Shengmei shares were shorted, and Nomura Securities and STIFEL, two major international investment banks, supported

With the continuous innovation and improvement of the Science and Technology Innovation Board's system, more and more outstanding semiconductor companies are accelerating their entry into the capital market. At the same time, it has also attracted a number of high-quality science and technology innovation companies including Shengmei Co., Ltd., SMIC, and China Resources Microelectronics to return to the A-share market.

On September 30, Shengmei Co., Ltd., a leading domestic semiconductor cleaning equipment company, successfully passed the review of the Science and Technology Innovation Board Listing Committee and became the first "A+N" company on the Science and Technology Innovation Board.

Therefore, Shengmei shares have received particular attention from the capital market and are inevitably subject to external doubts.

On October 8, the short-selling agency J Capital Research (hereinafter referred to as "JCAP") released a short-selling report on ACMR, the parent company of Shengmei Holdings, questioning ACMR's equipment prices, business revenue and gross profit margin.

In response, ACMR said that the report contained many misstatements about its business and operations, including those regarding revenue, gross margin, major suppliers, inventory and other balance sheet related items. The company expects to release its third quarter financial results in early November and will make a more detailed response to the misstatements in the report during the earnings call.

In addition, internationally renowned investment institutions represented by Nomura Securities and STIFEL have issued research reports to refute JCAP's views and continue to maintain a "buy" rating to support ACMR.

Exaggerating equipment prices?

According to the data, Shengmei Co., Ltd. was established in 2005 and is mainly engaged in the research and development, production and sales of semiconductor-specific equipment. Its main products include semiconductor cleaning equipment, semiconductor electroplating equipment and advanced packaging wet process equipment, etc. Its technology level in the fields of megasonic single-wafer cleaning equipment, single-wafer tank combination cleaning equipment and copper interconnect electroplating process equipment has reached the international leading or international advanced level.

凭借先进的技术和丰富的产品线，盛美股份得到了海力士、华虹集团、长江存储、中芯国际、合肥长鑫、士兰微、长电科技、通富微电、上海新昇、金瑞泓、台湾合晶科技等众多主流半导体厂商的认可。

According to a report issued by JCAP, in the fourth quarter of 2019, an ACMR direct sales customer told JCAP that the average price of the two wafer cleaning machines it purchased in 2019 was US$2.8 million, while the average price disclosed by ACMR was US$3.6 million. Therefore, JCAP believes that Shengmei Co., Ltd. inflated its revenue and profits, that is, exaggerated the price of the equipment sold.

In this regard, Jiwei.com learned from interviews with industry insiders that there are many types of semiconductor cleaning equipment, with a high degree of customization and a large price difference. It needs to be determined according to different processes, chemical types, and the number of chambers. Price fluctuations are normal. Therefore, questioning Shengmei's exaggerated equipment prices and inflated revenues based on the average price of only two cleaning machines is obviously a case of looking at the whole picture through a small window.

盛美股份曾在招股书中披露，公司产品呈现显著的定制化特征，不同客户的产品配置、性能要求以及议价能力可能有所不同，对相同客户的首台订单和重复订单价格也可能存在差异。

Nomura Securities also stated that the unit price of the “two” machines does not represent the average selling price of ACMR’s overall business because the sample size is too small.

Increase gross profit margin?

The report also pointed out that Screen Holdings has a 40% share of the wafer cleaning machine market, but its gross profit margin is only 23.7%. In contrast, ACMR's gross profit margin is 47%, almost twice that of Screen Holdings. Therefore, JCAP believes that ACMR's gross profit margin is "at best only half."

In this regard, the report of Nomura Securities strongly refuted this accusation. Nomura Securities pointed out that in 2019, ACMR's sales of single-wafer cleaning equipment accounted for about 75% of its total sales, while Screen's single-wafer cleaning equipment accounted for only 45% of its total sales in fiscal 2020. At the same time, Screen's semiconductor equipment business also includes solar energy and LED businesses, both of which have gross profit margins of less than 40%, and the gross profit margin of solar energy may even be less than 20%.

From this, it can be seen that there are very large loopholes in the data selected in the JCAP report, and the comparison of the gross profit margins of the two parties is of no practical significance.

