Low capacity utilization and unsalable products make it difficult for Royole Technology to solve its performance loss problem

In recent years, ubiquitous multi-mode human-computer interaction has become an important driving force for the development of the Internet of Things. Each generation of innovative development of human-computer interaction interfaces such as display screens and sensors has brought new and differentiated experiences to consumers and broad market opportunities to industry participants. Flexible electronics, with its flexible OLED as a breakthrough, liberates different products from the limitations of their rigid physical form. Flexible technology is expected to become the next generation of disruptive human-computer interaction technology.

With the rapid development of the flexible electronics industry, the development of flexible screen companies has also attracted much attention in the industry. For example, Royole Technology, which is known for its "production of fully flexible screens", has become a favorite of capital since its establishment. It has raised 13 rounds of financing in 8 years and has become one of the most dazzling unicorns in recent years.

Recently, Royole Technology's IPO application on the Science and Technology Innovation Board was accepted, and the IPO prospectus also unveiled the mystery of Royole Technology. Despite its strong ability to attract money and high valuation, Royole Technology's commercialization ability shows a big contrast. Its products are unsalable and its capacity utilization rate is low, which has also led to its continuous net profit losses and tight cash flow.

13 rounds of financing in 8 years, raising funds to "replenish blood" and prolong life

According to information, Royole Technology was founded in 2012 by Liu Zihong, a Stanford PhD born in the 1980s. Its main products include fully flexible displays, fully flexible sensors, foldable screen mobile phones FlexPai, flexible smart handwriting books RoWrite, etc.

According to Tianyancha data, since its establishment in 2012, Royole has completed 13 rounds of financing, with a valuation of US$6 billion. Investors include CITIC Capital, Shenzhen Capital Group, IDG, Poly Capital, etc.

With multiple rounds of financing, Royole Technology has also increased its investment in technology research and development. Unlike the "LTPS-TFT (low-temperature polycrystalline silicon thin-film transistor process)" technology route adopted by industry giants Samsung, LG and domestic mainstream OLED manufacturers BOE, TCL Huaxing and Visionox, Royole Technology has taken a unique approach and adopted another self-developed technology route.

Royole Technology named it "ULT-NSSP (ultra-low temperature non-silicon process integration)" technology. It said that the technology has a lower process temperature, simpler device structure and process flow, smaller investment in production equipment, and the fully flexible display screen produced has better bending characteristics and reliability, while also reducing the investment cost of the production line.

Although the technology is more advantageous, as Royole Technology's revenue increases year by year, its losses are also increasing year by year. From 2017 to 2019 and from January to June 2020, Royole Technology's operating income was 64.72 million yuan, 109 million yuan, 227 million yuan and 116 million yuan respectively, and the net profit attributable to the parent company's shareholders was -359 million yuan, -802 million yuan, -1.073 billion yuan and -961 million yuan respectively, with a cumulative loss of 3.195 billion yuan.

Overall, Royole Technology's revenue growth rate from 2017 to 2019 exceeded 60%. However, the revenue in the first half of 2020 was only half of that in 2019, and the full-year revenue in 2020 is expected to be basically the same as that in 2019. Against the background of flat revenue, Royole Technology's net loss attributable to the parent company in the first half of 2020 was as high as 960 million yuan, and the loss amount was close to that in 2019. In other words, Royole Technology's losses have continued to expand.

Due to the continuous loss of net profit, the cash flow of Royole Technology has also been negative. During the reporting period, the net cash flow generated by Royole Technology's operating activities was -358 million yuan, -612 million yuan, -811 million yuan and -386 million yuan, all of which were negative. The company previously supplemented its operating funds mainly through financing channels such as equity and debt.

It can be seen that although Royole Technology has completed multiple rounds of financing, it still cannot prevent its cash flow from being negative. This also reflects to a certain extent that financing has been difficult to continue to support Royole Technology, which still needs to burn a lot of money, and the company's cash flow is currently in a critical state.

In order to solve the problem of insufficient cash flow, Royole Technology accelerated the process of listing. In July 2019, Royole Technology deliberately built a VIE structure in preparation for its listing in the United States; but later chose to return to the domestic capital market, and dismantled the VIE structure in June 2020 and completed the shareholding reform.

