Beijing Tongmei, a second-generation semiconductor material manufacturer, resumes Science and Technology Innovation Board IPO Haitong Securities affiliated Company's surprise purchase of shares.

Recently, the second generation semiconductor material manufacturer Beijing Tongmei Crystal Technology Co., Ltd. (hereinafter referred to as "Beijing Tongmei") resumed the Science and Technology Innovation Board IPO audit process, which is currently in the inquiry stage.

In terms of product types and market share, Beijing Tongmei is at the same level as the international giants. However, the market scale of the company's core products indium phosphide and Shenhua gallium is relatively small, and the performance fluctuates obviously in the past 8 years, and the growth is slightly general.

A reporter from the "Science and Technology Innovation Board Daily" noted that Beijing Tongmei has some problems, such as the supplementary liquidity accounts for nearly 70% of the fund-raising projects, the recommendation agency Haitong Securities affiliated Company suddenly buys shares before listing, and the company's operation and management risks are exposed.

The market scale of core products is too small.

Beijing Tongmei is mainly engaged in the R & D, production and sales of semiconductor materials such as indium phosphide substrate, gallium substrates, germanium substrates, PBN materials and other high purity materials, which can be used in the production of RF devices, optical modules, LED, lasers, detectors, sensors, space solar cells and other products. By the end of June 2021, the combined revenue of indium phosphide, gallium phosphide and germanium substrates accounted for 70%.

The company's product system "takes the semiconductor substrate as the center, the PBN material and the high purity material as the two wings", the product category is at the same level as the international giant, and the market share is in the forefront. For example, Beijing Tongmei indium phosphide substrate contains 2-6 inches, with a global market share of 36% in 2020, second only to 42% of Sumitomo; Shenhua gallium substrate covers 1-8 inches, ranking fourth with a global market share of 13%.

However, from the perspective of market space, the market scale of Beijing Tongmei's core products is relatively small. According to tripartite data, the global indium phosphide substrate market is estimated to be US $202 million in 2026, with a compound growth rate of 12.42% in 2019-2026; and a global gallium phosphide substrate market of US $348 million in 2025, with a compound growth rate of 9.67% in 2019-2025.

A reporter from the "Science and Technology Innovation Board Daily" noted that the business performance of Beijing Tongmei has fluctuated obviously in recent years, and its growth is slightly mediocre. Data from Star Mine show that the company's controlling shareholder AXT (whose performance source is the same as that of the restructured Beijing Tongmei) has an average annual compound annual growth rate of revenue and net profit of 0.96% and 0.51% respectively from 2012 to 2020. The performance exploded in 2021, with revenue of $137 million / net profit of $14.58 million, up 44.08 per cent and 350.12 per cent respectively over the same period last year.

III-V compound semiconductor substrate materials have long been limited by downstream applications with small market size and high cost, so their market size is much lower than that of silicon substrate materials. However, new application scenarios such as LED, wearable devices and vehicle lidar, as well as emerging markets such as 5G base station construction and data center construction, have brought development opportunities and future growth points for the company. " The person in charge of Beijing Tongmei responded to the reporter of Science and Technology Innovation Board Daily.

Science and Technology Innovation Board IPO, Beijing Tongmei plans to raise a total of 1.167 billion yuan. Among them, Shenhua Gallium Semiconductor material Project totaled 1.121 billion yuan, with a planned investment of 367 million yuan. After the completion of the project, the company will form an annual production capacity of 500000 pieces of 8-inch gallium substrates and 4 million pieces of gallium substrates (equivalent to 2 inches). The supplementary working capital will be 800 million yuan, accounting for 68.56% of the total funds raised.

However, judging from the current business situation, Beijing Tongmei does not seem to be "short of money." At the end of 2020 and January 2021, the company carried out two rounds of capital increases, and the asset-liability ratio at the end of June 2021 was 14.57%, down 24.31 percentage points from the end of 2020. And from the perspective of the past three years, the company's net operating cash flow continues to be positive.

With regard to the question that nearly 70% of the funds raised will be used to replenish the working capital, the relevant person in charge of Beijing Tongmei told Science and Technology Innovation Board Daily: "the supplementary working capital is mainly used for the production and operation of the company's semiconductor materials business. It is conducive to further strengthening the core strength of the company's scientific and technological innovation."

There is no real controller in the company.

AXT, the controlling shareholder of Beijing Tongmei, was established in 1986 as a Nasdaq listed company (code: AXTI)). Since its inception, AXT has been engaged in the research, development, production and sales of second-generation semiconductor materials. Morris Yang, chairman of the company, is one of the founders of VGF technology to industrialization. In 1998, AXT established Beijing Tongmei in Beijing, and gradually transferred its technology, production and R & D to the company, becoming the main body of the production and operation of the second generation semiconductor materials.

At the end of 2020, based on factors such as promoting the listing of Science and Technology Innovation Board, integrating business resources and solving inter-industry competition, AXT incorporated shares of subsidiaries such as Beijing Boyu, Baoding Tongmei and Chaoyang Tongmei into Beijing Tongmei by way of capital increase. And in January 2021, the introduction of Haitong New Kinetics, Anxin production and Investment, Walden II and other strategic investors for a new round of capital increase.

A reporter from Science and Technology Innovation Board Daily noted that Haitong Innovation, an affiliated company of Haitong Securities, a sponsor of Beijing Tongmei, and Haitong New Kinetic Energy participated in the capital increase and signed relevant gambling agreements, with obvious intention to buy shares before listing. According to the relevant capital increase agreement between Haitong and the company, it is agreed that Beijing Tongmei should realize IPO by December 31, 2022 (if the time limit is still in queue, then the relevant time point will be postponed).

Beijing Tongmei did not directly reply to a reporter from Science and Technology Innovation Board Daily about the reasons for the surprise purchase of Haitong Securities affiliated companies, saying only: "the new shareholders recognize the development prospects of issuers and voluntarily subscribe for additional capital of issuers." However, some market participants believe that, or based on business cooperation and interest binding and other demands to consider, speed up the promotion of the company Science and Technology Innovation Board IPO.

In terms of ownership structure, AXT directly holds an 85.51% stake in Beijing Tongmei and is the company's controlling shareholder. Due to the relatively scattered ownership structure of AXT (the top five shareholders of common shares all enjoy less than 10% of the voting rights), there is no actual controller, and Beijing Tongmei has no actual controller.

At present, Morris Yang, CEO of AXT, serves as chairman of Tongmei in Beijing and Wensen Liu as general manager, both of whom are core technical personnel of the company. As of the date of disclosure of the prospectus, Chairman Morris Yang, General Manager Liu Wensen and Deputy General Manager Guo Tao indirectly held 3.05%, 0.06% and 0.058% of the company respectively. Overall, the proportion of shares held by the company's management team is on the low side.

It is worth paying attention to that in the process of operation and management, Beijing Tongmei exposed a lot of problems. For example, in the past three years, the number of labor dispatched employees of the company accounted for more than 15%, which did not comply with the relevant rules and regulations; due to the fact that the relevant projects were built without approval, did not obtain a sewage discharge permit to discharge pollutants, failed to file tax returns within the prescribed time limit, refused to report for inspection of import and export commodities subject to legal inspection, and provided untrue statistical data, and so on, there were 22 violations of laws and regulations in the past three years.