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Silan Microelectronics has a long way to go in destocking, and its stock price is still in the bottoming stage, so please remain patient.

Text/Daily Capital

Has this leading private semiconductor power IDM company finally got the chance to “win without any effort”?

On July 22, the stock price of Hangzhou Silan Microelectronics Co., Ltd. (hereinafter referred to as Silan Micro) opened slightly higher and then fluctuated upward, with an intraday increase of nearly 9%. As of the close of the day, its stock price was 21.43 yuan per share, up 6.46%, with a total market value of 33.5 billion yuan. On the previous trading day, Silan Micro's stock price rose strongly to the daily limit.

Silan Microelectronics is closely related to the recent favorable semiconductor policies. Not long ago, the conference proposed that high-quality development is the primary task of building a modern socialist country in an all-round way. Develop new quality productivity according to local conditions, promote the deep integration of the real economy and the digital economy, and improve the resilience and security level of the industrial chain and supply chain. Obviously, it is good for industries such as artificial intelligence and semiconductors.

Some brokerages also stated that downstream demand in the semiconductor industry is gradually recovering, and coupled with AI innovation stimulating terminal upgrades, the revenue prosperity of many sectors of the Taiwan stock market has begun to increase significantly, and semiconductor sales in 2024 are expected to increase significantly year-on-year.

In this context, the semiconductor sector has generally risen since July 19. Among them, many stocks such as Kaiwei Technology, Silan Microelectronics, and Shanghai Belling have reached their daily limit. In particular, the share price of Shanghai Belling has doubled in less than two months. Therefore, some investors expect Silan Microelectronics to take over from Shanghai Belling and lead the semiconductor sector.

However, some rational investors believe that Silan Microelectronics' performance is poor and expectations should not be too high. So, does Silan Microelectronics have a chance to become a new leader?

Public information shows that Silan Microelectronics' predecessor was Hangzhou Silan Electronics Co., Ltd., which was established in 1997. It was successfully listed on the Shanghai Stock Exchange on March 11, 2023, with an issue price of 11.6 yuan per share, becoming the first integrated circuit chip design company to be listed in China.Ranked second in the world in chip manufacturing capacity of 6 inches or lessThe company's 8-inch production line was put into operation in 2017, making it the first private IDM product company in China to have an 8-inch production line. The monthly production capacity of the 8-inch line has reached 60,000 pieces.

In addition, Silan Microelectronics' R&D projects have won the second prize of the National Technological Invention Award and the second prize of the National Science and Technology Progress Award for many times.The largest integrated circuit chip design and manufacturing (IDM) in ChinaOne of the enterprises.

From a digital perspective, Silan Microelectronics' revenue has been increasing year by year, and is expected to exceed the 10 billion mark in 2024, but its net profit has fluctuated greatly. For example, in 2020, Silan Microelectronics' revenue was 4.281 billion yuan, a year-on-year increase of 37.61%, but its net profit was only 67.5972 million yuan. In 2021, revenue soared to 7.194 billion yuan, and net profit also soared to 1.518 billion yuan.

However, by 2023, its revenue continued to grow to 9.34 billion yuan, but its net profit was only 35.7858 million yuan. The fluctuation range is staggering.

Silan Micro's stock performance is also relatively active, and basically corresponds to its performance. On December 2, 2020, its daily limit K-line with volume broke through all moving average suppressions. After that, the stock price fluctuated and climbed from around 16 yuan to July 27, 2021, reaching a high of 74.78 yuan. However, not long after, Silan Micro's stock price went back and forth from where it came from.

Interestingly, at the end of September 2021, Silan Microelectronics issued stocks to acquire assets and raised funds through a private placement, and the price of the private placement was 3.8 times the price of issuing stocks to acquire assets. However, Silan Microelectronics' private placement still attracted the attention of many investment institutions. The announcement showed that Silan Microelectronics received a total of 16 subscription quotation sheets, and the issuers were finally determined to be China Huarong, Bosera Fund, UBS AG, Dajia Asset, Nord Fund, and Invesco Great Wall.

The core reason why institutions were optimistic about Silan Microelectronics at that time was its IDM model. As we all know, with the rise of TSMC, UMC, GlobalFoundries, SMIC and other wafer foundries,More and more semiconductor companies are adopting the fabless model, which is to achieve better financial data and profit performance through asset-light operation.Even established IDM manufacturers such as Renesas and STMicroelectronics have begun to outsource the production of their products to wafer foundries.

However, as the international chip market environment continues to deteriorate, companies that adhere to the IDM model have stood out, and Silan Microelectronics is one of them. Silan Microelectronics produces power semiconductors independently, but its integrated circuit businessNot all production is completed by listed companies。

So, why did Silan Microelectronics go from a profit of over 1 billion in 2022 to a loss of more than 30 million in 2023?

Silan Micro stated in its 2023 semi-annual report that the main reasons for the company's losses were:Among the other non-current financial assets held by the company, the stock prices of AP Energy Technology and Anlu Technology fell., resulting in a net after-tax profit of -225.2 million yuan from the change in its fair value.

Simply put, Silan Micro lost money from stock trading.

Silan Microelectronics' semi-annual report this year predicts a loss of 20 million to 30 million yuan, and the reason is the same - during the reporting period, the stock prices of Yunnan Energy Technology and Anlu Technology, among the company's other non-current financial assets, fell, resulting in a net after-tax profit of -162.17 million yuan from changes in their fair value.

Another reason is that due to the intensified competition in the downstream electric vehicle and new energy markets, the prices of some products have fallen rapidly and the gross profit margins of products have decreased.

It is worth noting that as of June 30, 2023, the number of fund companies holding Silan Micro was 13, while at the end of the fourth quarter of 2022 and the end of the first quarter of 2023, the number was 312 and 40 respectively, which shows the speed of institutional flight. As of March 30, 2024, the number was 6.

In other words, in the eyes of fund companies, Silan Micro may not be so popular anymore.

The reason is also obvious. In the past two years, due to the weak demand in the downstream market, the semiconductor industry has shifted from the past "chip shortage" to a downward cycle. Coupled with the impact of the "price war" factor, the profitability of manufacturers in the industry is generally challenged. At present, the power semiconductor industry is still in a stage of oversupply, and upstream inventories are still in the process of being liquidated. In the short term, there is no signal of a comprehensive price increase. Some price increases are only cost pressure or a correction after the price has fallen too much.

Got it? Let's look at the inventory first. In 2022, Silan Microelectronics' inventory was 3.386 billion yuan, 3.332 billion yuan in 2023, and 3.766 billion yuan in the first quarter of 2024. Obviously, Silan Microelectronics still has a long way to go to reduce its inventory.

There may be a major change in the market environment, which is that the US election may produce a new leader, which will intensify the suppression of China's chip industry. This may be a good opportunity for Silan Microelectronics, which has an IDM model, to boost its performance.

From a technical perspective, the rapid short-term pull-up requires attention to the risk of chasing highs, and it is facing suppression from the 60-week line. It is still in the early stages of bottoming out after a long-term decline, so remain patient.

[The article is for communication only, not investment advice, please be aware of investment risks. It is not easy to write, if your phone still has power, please help like and forward it. Thank you very much]