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On August 16, Jiangsu Pioneer Precision Technology Co., Ltd. (hereinafter referred to as "Pioneer Precision") will have its initial public offering application on the Science and Technology Innovation Board submitted to the board for review.

Pioneer Precision specializes in the precision manufacturing of key components in the semiconductor etching and thin film deposition equipment segments, especially in the field of etching equipment. The company is one of the few domestic suppliers that has mass-produced and supplies key components for domestic etching equipment of 7nm and below, competing directly with international manufacturers.

In terms of composition, its customers are all leaders in the semiconductor equipment field, including North Huachuang, AMEC, Tuojing Technology, Huahai Qingke, SMIC, and Yitong Semiconductor, etc.

Being in the semiconductor equipment field that is supported by the state, Pioneer Precision has seized the dividends in recent years, with a compound growth rate of 14.74% from 2021 to 2023. However, it is not difficult to find that its size is still small. Last year, the company's revenue was about 560 million yuan, which is not comparable to the scale of the leading equipment companies in this field. Moreover, due to cyclical adjustments in the industry, the company's non-net profit in 2023 fell by nearly 20%.

How good is Pioneer Precision's technology? Is the impact of the industry's cyclical adjustment still continuing? What new layouts does the company have with the help of the capital market? What risk factors does the regulator focus on in its inquiries? As the meeting date approaches, Pioneer Precision's "big test" is coming.

Performance fluctuations under industry cycles

Against the backdrop of rapid development of domestic semiconductors, Pioneer Precision is undoubtedly lucky.

In 2020, Pioneer Precision's revenue was still around 200 million yuan, and its attributable net profit was in a loss state. In 2021, the company's scale will double, with revenue reaching 424 million yuan and attributable net profit reaching 105 million yuan. In 2022 and 2023, the company's revenue will be 470 million yuan and 558 million yuan, respectively, achieving steady growth.

Through the changes in the top five customers, we can also clearly feel the impact of the growth of the semiconductor equipment industry on the company.

In 2020, China Micro Semiconductor was Pioneer Precision's largest customer, with sales of 63.13 million yuan, accounting for 31.32%; North Huachuang ranked second, with sales of 55.78 million yuan, accounting for 27.68%; the company's sales to its third largest customer, SMIC, were 22.90 million yuan, accounting for 11.37%.

In 2021, North Huachuang became the company's largest customer, with sales of 140 million yuan, accounting for 33.46% of revenue; the second largest customer was China Microelectronics Corporation, with sales of 130 million yuan, accounting for 30.92%; SMIC was the third largest customer, with sales of 36.09 million yuan, accounting for 8.52%. It is not difficult to find that this year is a key year for Pioneer Precision, and sales to several major customers have almost doubled.

Judging from the performance of North Huachuang and AMEC, 2021 is also a year of rapid development for them. The revenue growth of both companies is above double digits, and the net profit growth rate exceeds 100%. This naturally boosted orders from upstream component manufacturers.

On August 12, a person from the securities department of Pioneer Precision Technology revealed in an interview with a reporter from 21st Century Business Herald that "the company has been working closely with the two companies since its establishment, and has assisted customers in the complete process of research and development, finalization, mass production and iteration to advanced processes for many of their equipment."

However, the performance fluctuations brought to Pioneer Precision during the industry's downturn are also obvious.

After 2021, although the company's operating income is still growing, from 2021 to 2023, it was 424 million yuan, 470 million yuan, and 558 million yuan respectively. However, the net profit has continued to decline, with net profits of 105.2 million yuan, 104.8 million yuan, and 80.27 million yuan in three years, with the decline in 2023 being more obvious.

Pioneer Precision explained in its prospectus that the decline in gross profit margin of major products in 2023 was mainly affected by the cyclical nature of the semiconductor industry and changes in the external environment. The capital expenditure of major domestic wafer fabs temporarily decreased in the first half of the year, and the company's capacity utilization rate decreased; secondly, the company's product structure changed, and the proportion of photovoltaic product revenue increased while its gross profit margin was relatively low, further lowering the overall gross profit margin.

However, since the third quarter of 2023, the semiconductor industry has gradually recovered, the capital expenditure of terminal wafer factories has recovered, the company's new orders in the semiconductor field have increased, and the capacity utilization rate has continued to recover. From January to March 2024, the company's main business gross profit margin has rebounded significantly, from 26.32% at the end of the previous year to 29.17%.

Judging from Pioneer Precision's market position, it claims to be "in the first echelon of the domestic industry in the field of metal precision components for semiconductor equipment." However, it also admits that there is still a certain gap between the company and leading international companies in terms of market competitiveness and market share.

From the perspective of R&D investment ratio, the company's R&D accounted for 5.08%, 6.59% and 6.51% of its revenue in 2021-2023. Compared with its peers Fuchuang Precision and Kema Technology, Pioneer Precision has a lower investment ratio in this area. In 2023, the R&D expense rates of the above two companies exceeded 9%.

Responding to doubts about replenishment

Pioneer Precision is seeking an IPO this time, intending to raise 587 million yuan, which will be invested in the Jingjiang precision assembly parts manufacturing base expansion and upgrade project (160 million yuan), the Wuxi Xianyan equipment module production and assembly base project (250 million yuan), the Wuxi Xianyan precision manufacturing technology R&D center project (74.65 million yuan), and the supplementary working capital project (94.95 million yuan).

What has attracted market attention is that the company will use part of the funds to replenish cash flow. What is even more sensitive to investors is that Pioneer Precision had made large dividends before its listing. In 2021, the company paid cash dividends of 82.675 million yuan, and in 2022, it paid cash dividends of 25 million yuan, totaling more than 100 million yuan.

From the perspective of financial status, as of the end of 2023, the company has RMB 280 million in cash, RMB 290 million in current liabilities, and RMB 136 million in net operating cash flow. In the case of a decent financial situation, "replenishing cash flow" has always been criticized by the market. In the first round of regulatory inquiries, the company was also asked about the necessity and rationality of replenishing cash flow.

It is worth noting that when the company first filed for its IPO, it planned to use 200 million yuan for cash flow replenishment. Later, the fundraising scale was adjusted in the draft for the meeting, and the current cash flow replenishment amount has been reduced to 94.95 million yuan.

Pioneer Precision also responded to this sensitive topic in an interview with a reporter from 21st Century Business Herald. It said that since its establishment in 2008, the company has focused on the domestic semiconductor equipment track and maintained stable endogenous growth. It has not distributed dividends before. Since 2020, the company has carried out several rounds of dividends based on IPO rectification regulations and overall company development considerations. "On the whole, the company's dividend funds are mainly used to pay the registered capital (eventually flow back to the company) and pay the income tax related to the share reform, with a total amount of 68.75 million yuan, accounting for 64% of the total dividends. The remaining cash dividends returned to shareholders account for less than 40% of the total dividends."

Regarding the use of raised funds to replenish liquidity, Pioneer Precision said that the company's estimated liquidity gap is based on the operating capital situation in 2022 and 2023. Referring to the calculation logic of the replenishment of liquidity projects of comparable companies in the same industry and the peak amount of wealth management during the reporting period, it is predicted that the amount of liquidity to be replenished from 2024 to 2026 will be about 95 million yuan. "Considering the continued upward trend in the semiconductor field starting from the second half of 2023, the company's performance growth rate has significantly accelerated. It is expected that the liquidity gap may further increase on this basis in the future. The amount of funds raised this time for replenishment is cautious." Relevant personnel of the company said.