Zhongying Electronics: The company has achieved a large amount of import substitution in the field of home appliance main control chips

Zhongying Electronics recently stated in an investor activity survey that the company is an international leader in the field of home appliance main control chips, among which the main control chips for white appliances have already entered into market competition with major international brands in Europe, the United States and Japan; the main competitors for main control chips for small home appliances mainly come from listed companies in South Korea and Taiwan.

Zhongying Electronics' product sales mainly consist of industrial control single chips, lithium battery management chips, and OLED display driver chips. The display driver chips are developed by the company's subsidiary Xinying Technology, and industrial control single chips include home appliances, motors, smart meter main control chips, and IOT Internet of Things chips... etc. The revenue from industrial control single chips accounts for more than 70%, the revenue from home appliances accounts for about 50%, and the main control chips for smart meters are mainly exported.

Zhongying Electronics stated that due to the Sino-US trade frictions and for supply chain security considerations, some domestic customers have become increasingly accepting of the company's industrial control single chips, and more brand customers have actively carried out extensive cooperation with the company. The company has already achieved a large amount of import substitution in the field of home appliance main control chips. The company will continue to steadily increase the localization rate of chips in the market areas it focuses on.

The selling price of its industrial control single-chip products and the quotations from suppliers are relatively stable with little fluctuation. The product sales mix has been slightly optimized, and the overall gross profit margin has not changed much. The products belong to the industrial control category and have been recognized and designed into by more and more customers. The company expects that more new products will enter mass production one after another, and the long-term market will show a growth trend.

Zhongying Electronics' existing chips generally use 8-bit cores. According to the needs of customer products, the company's existing 8-bit core products can replace some 16-bit or 32-bit core products. The company's smart IOT products and variable frequency air conditioner control chips are 32-bit core products. The company's 32-bit variable frequency air conditioner solution has been introduced by customers.

In addition, the development time of its industrial control single-chip products is long, mainly relying on technological accumulation. The company attaches great importance to product quality and reliability, and has the advantage of providing nearby services to domestic customers. It has won comprehensive market competitive advantages in terms of technological innovation, market position, product quality and cost-effectiveness. 

The following is a detailed Q&A between SinoWen Electronics and investors:

Investor: What is the situation of the company’s lithium battery management chip?

Zhongying Electronics: Lithium batteries are increasingly used, and the market is in a growth period. The company has launched a number of new lithium battery management chip products to enrich its product line. Mainly used in mobile phones, laptops, power tools, electric bicycles, etc., the application scenarios of the products continue to increase, and the company continues to enrich its product line. With the increasing demand for fast charging of mobile phones, more and more mobile phones need to use lithium battery metering chips. Many large brand customers are actively introducing related products. The company is very confident that the sales of lithium battery management chips will continue to grow throughout the year. As the R&D team continues to take root in lithium battery management chip technology, product quality has also improved. The company's lithium battery management chip products have established a good reputation in the industry, and have been recognized and introduced by more and more large brand customers. Further development is underway on the road to domestic substitution. In the future, it is expected to further effectively increase market share. 

Investor: Why is the company's R&D expenses increasing?

Zhongying Electronics: Most of the company's expenses are R&D expenses. The company continues to actively invest in R&D mainly to create long-term sustainable growth. Nearly 1/3 of the R&D expenses are used for AMOLEDD display driver chips. The company's growing R&D expenses are mainly used for automotive electronic chips, and the R&D investment is still showing an upward trend. 

Investor: What are the advantages of the company’s products?

Zhongying Electronics: The company's products rely on long-term technology accumulation to form some specific IP modules. The company will invest in chip research and development according to the specific areas of the target market. Therefore, the products are more suitable for certain specific applications, but they also have a certain degree of versatility and will be used by customers in different products. The company's products have established brand advantages and can provide customers with high-quality resource services.

Investor: What is the R&D status of the AMOLED product line?

Zhongying Electronics: The company has invested in the research and development of display driver chips in the early stage and has accumulated certain technical experience. The FHD AMOLED display driver chip launched by the company has entered mass production since the end of the third quarter of last year. The cumulative sales have exceeded 10 million yuan so far. New products are also planned to be launched in the second half of this year, and sales show a steady growth trend. The market mechanism has a certain scale and there will be certain opportunities in the future. The quality, power consumption and reliability of the company's products can meet the needs of panel manufacturers, and the product target market is mainly for domestic manufacturers.

Investor: What is the gross profit margin of the company’s products?

Zhongying Electronics: The prices of industrial control single-chip products and the quotations of suppliers are relatively stable, with little fluctuation. The product sales mix has been slightly optimized, and the overall gross profit margin has not changed much. The current trend of domestic chip substitution is conducive to the company's long-term operations. The company's industrial control single-chip products have been recognized and introduced by more and more customers. The company expects that more new products will enter mass production one after another, showing a long-term market share growth trend.

Investor: What is the situation of the company’s electric meter products?

Zhongying Electronics: The company continues to invest in the research and development of smart meter main control chips, and its sales are mainly for exported meters. In recent years, the market size of exported smart meters has grown well. The advantage lies in the single-chip measurement and main control. This chip has a high cost-effectiveness in overseas markets.

Investor: Could you please introduce the company’s revenue situation in the second half of this year?

Zhongying Electronics: According to the company's historical experience, generally speaking, the second half of the year will be better than the first half. The company's products are generally produced based on sales forecasts, and the order visibility is about 1 month. Some products with stable sales will also be stocked, and dealers generally have half a month of stock to meet market needs. The company expects that the market share of white household appliances will have the opportunity to continue to increase; lithium battery management chips are optimistic in the long term because brand customers have actively carried out extensive cooperation with the company, and many large brand customers are actively introducing related products; AMOLED products are also planned to launch new products in the second half of this year, and sales are showing a steady growth trend.

Investor: Could you please introduce the company’s business model?

Zhongying Electronics: The company is an asset-light company. Its products are generally sold through distributors. In most cases, the company directly provides engineering services to major customers. Only a small number of display driver chips are sold directly. Sales through distributors can accelerate the promotion of the company's products and effectively manage the payment period. 

Investor: What is the status of the establishment of the company’s second headquarters in Hefei?

Zhongying Electronics: In order to meet the company's long-term expansion and development needs, seize the opportunity to increase investment, and build Zhongying Electronics' second headquarters in Hefei High-tech Zone, mainly to set up R&D centers, operation centers and laboratories. Realize domestic substitution of industrial control single chips, lithium battery management chips, and automotive electronics. On June 25, 2019, the company signed a "Letter of Intent for Investment Cooperation" with Hefei High-tech Entrepreneurship Service Center.