Huaying Science And Technology Industry Chain Expansion, Rebirth And Acceleration Driven By Panel Shortage

The panel continues to be in short supply, and Huaying Technology (000536. SZ), an important manufacturer, is taking the opportunity to break the cocoon and rebirth.

"The company's existing panel product production line with a capacity of 30000 pieces / month has achieved full production and full sales. The supply of panel products is in short supply, and the order has been arranged to the beginning of next year." Lin Jun, chairman of Huaying technology, said in an interview with the reporter of the 21st century economic report recently.

Due to capacity constraints, Huaying technology plans to expand the existing TFT-LCD panel capacity through a fixed increase of RMB 2.8 billion, and transform the OLED experimental line into a production line to expand the production capacity of OLED, so as to form a scale effect.

"After the project is put into operation smoothly, it is expected to make profits quickly according to the current situation of the panel industry." Lin Jun said, "the company is actively expanding the upstream and downstream, left and right sides of its main business. Based on the existing panel business, LCD module business and cover business, the company is exploring to create an industrial ecological chain by means of equity investment, merger and acquisition."

Hard climb

At present, Huaying technology's position in the panel field has begun to be proud of itself.

According to the industry data obtained by 21st century economic reporter, huajiacai, a key subsidiary of Huaying technology, ranked the 8th in the world in terms of mobile phone panel shipment and the 4th in the world for a-Si mobile phone panel.

The data shows that the sales volume of Huajia color panel business in 2020 is 75.06 million pieces, with a year-on-year increase of 67.79%; The sales revenue was 1.59 billion yuan, with a year-on-year increase of 110.5%.

"From last year to the beginning of this year, the company invested nearly 60 million yuan in technical transformation. Huajiacai conducted a full capacity test in July this year, and the actual production capacity has increased from 30000 pieces of large plates per month to 33000 pieces of large plates each month." Lin Jun told the 21st century economic reporter.

Huaying technology, which has identified the panel business as the development focus, only entered the panel manufacturers list in 2017, with an investment amount of 12 billion yuan. In June 2018, the first LCD panel production line reached the design capacity and began mass production.

But in 2020, Huaying's panel business will still lose money. The annual report of 2020 shows that the overall loss of huajiacai's panel business is about 470 million yuan, which is about 1.34 billion yuan less than that of the same period of last year.

"The main reason is that the depreciation is too large. One of the biggest problems in the panel industry is that all fixed assets are depreciated for 10 years. No enterprise can avoid this problem." Lin Jun pointed out.

However, Huaying technology, which has established "large panel and small module" as its development strategy, is rapidly increasing the gross profit margin of these two main businesses.

According to the financial data, the gross profit margin of Huayin's module business and panel business has increased from 11.63% and - 23.2% in 2020 to 17% and 11% in the first quarter of 2021, respectively.

"At present, the net cash inflow of huajiacai is about 30-40 million yuan per month, which is very profitable. However, there is still a problem that the proportion of depreciation and amortization is relatively large. Therefore, we should work out the scale as soon as possible and dilute the depreciation cost." Lin Jun said.

At present, the expansion of Huaying technology is mainly through the holding shareholder Fujian electronic information group's plan to subscribe no less than 10% to participate in fixed increase refinancing, so as to increase production capacity and expand marginal benefits.

According to the announcement, Huaying technology raised investment in the expansion of production line of metal oxide thin film transistor liquid crystal display device (igzo TFT-LCD) and the mass production project of OLED experimental line, with a total investment of 2.031 billion yuan.

After the completion of the above projects, the production capacity of igzo panel of Huaying technology will be increased by 10000 pieces / month, and the OLED experimental line will be transformed into a production line to expand the production capacity of OLED. It is estimated that the average after tax profit of the project in the calculation period is 99.41 million yuan, the internal rate of return (after tax) is 7.83%, and the static investment recovery period (after tax) is 8.02 years (including the construction period).

"After the scale comes up, the proportion of depreciation and amortization decreases. Personally, I am confident that the deduction of non-profit (net profit) in this year's annual report is hopeful to become regular. " Lin Jun thinks.

Turning of fate

Due to the bankruptcy application of the original controller Zhonghua image tube and other events, the production and operation management of Huaying technology once stagnated, resulting in a total loss of 7.553 billion yuan in 2018 and 2019, wearing the * ST hat.

After Fujian electronic information group took over, Huaying technology "took off the stars and hats" in May this year, relying on the unexpected panel tight market.

"From last year to this year, the biggest price increase of panel is large size, and the increase of small and medium-sized panel price is between 30% and 40% Lin Jun told the 21st century economic reporter that "the shortage of panels has begun to show signs in the second half of the year before last year, and intensified in the first half of last year."

Lin Jun analysis that the shortage of panels and price increases, the main factors in two aspects.

First, after the impact of the epidemic, the number of telecommuting and home office increased, and the demand for panels increased; Second, LG closed two factories last year, and Samsung also closed Suzhou plant. Some factories in Taiwan have been equipped for more than ten years, and no new capacity has been added, resulting in a decrease in supply.

