europe, and Japan in the high-end field, and the problem of neck stuck is serious. The company’s testing equipment mainly relies on foreign imports, and there are certain trade risks in the upstream.
The company’s downstream customers include more than 300 companies including the top 10 chip design, manufacturing, and packaging companies in China. Major customers include Fudan Microelectronics, SMIC, Hua Hong Hongli and other high-level customers. The top five customers accounted for 68.99% of revenue in 2020, and the number one customer accounted for 31.06%. There is no single customer dependency. Among them, Fudan Microelectronics (SH: 688385) is the company’s controlling shareholder, accounting for 12.49% of the year’s sales, and it is a related party transaction.
Mainland China has become the world’s largest and fastest-growing integrated circuit market. With technological advancement and industrial upgrading, design, manufacturing and packaging companies have greater demand for advanced test technology. According to data from the China Semiconductor Industry Association (CSIA), the annual sales of my country’s integrated circuit industry in 2020 reached 884.8 billion yuan, an increase of 17% year-on-year; of which, the sales of the packaging and testing industry was 250.9 billion yuan, an increase of 6.8% year-on-year, accounting for Than 28.4%.
According to the forecast of the Prospective Industry Research Institute, the market scale of my country’s integrated circuit industry is expected to exceed 2 trillion yuan by 2026, with a compound annual growth rate of 16.93%. Among them, the size of the packaging and testing market is expected to exceed 600 billion by then, with a compound annual growth rate of up to 15.64%. Behind this is the background of the uncertain and not optimistic international trade environment. China needs to realize the strong logic of domestic substitution and corner overtaking in the semiconductor industry.
Although the IC testing industry is developing well, third-party independent testing still accounts for a small proportion of the entire IC industry. The testing capacity in mainland China is mainly concentrated in the testing workshops of integrated circuit manufacturing companies and the testing business departments of packaging companies. The packaging companies have most of the domestic IC testing capacity.
As the domestic integrated circuit testing industry has a certain gap with the international level in terms of scale, equipment and technology, at present, in addition to the chips involved in national security, more than 60% of high-end chips must be completed by companies outside the mainland. In addition, according to Gartner statistics, the packaging segment accounts for 80-85% of the entire packaging and testing market share, and the testing segment is 15-20%. It can be seen that the domestic independent testing industry accounts for a relatively small proportion, and the market size is about 15-20 billion. However, the industry is growing at a high speed and there is good room for growth in the future.
In addition, weak testing capabilities are also a constraint to the development of my country’s integrated circuit industry. Compared with integrated circuit design, manufacturing and packaging, it is the weakest link. The integrated circuit industry has entered the era of high-performance CPU, DSP and SoC. With the increasing complexity and performance of chips, the testing and verification and production costs of high-end products are getting higher and higher, which has brought tremendous development to the integrated circuit testing industry. The driving force and business opportunities of the company, professional independent testing companies have ushered in huge market development opportunities.
As a technology and capital-intensive industry, the barriers of the IC testing industry are mainly reflected in technology, talents and capital. The current CR10 of the global IC packaging and testing market is 78.4%, and the industry concentration is relatively high. The United States, the European Union, and Japan have an absolute advantage as the traditional leading regions in the semiconductor industry, and they are in an international leading position in integrated circuit testing concepts and testing technologies.
As an advantageous area of the Foundry model, Taiwan of my country has a number of testing companies, and its independent testing companies have certain advantages in terms of number and scale of enterprises. According to the data in 2020, Taiwan of China accounts for 56.1% of the global market share. . However, the professional division of labor in the domestic integrated circuit industry started relatively late, and third-party independent testing companies are scattered and small in scale. There are about ten professional integrated circuit testing companies that can produce on a large scale, and the industry concentration is not high.
Since the packaging and testing integrated company focuses more on the R&D in the packaging field, its testing is mostly for self-inspection, while the independent third-party IC testing company is more focused on the R&D in the testing field, and the two business focuses are different. Therefore, the main competitors in the IC testing industry are Taiwan’s KYEC, Guangdong Liyang Chip (688135), Wuxi Test, Beijing Quean Technology (430094) and China Resources Semico.
KYEC, located in Taiwan, is the world’s largest independent IC testing company, and it occupies an important position in the global wafer testing and finished product testing fields. Liyang Chip is currently one of the largest IC testing private companies in China, specializing in semiconductor back-end processing, including wafer testing, wafer thinning, wafer cutting, finished product testing and IC taping and other one-stop services. Wuxi Test is the first independent IC testing company established in China, Quean Technology is the largest independent IC testing company in the north, and China Resources Semico is the largest in the Pearl River Delta region. The company is currently leading the mainland in terms of scale and has a leading advantage in finished product testing capabilities compared with domestic companies.
The company’s main domestic competitor is Liyang Chips. The following is a comprehensive comparison of the strengths of the two companies.
In the context of the core team, most of Hualing’s core team graduated from Xidian and Chengdian. The microelectronics majors of these two universities are the only two domestic Electronic science and technology disciplines that have received A+ ratings, and even at Tsinghua Peking University Above.
