New Stock Outlook|Tianyu Semiconductor's "Second Declaration": With the rapid development of the industry, what is the investment value of semiconductor "unicorns"?

The "semiconductor unicorn" Tianyu Semiconductor, backed by well-known industry capitals such as Huawei's Hubble and BYD Company Limited, has embarked on its second journey to Hong Kong. On July 22, according to the Hong Kong Stock Exchange website, Guangdong Tianyu Semiconductor Co., Ltd. (hereinafter referred to as "Tianyu Semiconductor") submitted an application for listing on the main board of the Hong Kong Stock Exchange, with CITIC SEC as its exclusive sponsor. Earlier, the company had submitted the application to the Hong Kong Stock Exchange on December 23, 2024. As a rare semiconductor unicorn in the Greater Bay Area, Tianyu Semiconductor's investor lineup includes many "big names" in the industry. This includes industrial capital (such as Huawei's Hubble Technology, BYD Company Limited, Shangqi Capital under SAIC Motor Corporation, Haier Capital, etc.), financial investment institutions (such as Horizon Fund, Active Growth, Liwan Investment, Chunyang Jiutai, Hydrogen Yixin, Chinaguard, Jinyun Tianyu, CMB Capital, etc.), as well as government-backed funds, direct equity investment funds between China and Belgium, Guangdong Yueke Investment, Nanchang Industrial Investment Group, etc. For this Hong Kong IPO, Tianyu Semiconductor plans to use the funds raised for the next five years to expand the company's overall capacity in order to increase market share and product competitiveness; improve the company's independent research and innovation capabilities in the next five years to enhance product quality and shorten the development cycle of new products, in order to respond more quickly to market demand; strategic investments and/or acquisitions to expand customer base, enrich the company's product portfolio, and supplement the company's technology to achieve the company's long-term development strategy. So, as a semiconductor unicorn highly favored by capital, what is the investment value of Tianyu Semiconductor? Industry rapid development, doubled revenue and gross profit compounded annual growth rate According to the prospectus disclosure, Tianyu Semiconductor is one of the few leading silicon carbide epitaxial wafer suppliers in China, mainly focusing on research and development, mass production, and sales of self-developed silicon carbide epitaxial wafers. Although the mainstream epitaxial wafers in the silicon carbide industry have evolved from 4 inches to 6 inches, and there is a trend towards 8 inches, the company currently offers all three sizes of silicon carbide epitaxial wafers and expects to focus on 6-inch and 8-inch silicon carbide epitaxial wafers. The company's silicon carbide epitaxial wafers are typically used in end-use applications such as the new energy industry (including electric vehicles, photovoltaics, charging piles, and energy storage), rail transportation, smart grid, general aviation (eVTOL), and home appliances, meeting the increasing demand of these downstream industries. In recent years, benefited by the vigorous development of downstream applications markets such as new energy vehicles and photovoltaic power generation, the market demand for silicon carbide epitaxial wafers has continued to grow at a high rate. According to Frost & Sullivan data, the growth rate of the Chinese silicon carbide epitaxial wafer market is expected to be faster than the global market, with a compound annual growth rate of 32.2% from 2024 to 2029 in terms of revenue, while the global market's compound annual growth rate is 24.3%. Benefiting from the rapid development of the industry, GMTEight observed that Tianyu Semiconductor's revenue and gross profit have doubled their compounded annual growth rate over the past three years. According to the previous prospectus data, from 2021 to 2023, the company achieved revenues of 155 million, 437 million, and 1.171 billion yuan, with a compound annual growth rate of 174.9%, and gross profits of 24 million, 87 million, and 217 million yuan, with a compound annual growth rate of 200% respectively. In addition, the company's net profit during the period was -180 million, 0.03 billion, and 0.96 billion yuan, turning a profit in 2022 and experiencing a 31-fold increase in net profit in 2023, mainly due to the increase in production capacity and downstream market demand driving an increase in sales of 6-inch silicon carbide epitaxial wafers in 2022 and 2023. As of the first half of 2024, Tianyu Semiconductor's performance growth has somewhat "stagnated," achieving revenue of 361 million yuan, a year-on-year decrease of 14.86%. During the period, both gross profit and net profit turned from profit to loss, with a gross profit of -44 million yuan and a net profit of -141 million yuan. According to the reasons disclosed in the prospectus, the slight decrease in revenue in the first half of 2024 and the generation of gross losses were due to the decrease in market