Author | GLONDHUB Nanfang
Data support | hook big data
Earlier in the year, Sanan Optoelectronics, has been doing business related to "light", which can be interpreted as "environmental protection industry".
R&D and manufacturing of LED chips, LED lighting applications to replace traditional lighting sources, more energy-efficient and environmentally friendly; the development of "high-frequency concentrated solar power system", involved in photovoltaic power generation business to create a clean energy.
Beijing 08 Olympic Games that year, three Ann photoelectric stepped on the point of listing, borrowing industry policy and financial support, the wind is strong, three Ann solidified their leading position in the domestic LED chip industry.
In recent years in the downturn of the three Ann photoelectric, while being questioned by the outside world, while the silent transformation.
01
From the LED chip leader to the integrated circuit novice
As early as 00 years or so, China's LED industry is mainly from the start of the do packaging, and small-scale production, the global LED market share is basically the Japanese enterprise The LED market share of the global LED market is basically dominated by Japanese companies, Taiwan-funded, European and American manufacturers. With the large-scale application of LED in the Beijing Olympic Games in 2008, the development of the LED industry has been incorporated into the "National Semiconductor Lighting Project" and the "Eleventh Five-Year Plan", coupled with the stimulation of financial subsidies to fuel the development of the LED industry ushered in a developmental peak in around 2010.
With the industry policy and financial support, three Ann photoelectric stepping point listing.
Benefiting from industry policy and government support, since 2011, China's LED chip industry began to expand significantly, the number of mainland manufacturers MOCVD equipment additions and accounted for the proportion of global shipments gradually exceeded the Taiwan region. Being pinned with high hopes of rivaling Taiwan-funded and foreign-funded manufacturers, Sanan has also lived up to its name by undertaking the transfer of demand for international LED chips, and by the slowdown in global economic growth and the impact of the industry's de-stocking, the global MOCVD shipments fell to the bottom in 2013.
But in the LED lighting market growth driven by the LED chip industry since 2014 and began to enter a new round of capacity expansion cycle, in 2015, the global LED with MOCVD equipment shipments mainland demand accounted for more than 70%, Sanan photoelectric, dry light photoelectric, huacan photoelectric bagged the top three, accounting for 79.5% of the annual mainland demand.
To date, Sanan Optoelectronics is still the leading LED optoelectronics company in mainland China.
From 2008-2012, Sanan's revenue grew at a compound annual growth rate of 74%. With the release of LED chip production capacity and high government subsidies, the main "LED epitaxial wafer, chip manufacturing" SANAN also gradually extend the industry chain downward and upward, down to the application of LED products, up to the sapphire substrate. Only the midstream encapsulation field is not involved.
In the whole LED industry chain, LED epitaxial wafer, chip manufacturing is the highest value-added links, technical barriers and capital barriers are high.
The direction of downstream LED product applications is not limited to display applications, consumer electronics, tablet PCs, LCD TVs and other backlighting applications, automotive, home appliances, lighting applications, the first to stimulate the development of the LED industry is LED lighting.
The company's products are sold to downstream packaging and application manufacturers through direct sales mode. In recent years, the company began to expand the application of downstream LED products, such as automotive LED lights, such as Mini LED \Micro LED in display applications, etc..
During 2014-2015, the company began to divest the PV business with lower gross margins, and extended in the semiconductor field, from LED chips to IC chips, but not to do chip design, but to provide chip foundry manufacturing services for domestic and foreign IC design companies.
In 2014, the company entered the "compound semiconductor" integrated circuit market, participated in the investment in the establishment of the three Ann integration subsidiary, the establishment of the beginning of the three Ann integration, the main business is gallium arsenide, gallium nitride microwave radio frequency foundry business.
In 2018, the company's business areas expanded to include gallium nitride on silicon, silicon carbide power electronics field, the field of filters, and indium phosphide, gallium arsenide and other materials for optical communication receivers, lasers. The main application areas of its products include RF communications, power electronics, optical communications and other fields.
Compound semiconductor technology barriers are higher, IC manufacturing link is a heavy asset investment, fixed asset investment scale, but the upstream equipment raw materials and photolithography, PVD and other production equipment has a monopoly, the company's compound semiconductor business model is customized design according to customer demand, product certification cycle is long, the customer's progress of the introduction of the company is not controllable.
