“Science and Technology Innovation Board Daily”, March 1 (Reporter Wu Xuguang) Recently, Shihua Technology announced that the construction period for its initial IPO fundraising project “Functional Materials Expansion and Upgrade Project” will be adjusted from February 2024 to June 2025.

In response to this, the director of Shihua Technology responded to the “Science and Technology Innovation Board Daily” reporter that starting in 2021, production lines for the “Functional Materials Expansion and Upgrade Project” have been put into operation in stages, but due to factors such as the large investment scale of the project, the company's production pace and product structure adjustments, the long customization cycle of imported production lines, and changes in the market environment, the time to invest in some of the new production lines of this project has been delayed.

The initial fundraising project has been postponed over and over

Shihua Technology was listed on the Science and Technology Innovation Board in September 2020. The total amount of capital raised was 755 million yuan, and the net amount raised after deducting issuance fees was 701 million yuan. Among them, the company's fund-raising project “Functional Materials Production Expansion and Upgrade Project” invested 500 million yuan. Judging from the progress of Shihua Technology's fundraising goals, as of the evening of February 29, 2024, the company's fund-raising project “Functional Materials Production Expansion and Upgrade Project” had invested a total of 470 million yuan, and the investment progress was 94.00%.

Will the postponement of the “Functional Materials Expansion and Upgrade Project” affect the core business of the enterprise?

The director and secretary mentioned above stated that there will be no significant adverse impact on existing core business operations. According to it, the civil engineering of the project plant was completed and inspected in April 2021, and the production equipment has been put into operation in stages since 2021. Currently, 5 production lines, including 4 domestic production lines and 1 imported production line, have all been put into operation. The 3 additional imported production lines were ordered and purchased at the end of 2022 based on the product upgrade plan and installed at the factory in the second half of 2023. “Currently, the project still needs to carry out the main clean room project construction for the new production line, construction of clean room supporting projects, joint equipment transfer, etc., and finally carry out equipment and clean room inspection. It is anticipated that after completing the above work, the project will be fully invested.”

It should be pointed out that this is not the first time that Shihua Technology has announced the extension of a fund-raising project.

Shihua Technology's fund-raising project “Functional Material Expansion and Upgrade Project” is the company's practice of further expanding and upgrading existing production capacity. The construction includes civil engineering of the project plant, equipment procurement, installation and commissioning, trial operation, etc., and was originally planned to reach the scheduled state of use in August 2020.

On August 28, 2023, Shihua Technology held the 14th meeting of the 2nd board of directors to deliberate and pass the “Proposal on the Special Report on the Deposit and Use of Funds Raised by the Company for the Half Year of 2023".

Based on the actual construction progress of the fund-raising project, the company adjusted the estimated date for the “Functional Material Expansion and Upgrade Project” to reach full useable status from August 2020 to February 2024.

At the time, regarding the reason for the postponement of the fund-raising project, Shihua Technology said that since the funds raised were recorded in September 2020, the company actively promoted the implementation of the fund-raising investment project, but due to factors such as the outbreak of COVID-19 since 2020, slow cross-border logistics, and the adjustment of the company's production pace, the remaining equipment for this project was put in place and production time was delayed.

High-efficiency sealant products are expected to be put into production in the first half of the year

Shihua Technology is mainly engaged in R&D, production and sales of functional materials. Its products include electronic composite functional materials, photoelectric display module materials, and materials for precision manufacturing applications.

According to the 2023 annual results report released by Shihua Technology, the company achieved operating income of about 511 million yuan last year, an increase of 10.64% over the previous year; realized net profit of about 193 million yuan, an increase of 4.38% over the previous year.

Regarding the reason for the changes in the company's performance, Shihua Technology said that during the reporting period, the company accelerated the launch of new products and projects, and maintained steady growth in its main business. At the same time, in order to further consolidate its core competitiveness, it increased investment in industrial layout, R&D and innovation, and various expenses increased.

Dongfang Wealth Securities pointed out in the research report that Shihua Technology's main functional materials are widely used in consumer electronics, wearable devices, etc., and the company's business is highly related to the prosperity of downstream consumer electronics and other industries.

Also, according to data from Canalys Market Research Institute, since 2023Q4, the consumer electronics sector has shown a steady upward trend. The decline in global smartphone shipments has narrowed. Global PC shipments have increased 3% year on year after ending seven consecutive quarters of year-on-year decline. The global smartwatch and TWS market showed a steady growth trend in 2023.

It should be noted that judging from the company's profitability, in recent years, Shihua Technology's comprehensive gross margin has shown a fluctuating downward trend.

The “Science and Technology Innovation Board Daily” combed through the company's financial data and found that in the last three-year period, 2020-September 2023, Shihua Technology's gross margins were 63.31%, 61.27%, 60.20%, and 59.91%, respectively.

Regarding changes in gross margin, Shihua Technology said that the company's business is currently mainly concentrated in the composite functional materials sector. In the future, it will include three categories of composite functional materials, optoelectronic materials, and functional adhesives. The overall business structure is still being continuously optimized. As the business structure is optimized, its overall gross margin level may fluctuate somewhat in the future.

In an interview with the “Science and Technology Innovation Board Daily” reporter, an industry investor said, “Shihua Technology is deeply tied to Apple. The product was directly certified by Apple in 2015. Electronic composite functional materials are the main driving force for the company's performance. Although the company has plans to expand into fields such as automobiles and medical care, shipments are still low.”

Regarding the company's current layout of various product categories, Shihua Technology told the “Science and Technology Innovation Board Daily” reporter that by the end of June 2023, the company's electronic composite materials had reached about 80%-90% of total revenue, which is the core driving force for its development; optoelectronic materials are the company's growth business, and its existing new products were certified and mass-produced in the first half of 2023, and are currently in the process of gradually being released; in addition, high-efficiency sealant products are the company's seed business. Currently, construction of the sealant project is progressing smoothly and is expected to be put into trial production and contribute revenue in the first half of this year.