IPO Observation | Chip Customization Company CanSemi Lists on Sci-Tech Board with Close Ties to Semiconductor Manufacturing International Corporation
January 17, the China Securities Regulatory Commission published a notice approving CanSemi's initial public offering. CanSemi plans to list on the Science and Technology Innovation Board of the Shanghai Stock Exchange, with Haitong Securities as its sponsor (600837), aiming to raise RMB 6 billion.
CanSemi stated that this round of fundraising will invest in projects closely related to its main business, focusing on upgrading and optimizing existing businesses through technical and service improvements, as well as research and development. The investment project has a good market outlook.
Semiconductor Manufacturing International Corporation is both a shareholder and the company's largest supplier
The prospectus shows that CanSemi is a company focused on providing one-stop chip customization services, targeting the new generation of information technology fields. Since its inception, it has been committed to providing high-value, differentiated chip design services to customers and has developed an all-around technical service system based on large-scale SoC design technology and semiconductor IP development technology.
CanSemi's main business includes chip customization services and engineering customization services. Chip customization services refer to the completion of chip definition, IP selection, architecture design, and other design stages according to customer requirements, as well as providing production services; Engineering customization services focus more on optimizing product functions and performance compared to chip customization services, with the company paying more attention to consistency in design data and physical structure.
Financially, CanSemi achieved revenue of RMB 5.06 billion, RMB 9.55 billion, RMB 13.03 billion, and RMB 6.67 billion for the years 2020, 2021, 2022, and the first half of 2023, respectively; net profit was RMB 1758.54 million, RMB 4361.09 million, RMB 9486.62 million, and RMB 10864.57 million, respectively.
CanSemi stated in its prospectus that according to the Shanghai Integrated Circuit Industry Association's report, as of 2021, the company accounted for 4.9% of the global integrated circuit design service market share, ranking fifth globally.
CanSemi expects revenue of RMB 13 billion to RMB 14 billion in 2023 and net profit of RMB 1.7 billion to RMB 1.9 billion, with a year-on-year increase of 79.2% to 100.28%.
It is worth noting that Semiconductor Manufacturing International Corporation has a deep connection with CanSemi. The prospectus shows that the wholly-owned subsidiary of Semiconductor Manufacturing International Corporation, which is also the second-largest shareholder of CanSemi, directly holds an 18.98% stake in CanSemi.
Not only this, but CanSemi's main wafer foundry supplier is currently Semiconductor Manufacturing International Corporation, with procurement amounts of RMB 3.35 billion, RMB 7.13 billion, RMB 9.30 billion, and RMB 3.59 billion in each reporting period, accounting for 69.02%, 77.25%, 84.89%, and 75.29% of total procurement amounts, respectively.
Moreover, CanSemi does not have a controlling shareholder or actual controller at present, with the equity structure relatively dispersed. As of the signing date of this prospectus, the largest shareholder, Zhu Zhiquan, and his affiliated individuals collectively hold a 19.82% stake in the company.
Gross margin lower than that of peers
In recent years, with the emergence and development of new technologies such as the Internet of Things, wearable devices, artificial intelligence, and virtual reality, the global integrated circuit market has continued to expand. The Chinese integrated circuit industry has also made rapid progress due to favorable industrial policies, strong domestic demand, and the trend of global integrated circuit production capacity shifting.
According to statistics from the China Semiconductor Industry Association, the Chinese integrated circuit market size grew from RMB 1.44 billion in 2010 to RMB 104.58 billion in 2021, with an average annual compound growth rate of 19.8%, significantly higher than that of the global integrated circuit market.
In this context of rapid industry development and growing demand, CanSemi, as a chip design company, has struggled to maintain its gross margin stability. The prospectus shows that the company's gross margin for chip design business was 27.90%, 21.94%, 19.00%, and 25.66% in each reporting period.
CanSemi attributed this fluctuation to differences in the composition of its main business, as well as the high profit margins from IP licensing businesses at chip design companies such as Semiconductor Manufacturing International Corporation and other peers.
Moreover, CanSemi stated that it needs to make more efforts in terms of gross margin and research and development in the face of increasingly fierce industry competition.