According to the company's integrated circuit business planning, in three steps, the first step to establish a production line to build domestic customers certified by and small quantities of supply, the second step to gradually amplify the capacity and access to overseas customers certified by the third step to release the full capacity.
SanAn Integrated's current revenue scale is growing rapidly, but from its inception to date, it is still losing money.
02
Development can not be separated from the government stimulus, the downturn waterfront government support
SANO's main business in turn The words LED business, photovoltaic business and integrated circuits.
At the end of 2014, the company made adjustments to its main business, divested its photovoltaic business, and integrated its LED business and integrated circuit business. Unified as "Ⅲ-V compound semiconductor materials", the application areas include LED visible light, invisible light part, communication chip, power electronics power conversion chip.
From the composition of the revenue situation, the LED industry is still the company's main business, accounting for about 80% of the company's total revenue, including chips and LED product applications. The revenue scale of the integrated circuit business is around 200 million, still in the red.
In 2019, the company re-categorized its revenue, renaming the original "chip, LED products" revenue to "compound semiconductor products".
2008-2011, is the company's performance growth in the best years, basically doubled growth, 2012, the industry competition is fierce for the first time performance decline. 2013-2017, the company's performance has fallen into a flat growth state, 2018-2019 is the three Ann since the listing of the two years of the bleakest performance. Not only is the "revenue and profit double decline", 2018 is the company's performance for the first time in nearly six years of decline.
The profit split analysis, found that the source of earnings of three Ann mainly includes two major parts, part of the core profit from the main business operations, part of the financial support, embodied in the company's non-operating income (for the unified comparison of the caliber of the other gains in recent years is reduced to the non-operating income).
2010-2012, San'an belongs to basically rely on financial support to get better growth, 4 years, San'an get the government subsidies (included in non-operating income, other gains) in each year stabilized at about 4-5 billion, the company's profit in each period of 5-6 Chengdu is the financial subsidies.
13-17 years, with the release of chip production capacity, the company's dependence on government subsidies has gradually declined, the company's contribution to the core profit basically accounted for 6-8% of the company.
In 2018-2019, the industry faced a cyclical downturn, and the company operated miserably, but the government subsidy was raised to 600-700 million, and in 2019, with a 65% decline in core profits, the government subsidy contribution to performance reached 40%.
03
Hidden profit long-term assets
LED chips and integrated circuit chip manufacturing based industry, three Ann, the asset structure also corresponds to the semiconductor industry characteristics of the "heavy assets", fixed assets, construction in progress is the company's share of the first and second assets. Assets. Long-term assets, including intangible assets and development expenditures, basically account for half of the company's total assets, and in 2019, the proportion increased to 61%.
Since the shell listing, the company's cumulative capital expenditures are higher than the company's realized net profit, and the average annual growth rate of capital expenditures is basically the same as the company's average annual compound growth rate of revenue. It can be said that the money earned by the company and invested in long-term asset purchase and construction is not a particularly good business.
Among the long-term assets mentioned above, the company's "water storage" degree is the highest intangible assets and development expenditure, followed by construction in progress.
From 2013, the company's R&D capitalization accounted for (intangible assets + development expenditures) increased year by year, in recent years, intangible assets and development expenditures, 40-50% of the capitalized portion of the R&D investment.
How high is the percentage of R&D capitalized by the company, from 2013-2019, the company's R&D capitalization ratio is around 70%-80% on average.
And comparable companies dry light photoelectric, polycan photoelectric R & D capitalization amount is basically very little, huacan photoelectric from the beginning of the capitalization situation, the average level of its R & D capitalization is only 33%, three Ann photoelectric annual average capitalization ratio of 76%, much higher than the industry average, is not only a reservoir of current profits, but also because of the possibility of asset fattening, resulting in asset impairment.
Secondly, construction in progress, from 2014, the company's balance of construction in progress has grown significantly, that year there is an Anhui three Ann photoelectric LED industrialization project put into the progress of 87%, this project in 2015-2018, corresponding to the progress of the project were 91.45%, 92.65%, 93.75%, 96.51%. Slow progress not to mention, the main thing is that the company has accumulated 259 million interest capitalization amount on this project.
Fujian Jing'an photovoltaic sapphire substrate project from 2017 onwards is stuck in about 90% progress, 2017-2019, the proportion of the progress of the project were 95.74%, 98.74%, 94.56%, the cumulative amount of interest capitalization of 146 million.