It is understood that Shengmei Co., Ltd. focuses on the field of integrated circuit equipment and is a leading enterprise in China's semiconductor cleaning equipment industry. It also has a strong competitive advantage in the global semiconductor cleaning equipment market with its world-original SAPS, TEBO megasonic cleaning technology and Tahoe cleaning technology.

At the same time, integrated circuit equipment has high technical and market barriers, and the product customization is high, while photovoltaic and LED technology barriers are low, market competition is fierce, and equipment standardization is high. Generally speaking, the gross profit margin of products with a high degree of customization is much higher than that of products with a high degree of standardization.

According to the prospectus, Shengmei Co., Ltd. selected A-share listed companies North Huachuang and Xinyuanwei, which are both manufacturers of cleaning equipment in the integrated circuit field, and also selected A-share listed companies China Micro Semiconductor and Changchuan Technology, which are both in the field of Chinese semiconductor special equipment, as comparable companies.

Through comparison, it was found that during the reporting period, Shengmei Co., Ltd.'s gross profit margin level was similar to the average level of comparable listed companies in the same industry.

JCAP claims that ACMR's agents transferred revenue and profits. Nomura Securities believes that agents play an important role in the semiconductor equipment industry. For equipment companies that want to find new customers in different regions, agents can assist them with industry surveys, product promotions, marketing, and most importantly, building relationships with potential customers. And according to JCAP's report, if ACMR deliberately underestimated its revenue to transfer benefits to agents, this would contradict JCAP's previous statement that ACMR overestimated its revenue by 15% to 20% in the first half of 2020.

Supplier mystery?

In addition, JCAP also believes that Shengmei shares hide the true cost of equipment through middlemen. The prospectus shows that NINEBELL is the main supplier of robot arms in the conveying system of Shengmei's single-wafer cleaning equipment. During the reporting period, NINEBELL has been the second largest supplier of Shengmei. In 2019, Shengmei purchased 59.553 million yuan (about 8.9 million US dollars) from NINEBELL, accounting for 13.21%.

In its prospectus, Shengmei Co., Ltd. stated that NINEBELL is a company that focuses on the production of robotic arms with a high level of process technology, and its robotic arm products are well matched with the company's products.

However, JCAP stated in the report that investigators visited NINEBELL in the suburbs of Seoul, South Korea and found that the company was purchasing robot arms from Yaskawa of Japan. Above the cartons with the NINEBELL logo were cartons with the Yaskawa logo, and the robot arms stored on site were also highly similar to the products on Yaskawa's official website. As a result, the JCAP report alleged that the robot arms sold by NINEBELL were purchased from Yaskawa Electric.

Nomura Securities countered that this assessment was incorrect. The photos in the JCAP report clearly showed the product name "Linear Sigma Series" on the Yaskawa Electric packaging box, which meant that it was the linear motor on the Yaskawa Electric website, not the robotic arm. The linear motor was only a component of the robotic arm.

Obviously, the above accusation itself is JCAP's far-fetched speculation, and the accusation that NINEBELL is merely a middleman whose role is to conceal costs is even more ridiculous.

JCAP also stated that NINEBELL is a mysterious high-tech company that initially provided office printers to customers and then developed a second business line, robots (arms). However, neither of the two robot associations in Korea has ever heard of NINEBELL. JCAP also accused ACMR's Korean robot arm supplier NINEBELL of having low technical capabilities using the following pictures.

In response, Nomura Securities pointed out that the JCAP report used photos of NINEBELL's shipping area rather than photos of NINEBELL's office area and workplace, and therefore could not properly reflect NINEBELL's operating conditions.

Nomura also disclosed real photos of NINEBELL and argued that JCAP was unable to enter the real office and assembly area.

Nomura Securities said the JCAP report could mislead investors and maintained its "buy" rating on ACMR in the report.

STIFEL also pointed out in the research report: "We believe that most of the content in the report is misleading and even wrong in some cases. Our basic view on ACMR remains unchanged and we are still optimistic about the company's future market opportunities. We believe that ACMR has huge opportunities in China and potential in other regions. We address some of the 'publicity' issues and strongly support the company and the stock (and our buy rating)."

In summary, there are many loopholes in the JCAP report. It lacks the most basic common sense about the semiconductor equipment industry and lacks convincing arguments and logic worthy of scrutiny on key points. The data and pictures it provides do not match the facts. It only makes one-sided guesses and the conclusions drawn from this can only mislead investors.