The core team of Liyang is much inferior to Hualing, and there are fewer professionals in the core management.
In terms of technical level and R&D investment, by comparing the relevant data of the two in 2020, it can be found that Hualing is significantly better than Liyang in terms of R&D and invention patents.
On major national scientific research projects, Hualing has conducted in-depth cooperation with Peking University, Fudan University and Shanghai Fudan University in testing method research and personnel training since 2007, and has undertaken 8 major national scientific research projects at the same time. Li Yang has not had experience in undertaking major national projects.
In terms of capacity construction and utilization, Hualing will have nearly 10,000 square meters of factory buildings in 2020, with 200 (sets) of testing equipment. Liyang has a plant of nearly 20,000 square meters and has nearly 500 (sets) of equipment. In 2020, it has raised funds and plans to build 100 (sets) of test equipment. However, in terms of capacity utilization and expansion, Liyang’s capacity utilization rate is far lower than that of Hualing. It can be seen that Liyang’s expansion is more radical, while Hualing is more pragmatic.
Based on the above comparative data, it can be seen that, compared with Liyang, Hualing’s core team is more professional, more invested in research and development, orderly expansion of production capacity, and stronger scientific research capabilities, giving people a solid feeling overall. However, Liyang Chip, as a private enterprise, has a sharper market sense and a more flexible management mechanism. It seized market opportunities in a timely manner to quickly expand its performance and became the first domestic third-party chip testing company to go public.
The company’s operating income from 2018 to 2020 was 131 million, 146 million, and 192 million, with a compound annual growth rate of 13.59%; net profit deducted was -7.12 million, -5.12 million, and 26.54 million, respectively . For the third quarter of 2021, revenue was 207 million, a year-on-year increase of 55%; net profit deducted was 42.03 million, a year-on-year increase of 178.39%. It can be seen that the company’s performance in the past two years has ushered in an inflection point of growth, mainly because of the significant improvement in the overall prosperity of the IC industry, the company’s new capacity has been put into production in the past two years, and at the same time, it has strengthened market development, which has led to the company’s main business income. And net profit increased significantly. The negative deduction of non-net profits in the previous period is mainly affected by the company’s asset disposal gains and losses arising from the sale of obsolete production equipment.
In terms of profitability, the company’s 2018-2020 gross profit margin has always remained above 50%. Comparing the gross profit rate of comparable companies in 2020, KYEC is 27.47%, Liyang Chip 46.99%, QueAn Technology 45.43%, the company is higher than the industry average of 40%. The gross profit margin for the third quarter of 2021 is approximately 56%, which is an increase compared to before. Mainly because the company’s continuous optimization of technology and products has improved the efficiency of product testing, while production costs have remained relatively stable, and the economies of scale brought about have increased the gross profit margin of testing services.
The company’s asset-liability ratio is 18.32%, and there are no short-term interest-bearing liabilities. The cash ratio is 3.55, and the net cash flow from operating activities is 81.43 million, with sufficient liquidity and stable cash creation ability. Accounts receivable accounted for 27% of revenue. Within the scope of reasonable credit granted by the company to long-term customers, the risk of bad debts is small.
The company’s 2018-2020 R&D expense revenue accounted for 35.39%, 33.94%, and 19.84%, which were higher than the industry average of 10.67% of comparable companies. The decline in 2020 is mainly due to the reduction of R&D investment by companies affected by the epidemic. The company currently has 291 employees. The 12 net additions this year are mainly technical and production personnel.
The company’s controlling shareholder Shanghai Fudan Microelectronics holds 50.29% of the company’s total share capital and has a state-owned background. The shareholding ratio of the top five shareholders is 67.6%, and the shareholding is relatively concentrated. As one of the company’s main customers, Fudan Microelectronics has made a promise to avoid competition in the industry. In the history of the company, dividends have been paid more frequently, and the company has implemented employee shareholding for most core technical personnel, with a shareholding ratio of 3.34%, which has a good equity incentive effect.
On October 29, the company announced that it plans to sign an “Investment Agreement” with the China (Shanghai) Pilot Free Trade Zone Lingang New Area Management Committee and Shanghai Lingang Industrial Zone Economic Development Co., Ltd., and plans to invest 800 million yuan to establish a wholly-owned Subsidiary, the investment projects this time include plant purchase, ultra-clean plant decoration, large-scale test production line construction project, early-stage investment in high-reliability packaging, etc. It can be seen that in addition to expanding production capacity on the basis of its original business, the company is also planning to expand its business in the IC packaging field.
Summary: As a leading domestic third-party IC testing company, the company has been steadily engaged in the IC testing industry. With equipment upgrades and capacity expansion in the past two years, its performance has ushered in explosive growth. With the rapid growth of the integrated circuit market and the trend of domestic substitution, the industry has a good development prospect. However, the problem of “stuck neck” in this industry is more prominent, and there is still a gap between the level of testing technology and enterprises in the United States and Japan, and it is definitely not possible to rely on imports for testing equipment, which is easily affected by trade frictions.