Tianjin San'an photoelectric LED project from 2014, the proportion of engineering progress is also stuck at about 90%, 2014-2018, the progress of engineering is 89.47%, 97.84%, 87.02%, 97.78%, 94.17%.
The company's progress of construction in progress is not only slow, but also loaded with hundreds of millions of dollars of interest capitalization, another "reservoir".
The worry is that these "fat" assets will take a bath in the industry downturn. According to the 2019 annual report disclosure, 4.3 billion of the 4.8 billion closing balance, 4.3 billion is "integrated circuit" related projects.
From the industry boom point of view, than the company's LED business boom is higher, but this part of the business belongs to the production capacity has not been fully released, is still not profitable stage, whether there is an impairment risk can not be determined.
04
Suspicious prepayment of engineering equipment
However, the "IC" project in progress is a point of suspicion for the brother to explore - "a large amount of prepayment". This suspicious sign is exactly what appeared in the company's bleak performance in 2018. At the end of the period, in addition to the company placed in the current assets project "prepayments" surged 111%, the company also has a large amount of prepayments placed in non-current assets, from the previous year's 400 million to 2 billion.
The company disclosed that the prepayment is for the company's largest project under construction, "Quanzhou Sanan Semiconductor Technology Co. This project is from 2018 only began to start construction, the total budget of 33.3 billion, a project accounted for the budget of 13.1 billion, the company invested in the construction of 8 billion, but the prepaid engineering equipment payments compared to the previous period on the new 1.6 billion, in 2019, the project's current construction in progress to increase the investment of 2.8 billion.
Compared to the company's current input and the next period, the company's prepayment ratio reached about 60%.
In 2019, this prepayment of the company decreased by 1.33 billion compared to the previous period, which the company said was mainly due to the settlement of the engineering and equipment payments for the Quanzhou semiconductor project, and that the company's prepayment of engineering and equipment payments would still have about 380 million in other prepayments for engineering and equipment payments if the portion of the carryover was all counted as the Quanzhou semiconductor project.
The company's such prepaid engineering equipment payments are only available from 2015, and from 2015-2019, such payments are $847 million, $569 million, $420 million, $780 million, and $646 million, respectively. According to the company is that such advances are mainly Xiamen San'an LED industrialization and Xiamen San'an integrated circuit engineering equipment payments.
As can be seen from the above, the company's Sanan integrated from the second half of 2014 to invest in the establishment, with the company this kind of prepaid business point in time is more compatible, as can be seen from the above, in the field of integrated circuit manufacturing, the production equipment has a monopoly, the manufacturers of the high degree of concentration, this kind of prepaid engineering equipment payment explanation is reasonable. However, the corresponding Xiamen Sanan IC project in 2014-2018 periods of construction in progress investment were 0.6 billion, 498 million, 300 million, 400 million, 527 million, basically less than the above prepaid balances, do not rule out the possibility of prepayment of long-term pending accounts.
In 2018, the company's current prepayment skyrocketed at the same time, the company's short-term bank borrowings also skyrocketed by 2.9 billion, and in the case of the company's lack of money, but also a large amount of prepayment of equipment purchases, it seems a little bit inconsistent with the commercial rationality.
The regulator has also noted the problem, from the inquiry letter, found that the largest prepayment is prepaid to Xiamen Xinda shares for the purchase of MOCVD and other equipment, Xiamen Xinda is to do the LED packaging, lighting products, research, production and marketing business, in the Xiamen Xinda's announcement, the search for the word is that Sanan is its upstream suppliers, Xiamen Xinda is a downstream customer of the Sanan.
Xiamen Xinda in addition to the above business, but also at the same time operating a large amount of capital to support the "commodity trade, real estate, financial services", in addition to Xiamen Xinda and three Ann photoelectric is not the only upstream and downstream relationship between the Xiamen Xinda announcement, has disclosed that the company and the three Ann Group had **** with the equity of Xiamen Sanan Electronics.
And, the following situation to some extent confirms the questioning of this unreasonable advance payment by Tang Lei brother.
The 2019 annual report disclosed that the company canceled the equipment purchase contract with Xiamen Xinda in 2018 and received a refund in the form of an 800 million commercial promissory note, thus eliminating the receivable notes.
