Medikai's third quarter report for 2024 shows that the company's revenue in the first three quarters increased by 41.88% to 342 million yuan.

Due to the new round of export restrictions imposed by the United States on China, the four major domestic associations (China Semiconductor Industry Association, China Internet Association, China Association of Automobile Manufacturers, and China Association of Communications Enterprises) have collectively spoken out, suggesting that domestic enterprises carefully choose American chips and expand cooperation with chips in other countries and regions. Driven by artificial intelligence, cyclical recovery and domestic substitution, the semiconductor industry continues to recover.

According to relevant reports, the revenue and net profit attributable to the parent company of the entire semiconductor industry in the third quarter achieved positive year-on-year growth. Recently, a number of institutions, including Caitong Securities, CITIC Securities, Jiahe Fund, Bank of China International, Taiping Pension and GF Securities, have entered Hangzhou Medikai (688079. SH) Optoelectronics Technology Co., Ltd. (later known as Medikai) conducted on-site research on the company.

Ultrasonic fingerprint chips will become a new growth point

Medikai Optoelectronics Technology Co., Ltd. is mainly engaged in the research and development, manufacturing and sales of various optical and optoelectronic components and providing precision processing and manufacturing services for optical and optoelectronic products. The company's main products and services include semiconductor parts and precision machining services, biometric components and precision machining services, image optical components, and AR/MR optical components precision machining services.

As the core of the modern electronics industry, the semiconductor industry provides the basic building blocks for various electronic devices. In order to promote the development of the industry, the state has introduced a series of laws, regulations and industrial policies from various aspects such as finance, taxation, technology and talents. The high support of national policies has created a good ecological environment and major opportunities for the development of the semiconductor industry.

The semiconductor sector has grown by leaps and bounds since late September 2024 and entered a new growth range. Data shows that in the second half of this year, the Shenwan semiconductor sector (801081) climbed sharply after hitting a new low in the near future on September 23, 2024, and as of press time, the semiconductor sector rose by about 63.75%.

According to the statistical forecast of the World Integrated Circuit Association (WICA), the global semiconductor market size is expected to reach $620.2 billion in 2024, a year-on-year increase of 17%. Gartner predicts that global semiconductor revenue will reach $630 billion in 2024, a year-on-year increase of 19%. IDC also predicts that the semiconductor market will recover in 2024, with an annual growth rate of 20%.

In this environment, Medichem's third quarter report for 2024 shows that the company's revenue in the first three quarters increased by 41.88% to 342 million yuan. Medikai's 2024 semi-annual report shows that the company's revenue in the first half of the year reached 215 million yuan, a year-on-year increase of 26.25%. Specific to products, the company's 2024 semi-annual report shows that the revenue of semiconductor acoustic optics (formerly semiconductor optics) was 27.852 million yuan, a year-on-year increase of 74.91%, and the revenue of semiconductor packaging and testing was 24.0874 million yuan, a year-on-year increase of 453.64%.

The company continues to increase its efforts in scientific and technological innovation. Medikai's report for the third quarter of 2024 shows that in the third quarter of 2024, the company's R&D investment reached 25.7695 million yuan, a year-on-year increase of 14.80%, and the company's R&D investment in the first three quarters was 76.3659 million yuan, a year-on-year increase of 32.69%.

No pain, no gain. Medichem's continuous investment has also led to a wealth of innovations. The company's first generation of ultrasonic fingerprint chip complete set of acoustic layers has been certified by the client and has started mass production. Ultrasonic fingerprint recognition technology uses ultrasonic penetration, which can penetrate the epidermis layer of the finger to detect dermal fingerprint images, construct and identify three-dimensional fingerprint information, and is welcomed by the market. With the popularity of full-screen mobile phones and the gradual emergence of under-display fingerprint recognition technology, the demand for fingerprint chips is growing. CINNO Research predicts that the adoption rate of side fingerprints will further increase in the next two years, and the penetration rate is expected to reach 52% in 2024. At the investor communication meeting, Ge Wenzhi, chairman of Medichem, said that the complete set of acoustic layer products of ultrasonic fingerprint chip will become one of the company's main growth points.

Join hands with customers to start a new development journey

Medichem's 2023 annual report shows that the downstream customers who currently contribute significantly to the company's revenue mainly include: Kyocera Group, Goodix Technology, FCC, etc. In addition, the company has established business cooperation with well-known enterprises such as Canon, Nikon, AMS, Sunny, Hikvision, Foxconn, Panasonic, Ricoh, Sony, AGC, Keyence and so on. As a total application solution provider focusing on chip design and software development, Goodix's products and solutions are widely used in smart mobile terminals such as mobile phones, tablets, and wearable products, and shipments continue to grow in the global smartphone market. In the first three quarters of 2024, Goodix's operating income was approximately RMB3.223 billion, and its net profit reached approximately RMB448 million, representing a year-on-year increase of 3499.30%.

In the visit of the research institution, Medichem said that the company began to cooperate with Goodix in 2018 to develop a complete set of optical path layer solutions for ultra-thin under-screen fingerprint sensors. In 2023, we will closely follow the pace of customers to cooperate in the development of ultrasound fingerprint chip acoustic layer solutions, and start mass production in May 2024; Other products developed in cooperation with Goodix include ambient light chips, optical path layer products, etc.

Medichem's 2023 annual report shows that from 2023, the company will increase the development of semiconductor packaging and testing business, strengthen the production and sales of RF front-end chip manufacturing and packaging and testing related products, and the company has established stable cooperative relations with many customers in the field of RF chips. As of the end of 2023, Shenzhen Xinsheng Semiconductor Co., Ltd., a well-known domestic RF chip field, has become the company's fifth largest customer. Ge Wenzhi also said at the investor communication meeting that Medichem is cooperating with Zhejiang University to develop radio frequency chips (BAW), and the first batch of chip sample performance tests have all passed.

The production capacity continues to increase, and the company's long-term development is improving

Silver Persimmon Finance then walked into the plant with many brokerage institutions and found that the workshop was clean and orderly, there were not many staff in the workshop, and the equipment worth tens of millions of dollars was the main asset of Medikai. In the communication with investors, Ge Wenzhi also said that the company's largest expense at present comes from the depreciation of fixed assets.

"As soon as the equipment is invested, the cost of equipment depreciation begins to be generated." Ge Wenzhi said that the company's main expenses are mainly depreciation costs, labor costs, raw material costs and electricity costs. Silver Persimmon Finance consulted the relevant reports released by Medichem and found that in 2021, Medichem's fixed assets increased by 256 million yuan, with total fixed assets of 871 million yuan and depreciation expenses increased by 63.9678 million yuan in 2021, and in 2022, the company's fixed assets increased by 270 million yuan, with total fixed assets of 1.106 billion yuan and depreciation expenses of 86.3843 million yuan, and in 2023, the company's fixed assets increased by 439 million yuan, with total fixed assets of 1.538 billion yuan and depreciation expenses of up to 112 million yuan, which put pressure on the company's short-term net profit growth.

However, with the commissioning and commissioning of the company's newly purchased image sensor (CIS) complete set of optical path layer production line equipment, as well as the ultrasonic fingerprint chip acoustic layer solution, radio frequency filter (SAW Filter), semiconductor packaging and testing products, etc., Medikai's business is expected to gradually improve.

In the investor exchange activity, Ge Zhiwen introduced that the company's newly purchased three image sensor (CIS) complete sets of optical path layer production line equipment have been in place, and the commissioning is nearing completion, plus the original production line is expected to have a total equipment production capacity of about 17,000 Wafer/month.