Congratulations, Zhuoshengwei successfully passed the IPO review!

Zhuosheng Microelectronics plans to be listed on the Shenzhen Stock Exchange's Growth Enterprise Market, with China International Capital Corporation as the sponsor. According to Wabei.com, according to reliable sources, at the 40th working meeting of the 18th Issuance and Examination Committee in 2019 held today, Jiangsu Zhuosheng Microelectronics Co., Ltd. successfully passed the meeting.

On September 7, 2018, Jiangsu Zhuosheng Microelectronics Co., Ltd. disclosed its prospectus on the website of the China Securities Regulatory Commission. The company plans to issue no more than 25 million new shares on the Growth Enterprise Market, and the total share capital after the issuance will not exceed 100 million shares.

(Source: Zhuoshengwei's prospectus disclosed on the website of the China Securities Regulatory Commission)

Zhuosheng Microelectronics was founded in 2012, with its headquarters in Wuxi, Jiangsu, a lakeside town, and has established branches in Shanghai, Shenzhen, Chengdu and other places. At the same time, according to Zhuosheng Microelectronics' prospectus, the company's main business is the research, development and sales of RF front-end chips. It mainly provides RF switches, RF low-noise amplifiers and other RF front-end chip products to the market, and provides IP authorization for use in mobile smart terminals such as smartphones, mainly in the RF device link of the semiconductor industry chain. The structure of the company's main business income by product and service category is shown in the following table:

During the reporting period, the company's main business income mainly came from the sales of RF front-end chip products such as RF switches and RF low-noise amplifiers, as well as IP licensing provided to customers. Among them, IP licensing income includes licensing and technical service fees collected according to the phased progress of the project, as well as royalties collected according to the actual shipments or sales revenue of the authorized products. In May 2013, the company's RF low-noise amplifier products based on RF CMOS technology began mass production; the company seized the market opportunity of RF front-end chips during the upgrade of mobile smart device communication standards from 3G to 4G, and began to get involved in the field of RF switches in 2014. During the reporting period, the number of RF switch products continued to increase, and the shipment volume increased significantly. At present, RF switches have become the main source of the company's operating income.

From the overall performance point of view, in 2014, Zhuoshengwei was still in a loss-making state, with a net profit of -165,800 yuan. However, with the continuous increase in sales and proportion to major customers such as Samsung, the company's performance has been on the rise, and the business scale has achieved rapid growth. From 2015 to 2017, the company's operating income had an average annual compound growth rate of 130.94%. In the past three years, the company's profit exceeded 100 million yuan in two years, which also added a lot to the company's impact on listing.

During the reporting period, from 2014 to January-March 2018, Zhuoshengwei achieved operating income of RMB 43.7008 million, RMB 111 million, RMB 385 million, RMB 592 million and RMB 128 million, respectively, and realized net profit attributable to parent company shareholders of RMB -165,800, RMB 11.2522 million, RMB 84.1594 million, RMB 170 million and RMB 24.1481 million, respectively, and realized net cash flow from operating activities of RMB -692,100, RMB 9.4074 million, RMB 94.5107 million, RMB 129 million and RMB 43.8412 million, respectively.

From the perspective of customer structure, the prospectus shows that among Zhuoshengwei's top ten customers from 2015 to 2017 and from January to March 2018, there were significant changes in major customers, but the largest customer has always been Samsung Electronics and its affiliates, which brought sales revenues of RMB 44.3828 million, RMB 293.6462 million, RMB 391.3237 million and RMB 75.8355 million, respectively, accounting for 40.01%, 76.23%, 66.14% and 59.39% of the current operating income, respectively. In 2016 and 2017, Zhuoshengwei's sales revenue to Samsung Electronics and its affiliates exceeded 60%, and the sales share in the first quarter of 2018 was also close to 60%.