And according to the above, the company's prepayment of engineering equipment in 2019 decreased by 1.33 billion, mainly because of the settlement of engineering equipment payments, and the largest prepayment in 2018 was Xiamen Xinda, which contradicts the company's statement that it canceled the equipment purchase contract.
Assuming that the above statement is true, the company's current prepayment of 1 billion to Xiamen Xinda, in the year of 2018 to cancel the contract? Then returned 800 million, not only shows that the funds at the end of the current period is Xinda's funds occupation of the company, but also the large prepayment of 1 billion is very unreasonable.
Moreover, compared to the company's $1 billion cash advance, the company received a lower credit quality and less liquid commercial draft.
According to the disclosure of notes receivable in the previous year, most of them were commercial acceptances, and commercial acceptances skyrocketed 7.8 times in that year. The company has not made any bad debt provision for such notes.
In 2019, the company's such notes receivable were reclassified as financial assets at fair value through other comprehensive income, and the change in their fair value will not affect profit or loss for the time being.
In this suspicious transaction, we can understand that Xiamen Xinda is both a customer and a supplier of the company, and a related party to Fujian Sanan, the company's controlling shareholder.
Let people have to suspect that the company and Xinda both purchase and sale transactions, constitute a cycle of funds, and then hide the profits in the integrated circuit project has not yet been solidified.
05
Inventory and receivables in water
In addition, in 2018-2019, when revenues and profits are both declining, San'an Optoelectronics' receivables and inventory assets have grown significantly, and the asset ratio, as well as the asset-to-income ratio, is higher than that of the previous years.
According to the 2018 annual report disclosure, the company's inventory increase in that year was due to the increase in the group's production capacity, but met with the downstream industry boom decline. 2019, the LED product market price slump, and at the same time by the slowdown in downstream demand and production capacity to land the impact of the industry's supply and demand situation is also changing.
From the situation of the company's gross profit rate trend, the company's gross profit rate declined slightly in 2018, and declined sharply in 2019. 2018-2019, the company's asset impairment loss reached the largest since the listing, respectively, 202 million, 239 million. Among them, the loss of inventory decline was 103 million and 175 million, and the loss of bad debts was 99 million and 64 million.
In the structure of the inventory balance, it is mainly inventory commodities, and it is the chips involved in the LED business, and the IC chip inventory balance is only at the level of ten million.
In 2018, the company had been questioned for higher inventory balances, and in 2018, in addition to Sanan, several other comparable companies have experienced a significant decline in inventory turnover in 2018, but Sanan's provision ratio for price drops is instead the highest. 2019, the company in the case of a significant decline of 15.34% in product gross margin, but also did not in the inventory of this asset Take a big bath.
2019 three-quarterly report fixed increase inquiries, the company also from the product downstream demand, more than one year LED chip inventory, inventory impairment provisioning policy, product classification, etc. to explain the company's inventory write-down provisioning is sufficient.
The reason is more far-fetched is the first two points. The company's downstream demand through the automotive LED, high brightness LED, outdoor lighting, display field market and other emerging areas to expand and improve;
On this point, Tang Lei brother need to mention, LED chip is a sales model, LED chips are semi-standardized products, different packaging customers according to the different application areas of their packaging products on the wavelength of the chip, such as the specifications of the parameters have different requirements. There are different requirements. And LED general lighting market, the standardized product market competition is extremely fierce, gross margins continue to decline; several major chip manufacturers are in the field of customization, such as the display field, etc. to expand.
In this case, the existing inventory in the company's warehouse can be used for other customers, other areas?
On the second point, the company is simple and rough more than one year worth 530 million chips with "after" the sales amount of the product minus the sales part of the corresponding book value, the former is greater than the latter shows that there is no need for impairment. In this case, as long as it is not sold at a loss, there is no need for impairment.
But often look at the financial statements know, for inventory, with the expected selling price - expected selling expenses and other related taxes to determine the net realizable value of inventory, and then compared with the carrying value of inventory, the former is greater than the latter do not need to be impaired.
Among the above factors, the company's expected selling price can be judged by the company's gross margin trend situation, with the benefit of hindsight, the company's gross margin in the 4Q2019 is to continue to continue to decline by 4 percentage points on the basis of the 3Q.
In 2019, Sanan's inventory valuation loss increased by 70% over the previous year, and the amount of the provision increased to $175 million, but Tang Lei brother believes that in 2019, the company's inventory valuation still has the possibility of insufficient provision.
