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On July 18, Jinghua Laser (603607.SH) hit the daily limit during bidding.

In the morning trading, lithography machines and photoresists rose abnormally, Lanying Equipment (300293.SZ) hit the 20CM daily limit, Dongfang Jiasheng (002889.SZ) achieved a 10CM daily limit, and Xinyuan Micro and Zhangjiang Hi-Tech were among the top gainers. In sharp contrast, the semiconductor sector of the US stock market fell sharply last night, with the Philadelphia Semiconductor Index falling 4%, ASML falling more than 10%, and TSMC falling more than 6%.

There are reports that the United States is considering taking stricter measures to put pressure on companies in Japan, the Netherlands and other countries to restrict trade with China. However, ASML's president said that despite the uncertainty in the macro environment, the semiconductor industry is expected to continue to recover in the second half of the year and enter an upward cycle in 2025.

Benefiting from the industry recovery, the rise of the lithography machine sector is completely understandable, but Jinghua Laser's lithography machine concept may not be pure. The company has previously clarified that the lithography machine developed by the company is quite different from the lithography machine in the semiconductor field. In addition, this business contributes little to the company's performance, and the overall performance has also shown a downward trend. This concept speculation may not be able to continue.

This "machine" is not that "machine"

According to the official website, Jinghua Laser is headquartered in Shaoxing High-tech Industrial Development Zone, Zhejiang Province. It is a national high-tech enterprise specializing in the manufacturing, sales and technology development of laser holographic molded products.

After years of development, Jinghua Laser has formed strong competitiveness in the fields of packaging printing, anti-counterfeiting protection, etc. From the early production of laser holographic anti-counterfeiting labels to the subsequent development of laser holographic anti-counterfeiting pull lines (security lines), laser holographic anti-counterfeiting films, and laser holographic anti-counterfeiting papers, the company has achieved a full-scale upgrade of anti-counterfeiting from "points" to "lines" to "surfaces".

Jinghua Laser has provided anti-counterfeiting protection for many certificates and cards such as the "Passport of the People's Republic of China" and the "Hong Kong and Macao Pass", famous cigarettes and liquors such as "Liqun", "Yellow Crane Tower", "Jiannanchun" and "Fenjiu", as well as a large number of famous products such as "L'Oreal" cosmetics, Colgate 360 ​​toothpaste, and Tomson By-Health nutritional powder.

It can be said that Jinghua Laser has made contributions to combating counterfeiting and shoddy products, and the company's industry influence continues to increase. As a leading company in the anti-counterfeiting industry, how did Jinghua Laser become related to lithography machines?

In its equity acquisition announcement in December 2018, Jinghua Laser stated that the American Fresnel, in which it acquired a 58% stake, is a company engaged in the research and development of microstructure optical technology and the manufacturing and maintenance of related equipment. It has developed advanced technologies in holographic optics, Fresnel cat's eye, crystal microstructure, shallow-grain microstructure, platinum relief, etc., and has independently developed corresponding lithography machines.

It is understood that the platinum relief lithography machine and its control system developed by Fresnel in the United States have leading technological advancement in the Chinese market, with the characteristics of large plate size, fast speed, and adjustable lithography pattern depth. In fact, the platinum relief lithography machine and its control system owned by Jinghua Laser through the acquisition of the equity of Fresnel in the United States and Hong Kong have exclusive rights in the Chinese market.

However, Lanfu Finance also noticed that the lithography machines produced by Jinghua Laser's US subsidiary are significantly different from those in the semiconductor field.

Jinghua Laser has also previously clarified on the interactive platform that the American Fresnel Platemaking Technology Company, which the company controls, is mainly engaged in the research and development of lithography machines for optical platemaking. The lithography machines it develops are significantly different from those in the semiconductor field in terms of accuracy and complexity, and there is no possibility of upgrading them to chip lithography machines through technological improvements.

Unstable performance and declining profitability

Looking through Jinghua Laser's performance report, it can be found that the company's lithography machine business contributes relatively little to its performance.

According to the company's disclosure, Jinghua Laser's operating income in 2023 mainly comes from laser holographic anti-counterfeiting paper, laser holographic anti-counterfeiting film and other businesses, with revenues of 630 million yuan and 99.6319 million yuan respectively, accounting for 83.01% and 13.13% of revenue respectively. If divided by industry, 98.95% of Jinghua Laser's revenue comes from the papermaking and paper products industry.

In addition, Jinghua Laser's operating performance in recent years has been extremely unstable and has shown a certain downward trend. From 2021 to 2023, the company's revenue was 877 million yuan, 879 million yuan, and 759 million yuan, respectively; net profit attributable to the parent was 111 million yuan, 126 million yuan, and 93.3576 million yuan. In the first quarter of 2024, the company achieved revenue of 188 million yuan, a year-on-year decrease of 4.88%; net profit attributable to the parent was 22.76 million yuan, a year-on-year decrease of 16.73%.

In terms of products, the gross profit margins of Jinghua Laser's main business and products have decreased to varying degrees. According to the 2023 performance report, the company's gross profit margin for papermaking and paper products business was 30.90%, a decrease of 1.49 percentage points from the same period last year. In terms of products, the gross profit margin of laser holographic anti-counterfeiting film products was 40.95%, a decrease of 0.66 percentage points from the same period last year; the gross profit margin of laser holographic anti-counterfeiting paper products was 28.56%, a decrease of 2.10 percentage points from the same period last year.

The decline in profitability of core products may pose a hidden danger to the stable development of Jinghua Laser.

Executives frequently sell off their holdings, are they losing confidence in future development?

The company encountered many problems in its operations. Instead of finding a solution, the management of Jinghua Laser was thinking about how to reduce holdings and cash out.

Lanfu Finance noted that many executives of Jinghua Laser had frequently reduced their holdings. The most recent one was in September last year, when Yuan Jianfeng, a director of the company, reduced his holdings by 486,900 shares at an average price of 21.97 yuan; Zhang Shaofen, a supervisor, reduced his holdings by 67,100 shares at an average price of 21.03 yuan; and Feng Yihong, a senior manager, reduced his holdings by 600,000 shares at an average price of 20.51 yuan.

In fact, cases of share reduction are not uncommon in the history of Jinghua Laser. In September and November 2021, many senior executives of the company successively reduced their holdings, including Yuan Jianfeng, Zhang Shaofen and others.

It should be noted that the reduction of holdings by executives of listed companies often causes market concerns, because as company insiders, their reduction of holdings may be seen as pessimism about the company's future prospects, and may even cause the stock price to fall. In addition, frequent reduction of holdings by executives may affect the company's internal stability and governance structure.

After the release of the new rules on share reduction, the share reduction behavior of listed companies' shareholders has been strictly regulated. In this context, some responsible and accountable listed companies have begun to repurchase company shares in a big way, but Jinghua Laser has never heard of such news.

Judging from the stock price performance, Jinghua Laser's stock price has been in a long-term trend of fluctuating decline, and there is still no sign of the end of the adjustment. It was only stimulated by semiconductor-related news that it rose strongly to the daily limit on July 18. However, according to the analysis in the previous article, its semiconductor concept may not be pure. I wonder how the funds that hit the daily limit feel now.