Qi Yaoliang of Yuanhe Puhua: Only cautious and rational semiconductor investment can promote development

From December 10 to 11, the 2020 China Integrated Circuit Design Industry Conference was held in Chongqing. On December 11, at the special forum on "Capital and IC Design Industry", Qi Yaoliang, managing director of Yuanhe Puhua, delivered a speech entitled "Discussion on Semiconductor Industry Investment under the Registration System".

From niche to popular: where does the semiconductor investment boom come from?

Qi Yaoliang pointed out that due to historical performance and the long-term and high-investment characteristics of semiconductors, US dollar funds are not keen on investing in the overseas semiconductor industry, so we often say "there is no silicon in Silicon Valley."

There was a wave of domestic semiconductor companies going public on the Nasdaq, but they quickly delisted and returned to the domestic market due to valuation and other reasons, but they were unable to exit the capital market for a long time, so there was no other driving effect. At the same time, semiconductor companies did not catch up with the initial wave of the GEM, and overall domestic semiconductor investment is a niche.

Since the establishment of the National Big Fund in 2014, and the establishment of semiconductor industry funds by local governments, semiconductor industry investment has become the main line. The tense relationship between China and the United States, the ZTE incident, the Huawei incident, the launch of the Science and Technology Innovation Board, and the gradual implementation of the registration system have brought the semiconductor industry into the public eye and made it a mainstream track. State-owned funds, private capital, and US dollar funds have flocked in, and semiconductors have quickly become one of the main investment directions of various institutions, and valuations have risen.

The Science and Technology Innovation Board was officially launched on June 13, 2019, and the capital market officially entered the era of the Science and Technology Innovation Board, which also marked the beginning of the registration system reform of China's capital market. On August 24, 2020, the first batch of 18 GEM registration system companies were successfully listed, which is a link between the past and the future for the comprehensive registration system.

Regarding the full implementation of the registration system, Qi Yaoliang said that the purpose of the full implementation of the registration system is to strengthen the construction of a multi-level capital market, thereby resolving the contradiction between excessively high M2 and intermittent cash shortages in enterprises. The establishment of the registration system has enabled the CSRC to reduce market constraints, while requiring listed companies to conduct more stringent, comprehensive, in-depth and accurate information disclosure, and strengthen the responsibilities of market entities such as issuers, directors, supervisors and senior managers, and intermediary institutions.

He pointed out that after the two sessions in 2021, it is expected that the registration system for A-shares will be promoted; at the same time, a sound delisting mechanism will be established to eliminate inferior companies in the capital market and avoid "intestinal obstruction" in the capital market.

From 1.0 to 2.0, all-round upgrade

Qi Yaoliang pointed out that the 1.0 era of China's semiconductor industry was from 2000 to 2013. In 2000, the Ministry of Information Industry's Document No. 18 and the establishment of wafer foundries such as SMIC and Macronix led to the first semiconductor entrepreneurial trend, with the emergence of integrated circuit design companies and competition among enterprises, but many problems were exposed.

The semiconductor industry 2.0 era is basically marked by the establishment of the Big Fund, the creation of the Science and Technology Innovation Board, and changes in Sino-US relations. This is a stage of rapid development with cooperation between the government and the private sector.

In his opinion, the 2.0 era is an upgrade to the 1.0 era.

Specifically, it has promoted the upgrading of entrepreneurial models, from engineer entrepreneurship to mature team entrepreneurship, and from simple imitation and substitution to micro-innovation; it has promoted the upgrading of domestic substitution, from focusing on consumer/mid- and low-end chips to the full opening of communications/home appliances/industry/automobile and other markets; it has promoted industrial mergers and acquisitions, from the wild growth stage dominated by small and micro companies to the emergence of leading listed companies with a market value of hundreds of billions, which has led to a trend of industrial mergers and acquisitions; the government and the private sector have gradually combined, from private capital/enterprises to a dual-wheel drive of the government and the private sector, each playing its own advantages.

The semiconductor industry is indispensable, and investment should be cautious and rational

Qi Yaoliang mentioned three points about how to invest in semiconductors between the hot and cold periods: Chips are the final product of the semiconductor industry. Design companies provide chips to terminal companies and are the theoretical core of the industry. Manufacturing companies have large investments and high barriers to entry, and are the de facto core of the industry for China's semiconductor industry. The field of equipment and materials EDA is the key to preventing the industry from being controlled by others and is a bottleneck that the industry urgently needs to solve.

In addition, Qi Yaoliang talked about the future prospects:

First, semiconductors are a basic industry that is valuable and indispensable to China's development. Semiconductors will be the mainstream investment direction for a long time.

Second, the registration system of the Science and Technology Innovation Board and the Growth Enterprise Market, as well as the registration system of A-shares in the future, will boost primary market investment in the short term and make the market more reasonable in the long term.

Third, the pullback in the secondary market and the head effect will make primary market investment more cautious in the foreseeable future, and mergers and acquisitions between companies will increase.

Fourth, the financing and resource aggregation capabilities of listed companies will accelerate the scramble for domestic substitution, start-ups will face greater challenges, and resources will be concentrated in leading companies.

Qi Yaoliang concluded that only more cautious and rational semiconductor investment can truly promote the long-term and healthy development of this basic industry.

When answering questions from the audience, Qi Yaoliang said that it is a fact that Chinese companies cannot buy good companies at present. If they cannot buy good companies, for companies that only have technology, they can be grafted into the domestic market and provide them with product definitions, customers, supply chains, etc. If the domestic market is rich for overseas market-oriented companies, they can bring it back to the domestic market and inject new state-owned funds to support their motivation for research and development. As a fund, it cannot be "mechanized" and needs to make some changes constantly.