Compared with comparable companies, Sanan's inventory balance and asset ratio are among the highest, but in 2019, the company's inventory turnover decreased, the company's provision for inventory write-downs is lower than the average of comparable companies.
Among them, the revenue scale ranked second, the market share is second only to the three Ann's "Huacan photoelectric" in 2019, a substantial impairment of 345 million, and Huacan photoelectric impairment reason is very straightforward "the end of 2018, the industry's substantial expansion of production led to the LED chip oversupply, the imbalance in supply led to the upper reaches of the chip market competition is fierce, the chip factory in order to ship, the chip price has fallen sharply. And because of the low labor rate, resulting in the company's chip cost decline is less than the price decline". And this phenomenon Sanan also have.
We then attacked the shield with his own spear. 2018 Sanan reply to regulatory inquiries, said the company's accrual ratio of "3.9%" is higher than other comparable companies, inventory write-downs are sufficiently provided for 2019, Sanan's comprehensive accrual ratio is only 6.9%, less than the average of 12.8% of comparable companies, so 2019, Sanan is not escaping?
In the first quarter of 2020, according to the law of sales in previous years by quarter, the first quarter's revenue is lower than the other quarters, coupled with the impact of the epidemic, the company continued to accrue a loss of 0.83 billion inventory decline. At present, the three Ann photoelectric still have 3.48 billion of inventory, the asset ratio is still high.
Regarding the company's accounts receivable, in addition to the above mentioned, the company's skyrocketing notes receivable (most of which are commercial promissory notes) were reclassified in 2019 as financial assets measured at fair value with changes recognized in other comprehensive income, without the need to provide for impairment, and the changes in their fair value will not affect the profit and loss for the time being.
Moreover, the company's bad debt accrual policy for accounts receivable is also more lenient than comparable companies, for 99% of the accounts receivable are within 2 years of age of San'an, but also through the "accounting estimation" to hide a part of the profit. From the beginning of 2018, the entire industry's capital chain is generally tense, coupled with the impact of this year's epidemic, upstream and downstream enterprises to increase the financial burden, accounts receivable accounts lengthened, three Ann's bad debt should be more carefully estimated.
06
Conclusion
From the three Ann photoelectric data in the quarterly report, a small decline in revenue of 3%, non-deductible net profit is a sharp decline of 57% compared to the same period a year ago, as the company's main source of income of the LED business by the impact of the epidemic in March. With the downstream customers gradually start work only gradually recovered. According to this rhythm, the 2020 interim report even if the income catch up, but the company's net profit is still estimated to be a year-on-year decline.
Three Ann photoelectric integrated circuit business, a small part of the mass production, the project is still under construction, this year engaged in a 6.9 billion fixed, Gree and pilot high core to 17.56 yuan / share price subscription of 2 billion, 5 billion, but the construction period of this project requires 4 years, the production period of 7 years, the integrated circuit business revenue growth rate can be, but the distance from the realization of the profitability, it still takes some time.
As the domestic LED chip leader, facing the industry cyclical downturn in 2018-2019, three Ann's performance is still to carry a lot more than a few other can, in the case of the LED general lighting market touched the industry ceiling, three Ann's performance is to look at the downstream application of the LED business to expand, such as existing automotive LEDs, but is vulnerable to the automotive industry, and the Display field. Sanan photoelectric this business is Hubei Sanan undertake.
At the end of 2019, Hubei Sanan's Mini/Micro display chip industrialization project has only invested 2.53 million, and this year's fixed-price proposal disclosed that the company has already cooperated with Samsung in MiniLED/MicroLED, MiniLED has been supplied in bulk, and MicroLED is in the process of advancing. Already with the crystal yuan photoelectric cooperation in the field of MiniLED / MicroLED Lazard, August only into the trial production stage, October officially put into production in 2021 before mass production, three Ann photoelectric business this year to talk about the outbreak is still fashionable early.
Citing the "diagnostic stock treasure" tool in the institutional research report on the three Ann gives the target average price of "22.44 yuan / share", the current three Ann photoelectric share price is higher than this price, and the valuation is in the history of high.
Considering the "fat" factors mentioned in this article, the adjusted PE will be higher than the current PE, even if the business of the three Ann is at a low point, or a little "expensive".