prices of epitaxial wafer products, leading to an increase in inventory write-downs. Based on the above, the slight decline in Tianyu Semiconductor's performance in the first half of 2024 was largely due to "external factors," and the impact on the company's long-term growth prospects is likely to be relatively weak, as silicon carbide epitaxial wafers are the main material for manufacturing silicon carbide power semiconductor devices. As the demand for high-performance silicon carbide power semiconductors continues to grow, this will also drive the demand for silicon carbide epitaxial wafers. Silicon carbide enters the "8-inch" era, what is the key to breakthrough? As mentioned earlier, despite having a leading market share advantage, Tianyu Semiconductor still faces profitability pressures brought about by industry price wars. Industry sources indicate that due to factors such as technological iterations and capacity expansion, the costs of various segments of the silicon carbide industry chain are significantly decreasing, with SiC substrates, epitaxy, and SiC modules experiencing significant price drops. Several industry insiders in the domestic market have revealed that by the middle of 2024, the price of 6-inch SiC substrates had dropped to below $500, approaching the production cost line of Chinese manufacturers. The signs of general price reductions are also evident in Tianyu Semiconductor's financial reports. The company's average selling price of epitaxial wafers decreased from 9111 yuan in the first half of 2023 to 7716 yuan in the first half of 2024. The company explained that this was mainly due to the company strategically lowering prices to increase market penetration. At this juncture, 8-inch silicon carbide epitaxial wafers, with their higher yield, lower edge losses, and better device performance, are gradually becoming the new focus in the industry. It is reported that silicon carbide epitaxial wafers available on the market can be divided into 4 inches, 6 inches, and 8 inches according to size. According to Frost & Sullivan data, 8-inch epitaxial wafers are the key trend in the future silicon carbide epitaxial wafer industry. As the size of the epitaxial wafers increases, the total number of integrated chips also increases. Compared to 6-inch silicon carbide epitaxial wafers, the number of chips per 8-inch silicon carbide epitaxial wafer will increase by 89%. In addition, 8-inch substrates can lower the cost of silicon carbide power semiconductor devices. Currently, in 2023, the Chinese 8-inch silicon carbide epitaxial wafer market has entered the testing phase, with leading manufacturers starting mass production from 2024. Due to the cost-effectiveness and wafer yield characteristics of downstream Chinese silicon carbide power semiconductor device manufacturers, demand for 8-inch silicon carbide epitaxial wafers is expected to increase. It is predicted that as technology matures and capacity is released, the price of 8-inch silicon carbide epitaxial wafers will gradually decrease, significantly improving market sales and adoption rates. For Tianyu Semiconductor, the company's 8-inch products are still in the early stages. As of May 31, 2025, the company sold 901 pieces of self-made 4-inch silicon carbide epitaxial wafers, 50,360 pieces of 6-inch, and 7,635 pieces of 8-inch, accounting for 1.2%, 64.8%, and 9.8% respectively. According to Frost & Sullivan, as of May 31, 2025, the company's annual capacity for 6-inch and 8-inch epitaxial wafers is approximately 420,000 pieces, making Tianyu Semiconductor one of the largest companies in China with 6-inch and 8-inch epitaxial wafer capacity. Before the actual transformation of 8-inch products into performance, Tianyu Semiconductor may still need to make considerable "efforts" in recent years, the company's research and development expenses have been growing rapidly. From 2022 to May 31, 2025, R&D expenses were 29.2 million, 55.3 million, 61.0 million, and 19.9 million yuan, indicating that the company is continuously increasing R&D investment to enhance its technological capabilities. In recent years, favorable policies related to silicon carbide epitaxial wafers have been continuously issued by governments around the world, including the Chinese government. Looking ahead, Frost & Sullivan expects more downstream customers to place orders in the future, requiring a large number of 8-inch silicon carbide epitaxial wafers. It can be foreseen that with the rapid growth in demand for 8-inch epitaxial wafers due to silicon carbide epitaxial wafers, Tianyu Semiconductor's business performance and financial situation are expected to significantly improve. Overall, Tianyu Semiconductor has a significant industry outlook advantage and a leading position in the domestic silicon carbide epitaxial wafer industry chain, offering high investment imagination space. However, it faces significant technological, competitive, and financial pressures, which may bring about certain uncertainties to the company's subsequent performance.