According to the company, in addition to Samsung, the company has also established good connections with other well-known customers. The company's RF front-end chip products are used in products of terminal manufacturers such as Xiaomi, Huawei, Lenovo, Meizu, TCL, etc., and are continuing to expand potential cooperation opportunities with other domestic and foreign smartphone manufacturers. The distribution of the company's sales regions during the reporting period is shown in the following table:

During the reporting period, the company's overseas revenue accounted for a high proportion, and the amount showed an upward trend. In 2015, 2016, 2017 and January-March 2018, the overseas revenue accounted for 75.40%, 80.26%, 68.42% and 67.37% of the company's operating revenue, covering Vietnam, South Korea, Hong Kong, India, Indonesia, the United States, Taiwan and other countries and regions. During the reporting period, the company's operating revenue in Indonesia, Vietnam, Brazil and other overseas regions, and Guangdong, Tianjin and other domestic regions increased significantly, mainly because the issuer is a qualified supplier of Samsung, and Samsung has established production bases in Indonesia, Vietnam, Brazil, Guangdong, Tianjin and other regions. According to the production plans of various factories of the Samsung Group, the issuer's shipments in the above-mentioned regions increased, and the operating revenue also increased accordingly. During the reporting period, the company's operating revenue and proportion in Beijing increased significantly, mainly due to the company's revenue from Xiaomi increased significantly during the reporting period. Xiaomi is a well-known domestic mobile smart device manufacturer. The company has established a solid cooperative relationship with it. Since 2017, Xiaomi has become the company's second largest customer.

At the same time, due to the large number of companies in the RF front-end chip design industry, market competition is becoming increasingly fierce. Internationally, companies such as Skyworks, Qorvo, and Broadcom have strong financial and technical strength, high brand awareness and market influence. According to Yole Development statistics, the above three manufacturers accounted for 84% of the global RF power amplifier market share in 2016; domestically, the chip products provided by local competitors are also becoming more and more homogeneous with Zhuoshengwei.

In this regard, Zhuoshengwei said that the downstream customer demand of the integrated circuit design industry is rich, and the RF front-end chips include a variety of product types. At present, competitors in the industry such as Skyworks, Qorvo and other international leading brands cover all product categories of RF front-end. At this stage, the company mainly provides RF front-end chip products such as RF switches and RF low-noise amplifiers to the market. As the performance differences of smartphones and tablets gradually narrow, the downstream market competition is fierce, and the gross profit margin of downstream enterprises is on a downward trend, which may also lead to a reduction in the profit space of design companies in the industry.

What does Zhuoshengwei rely on to win more customers? Of course, it is the core technology. The company believes that the core technology and its source, the issuer's core technology, are original innovations, the technology source and the formation process are legal and compliant, and do not rely on major customers such as Samsung. As of March 31, 2018, the company has formed the main core technologies in the fields of RF switches and RF low-noise amplifiers as shown in the following table:

The above four core technologies are all based on the company's accumulated technology and experience in the field of WiFi and Bluetooth radio frequency. In 2012, the company authorized its independently developed WiFi and Bluetooth radio frequency design solutions to a well-known domestic chip company, which successfully achieved mass production using the design solutions. In the development and application of the above design solutions, the company has gradually formed key technologies related to RF low-noise amplifiers, RF switches and RF power amplifiers through independent research and development.

The proportion of core technology product revenue to operating revenue During the reporting period, the company's core technology product revenue and its proportion to the company's operating revenue are shown in the following table:

As of March 31, 2018, the company had a total of 56 R&D personnel, accounting for 54.90% of the total number of employees; among them, there were 3 core technical personnel, namely Xu Zhihan, Chenhui Feng (冯晨晖), and Zhuang Tang (唐壮), and there were no changes during the reporting period. The core technical personnel have not signed any non-compete agreements with their original employers, and there are no disputes or potential disputes with their original employers. During the reporting period, the company's R&D investment is shown in the following table:

At the same time, in the prospectus, the company also reported the necessity and rationality of this issuance:

After the company's raised funds investment projects are put into production, the technical content and market competitiveness of the original products will be improved, thereby further enhancing the company's R&D capabilities and opening up new profit growth points. This issuance will further highlight and enhance the company's core business competitiveness and lay the foundation for the company to further establish a more stable competitive position in the domestic and international markets.

The projects raised funds this time have been fully demonstrated and have good development prospects. During the construction period of the projects raised funds, the company's return on net assets will decline in the short term because the projects have not yet reached full production. However, as the projects are put into production one after another and the business scale expands, the company's profitability will increase significantly, and the company's operating scale and profitability will be further improved.

After the completion of this issuance, the company's net asset scale will increase significantly and its book value will rise significantly. With the increase in asset scale, the company's debt-to-asset ratio will be further improved, which will be conducive to the improvement of the company's indirect financing ability and ability to resist financial risks.

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