It is worth noting that Royole Technology plans to raise 14.43 billion yuan in this IPO on the Science and Technology Innovation Board, which will be invested in five major projects. Among them, replenishing working capital is the project that Royole Technology will "transfuse" the most funds raised this time, with a planned investment of 7.2 billion yuan, accounting for half of the total fundraising. It can be seen that in the case of urgent working capital, Royole Technology plans to raise funds through listing to supplement working capital in order to maintain the normal development of the company.

Products are unsalable and capacity utilization is low

Despite receiving multiple rounds of financing to improve its technology, Royole Technology's mass production capacity has not improved significantly. According to Royole Technology, its production line is divided into Phase I and Phase II, with a total investment of 11 billion yuan, 6 billion yuan for Phase I and 5 billion yuan for Phase II. Based on an 8-inch full-flexible screen, the current output of Phase I is about 2.8 million pieces per year. With the future mass production of Phase II, Royole Technology's full-flexible screen mass production line will have an annual production capacity of 8.8 million pieces.

However, according to the prospectus, from 2018 to the first half of last year, the design capacity of Royole Technology's fully flexible display screens was 11,6700, 46,670, and 23,330 respectively; the output was 1,7600, 14,560, and 1,2300 respectively; and the capacity utilization rates were approximately 15.08%, 31.2%, and 5.27% respectively. The capacity utilization rates are very low, and such data can hardly be called large-scale "mass production".

In terms of production and sales, from 2018 to January-June 2020, the actual production of Royole Technology's fully flexible display screens was 7,748 pieces, 314,036 pieces, and 48,563 pieces, with sales of 2,099 pieces, 52,747 pieces, and 22,136 pieces, respectively. The production and sales rates were 27.09%, 16.8%, and 45.58%, respectively, exposing the risk of its products being unsalable.

Compared with domestic panel manufacturers, Royole Technology's output is significantly lower. Wang Xiaoya, a mobile panel research analyst at Qunzhi Consulting, told Jiwei.com that with the release of domestic panel factory production capacity and the gradual recognition of domestic OLED manufacturers by brand manufacturers, most of the domestic flexible OLED panel factories led by BOE are capable of mass production and supply, and the market share of domestic OLED panel factories has gradually increased. In the third quarter of 2020, the market share of domestic OLED panel factories has exceeded 20%. In the third quarter, BOE's flexible OLED shipments ranked first in China and second in the world with a shipment volume of 12 million pieces; Visionox ranked second in China and fourth in the world with a shipment volume of nearly 7 million; Huaxing also achieved mass production and delivery of first-tier brands Samsung and Xiaomi; Tianma has also obtained flexible OLED panel orders from first-tier brands and will achieve shipments by the end of 2020. In 2021, BOE, Visionox, Huaxing, and Tianma will also release more flexible OLED production capacity.

Data sources: HIS, official websites of various companies, Essence Securities Research Center

According to the global flexible OLED production capacity distribution map predicted by Essence Securities Research Center in 2022, Samsung has the highest flexible OLED market share, reaching 36%, while BOE has 21%, Visionox has 7%, and TCL Huaxing has 5%. Royole Technology, which uses more advanced technology, has a negligible market share.

It is understood that Royole Technology has not yet been able to enter the supply chain of mainstream mobile phone manufacturers such as Huawei, Xiaomi, and OPPO. The lack of technology may be an important reason. In March this year, Royole announced a strategic cooperation with ZTE and will provide ZTE with flexible display technology solutions. This is the first mobile terminal partner announced by Royole. However, since the announcement of the cooperation, there has been no ZTE mobile phone equipped with Royole flexible screen released.

As it has no competitive advantage in the field of flexible panels, Royole Technology has gradually extended its business to consumer products, thus realizing the "2B+2C" dual-wheel drive development model, including enterprise solutions, as well as consumer products such as the FlexPai series of foldable screen mobile phones, smart handwriting notebooks, and head-mounted displays.

However, its two-wheel drive development model is not synchronized. In terms of sales amount, from 2017 to the first half of 2020, Royole Technology's enterprise solution business revenue was 53 million yuan, 60 million yuan, 131 million yuan, and 25 million yuan, respectively, accounting for 82.04%, 55.30%, 57.99%, and 22.02%, respectively. Although its revenue has increased year by year, its revenue share has continued to decline. The proportion of consumer product revenue continued to grow, and in the first half of 2020, it became the largest source of performance, contributing nearly 78% of the company's revenue, but the company did not disclose the specific sales of its products.