"The reason why Samsung and LG quit is not to say that they are not optimistic about this industry, but because from the development of new panel process technology, their line bodies are relatively aging, which has been 10 years ago, and the economic cutting area is not cost-effective." Lin Jun pointed out.

Lin Jun believes that, at present, the panel is just a slowdown in the range of price increases, and there is no sign of falling back“ I personally judge that, at least until next year, the price of panel will only be affected by the decrease of chips, and the increase may slow down a little, but this price is unlikely to fall down, because there is no investment in new production capacity. "

As a result, Huaying technology decided to take advantage of the situation and plan to purchase some key process equipment to expand production capacity on the basis of the original LCD panel production line.

"At present, only we have a production expansion plan, and only increase the original energy by 30% Lin Jun said.

Huayin is still trying to ease the shortage of chips.

"This year, through cooperation with a large terminal, we have developed a small and medium-sized flat panel that can be driven by one chip. We are the first to make this tablet that can be driven by one chip, and it will be seen on the market in about a year." Lin Jun revealed that "the normal flat panel needs two driver chips to be able to use. The shortage of chips will bring a very big technology and use change to the electronic manufacturing industry."

According to Lin Jun, looking at the next three years with the most conservative data, the shortage and tension of chips is a normal thing. "If there are not enough chips, we can only make things smaller and use fewer chips.".

"The lack of chips involves a very complex system industry chain problem. There is no way for China to produce the raw materials of chips in China." Lin Jun said, "a wafer factory or a chip factory, without considering any contingent risks, can build a factory as soon as 24 months, and also have to consider the ramp up of testing and mass production capacity. This is not a short-term behavior."

Industrial chain expansion is ready to go

In addition to expanding production through fixed increase, Huaying also has plans to expand upstream and downstream.

"When Chunghwa image tube took control of Huaying technology, both the sales end and the design end were in Taiwan, China. Huaying technology was only a OEM enterprise, which was greatly constrained by related party transactions. Now Fujian electronic information group has its own consideration in building the industrial chain." Lin Jun told reporters of the 21st century economic report.

According to Lin Jun, Huaying technology will develop as soon as possible in material engineering and panel upstream and downstream products, and hopes to make some investment and M & A in the terminal in the future.

"We are now preparing to try to develop some of our own end products instead of OEM." "Through the two years of research and development and investment, we believe that we have a mass production technology for wearable OLED products," Lin said

Correspondingly, the R & D investment of Huaying technology accounted for more than 13% of the operating revenue in the past two years, and the R & D investment in 2020 was 291 million yuan.

Huaying technology said that it has independently developed metal oxide panel technology, which belongs to the most advanced oxide device technology in China. In the future, it will focus on the development of advanced metal oxide backplane technology and carry out research on advanced technologies such as AMOLED backplane and glass-ceramic.

According to the data, Huaying technology has successfully developed embedded touch control, Liu Hai screen, water drop screen, perforated screen and other related products. It has completed the product layout of a full range of mobile phones and tablet computer displays ranging from 5.5 inches to 14 inches. It has successfully entered the supplier system of Samsung, Huawei, Lenovo / moto, voice and ZTE, The company's igzo technology has achieved mass production of 5.5-inch high-definition mobile phone display, and is promoting the certification of Lenovo, Amazon, Wal Mart and other brand customers.

"At present, there are two forms of panel shipment. One is that after the large plate is produced, it is directly delivered to the downstream module factory without cutting, and the other is to cut slices according to the size required by customers. At present, the yield of our large plate shipment is 98.7%, and that of our chip delivery is 92.6%, which is slightly higher than the industry average level. " Lin Jun said.

But the market is still concerned about whether the rise of raw material prices will affect the profitability of the panel?

"We have also been affected by the growth of upstream materials, but now it is 100% transferred to downstream terminals." Lin Jun said.

According to the data provided by Huaying technology, it is advancing with three 50% business objectives, that is, 50% of medium size products, 50% of igzo and 50% of modular products.

"Our advantage lies in our core technology. The company's 6-generation line is a mixed production line, which belongs to the simultaneous production of a-Si and igzo technologies. 99% of the production materials can be mixed and matched. Low end products and high-end products can be switched in one production line at the same time. This is a mode that can rapidly improve revenue." Huaying technology pointed out.

Huaying technology therefore believes that this will help to improve market share faster. In 2021, it is expected that the panel business will grow by about 45% year-on-year, the module business will grow by about 200% year-on-year, and the annual operating revenue will exceed 3 billion yuan.

The goal of Huaying technology is to build the "material panel module" industrial chain with the panel as the center.

"The project invested by fixed increase fund belongs to the first stage of planning, and the second stage hopes to start planning next year and complete the 60K plant as soon as possible." Lin Jun said, "after all, we are manufacturing enterprises with heavy asset investment, not capital operation enterprises, and will not pursue the so-called hot spots."