Bright Power Semiconductor Tumbles, Signaling Second Market Correction
The newly listed LED chip maker’s Shanghai stock slid by 27.37% in the first week of trading with its market cap dropping to CNY 4.99 billion.
As the first significant wave of market correction mangles the stocks of overvalued companies on the Shanghai Stock Exchange Sci-Tech Innovation Board, known as the Star Market (read more about the new tech venue on the Shanghai bourse in the latest EqualOcean report -- download), fresh applicants are also being directly affected by the downtrend. This week, Bright Power Semiconductor (BPS, 688368:SH) provided another sharp-post-IPO-fall-like story for the marketplace’s chronicles.
With the original listing price at CNY 56.68 per share, the company followed the same track as most of its predecessors on the Star Market: once the bidding kicked off, the shares jumped immediately, reaching as high as CNY 111.43 (USD 15.73) after the first minute of the trading craze. Later on, the new stock retreated, closing the first and the second days at CNY 104.36 (USD 14.73) and CNY 90.05 (USD 12.71) per share respectively.
The situation only worsened over the following days: BPS’s stock closed this Friday at CNY 80.93 (USD 11.43), which is the equivalent of 61 times earnings (trailing twelve months). The market capitalization has therefore shrunk to CNY 4.99 billion (USD 704.47 million). This scenario is quite similar to Cnano’s (688116:SH) story – but on steroids.
A Shanghai-based firm, BPS aims to take Chinese microelectronics manufacturing to the next level by changing its status in the global supply chain from ‘Original Equipment Manufacturer’ (OEM) to ‘Original Design Manufacturer’ (ODM).
Making this idea materialize doesn’t seem to be simple though. There are some perils for both the company and the industry as a whole. For instance, 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.
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.