Fiat Lux: Bright Power Semiconductor Prepares for Its Star Market IPO
COVID-19 and China
Dark blue LED bulbs. Image credit: James Dimas/Unsplash

Semiconductor materials and devices – one of the few strategic sectors in China’s industrial catching-up-with-global-leaders plans – have a large presence on the Shanghai Stock Exchange (SSE) Sci-Tech Innovation Board, known as the Star Market (read more about the new venue in latest EqualOcean report).

Several weeks have passed since system-on-a-chip fabless company Amlogic (688099:SH) started trading, becoming the fifth chipmaker that possesses a stock on the tech marketplace. On September 30, the SSE Listing Committee gave a green light to Bright Power (晶丰明源, 688368:SH) – another representative of the knowledge-intensive industry. Like any of its semiconductor predecessors, the firm is Shanghai-based, and, like some of them, it is a mid-size business.

With 193 employees, 115 (or nearly 60%) of which are directly involved in research and development activities, the firm designs and manufactures lighting driver chips as well as motor drivers and controllers. It is important to note that its R&D-expenses-to-revenue ratio is quite low: it has been hovering below 10% since 2016.

Though having over 20 different models in its product mix, Bright Power is seemingly lacking variety: only two distinct product lines are available for sale, according to the chipmaker’s official website. This structure is, indeed, inflexible: in the LED chip industry, it usually takes several years to develop and create a new product outside of the established market segment.

Among other perils, vast exposure to international trade-related uncertainties must be mentioned. While the firm gains less than one-tenth (2.93%, 5.86% and 6.31% in 2016, 2017 and 2018 respectively) of the operating income from export contracts, most of its clients simultaneously buy various chips for a number of suppliers. Thus, they might be directly hurt by any tariff changes, which means that the 'downstream zone' of the company is full of risks.

Bright Power’s upstream partners aren’t bulletproof too. The most important fact is that they are scarce: the biggest five suppliers account for over 70% of the company’s operating costs. More precisely, this number hit 85.88% in 2016 and then dropped to 75.9% last year.

Nonetheless, there is always a bright side. Holding 167 patents (almost one per employee), five of which are international, the firm is among the most protected the Star board applicants in terms of intellectual property. As for the financial performance, the chipmaker’s net profit margin reached 10.67% last year, doubling that of 2016.

According to the industry intelligence portal LEDinside, the LED package market in China climbed to USD 10.5 billion in 2018. It grew by 4.5% from the previous year and is expected to grow even faster in the near future.

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