In recent years, China has emerged as the world's largest market for semiconductorsHowever, the country faces significant challenges, particularly concerning the reliance on foreign technology and equipment due to international sanctions and trade tensionsAs a result, there is a pressing need for independence in the semiconductor industry, leading to a rapid push for domestic alternatives to semiconductor equipment and precision componentsThe government is actively supporting policies that encourage semiconductor companies to go public, enabling them to harness the power of capital markets to strengthen their operations and hasten the de-nationalization of the semiconductor sector.

On August 16, 2023, Jiangsu Pioneer Precision Technology Co., Ltd(often referred to as "Pioneer Precision") achieved an important milestone by having its initial public offering (IPO) approved on the Science and Technology Innovation Board of the Shanghai Stock Exchange

That same day, Kema Technology (301611.SZ) made its debut on the Shenzhen Stock Exchange's ChiNext boardPrior to Kema, the only company from the same sector to go public was Fuchuang Precision (688409.SH), which listed on the Science and Technology Innovation Board in October 2022.

Just a week later, on August 23, Pioneer Precision submitted its registration documentsWhile optimism surrounds their IPO process, the actual outcome remains uncertain as market observers await further developments.

Strong Ties with Leading Clients

Pioneer Precision specializes in manufacturing key components for semiconductor etching and thin-film deposition equipment—the backbone of progressive semiconductor manufacturing processesThe quality, performance, and precision of these components are crucial, as they directly impact the reliability and stability of semiconductor machinery.

The company claims to be a leader in producing critical components for domestic semiconductor etching equipment

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Notably, they have developed components for 7nm and smaller etching devices, placing them in competition with international suppliersThis achievement is no small feat, as the etching domain is known for its high technical requirements and complexity.

Economic figures reveal that from 2021 to 2023, and for the first quarter of the current year, the revenue from products utilized in etching and thin-film deposition equipment represented 82%, 89%, 77%, and again 82% of Pioneer Precision's total revenueAdditional income streams are generated from sectors such as healthcare and photovoltaic technologies.

Moreover, Pioneer Precision established its market position by partnering with leading domestic semiconductor companies since its inception, which provided a competitive edgeThe distinct nature of the industry has resulted in deep-rooted relationships with prominent clients.

According to client data, since 2021, two companies have consistently been at the top of Pioneer Precision’s client list: China Microelectronics Equipment Co., Ltd

(688012.SH) and North Huachuang (002371.SZ). Revenue from these two enterprises has contributed over 50% of Pioneer Precision’s income, peaking at an impressive 68% in 2022.

China Microelectronics is recognized for creating the country’s first dielectric etcher and is a leading player within China's integrated circuit equipment industryOn the other hand, North Huachuang stands as the largest semiconductor equipment manufacturer domestically, with products that include plasma etching and chemical vapor deposition machinery.

Interestingly, China Microelectronics holds a stake in Pioneer PrecisionDuring a third equity transfer in December 2021, the company invested 10 million yuan for a 0.59% shareholdingBefore the IPO, their stake increased to 1.93%, making them the ninth-largest shareholder.

Performance Fluctuations

Despite the support of these two major clients, Pioneer Precision has experienced fluctuating financial performance over the years.

Financial data show that between 2020 and 2023, the company achieved revenues of 202 million yuan, 424 million yuan, 470 million yuan, and 558 million yuan respectively

The net profits attributed to shareholders were recorded as losses of nearly 38 million yuan in 2020, followed by profits of 105 million yuan in 2021 and then steady profits thereafterThe year 2021 marked a significant turnaround for the company.

However, in 2023, even with a revenue increase approaching 100 million yuan compared to the previous year, net profits fell by 25 million yuan, resulting in a situation dubbed “increased revenue without increased profit.”

When addressing these performance shifts, the company attributed the fluctuations to cyclical industry dynamicsThey expressed optimism about a market recovery in the second half of 2023, suggesting that moving forward, their business model remains robust with ample growth potential.

In their most recent filing for the IPO, Pioneer Precision disclosed impressive financial results for the first half of 2024, reporting 548 million yuan in revenue—a 147% increase year-on-year—and a net profit of 112 million yuan, representing a 314% increase compared to the same period the previous year.

The company believes this substantial growth is driven by a resurgence in the downstream semiconductor market and a continued shift towards localization in production

In a comparative analysis, fellow industry competitor Fuchuang Precision recorded revenue and profit figures of 1.506 billion yuan and 122 million yuan, marking increases of 82% and 27%, respectively, while Kema Technology posted revenue of 385 million yuan and net profit of 139 million yuan, up by 64% and 309% respectivelyOverall, the semiconductor equipment and components sector appears to be rejuvenating.

Additionally, Pioneer Precision forecasted full-year revenues for 2024 to be between 1 billion and 1.1 billion yuan, expecting growth of 79% to 97%, along with an anticipated net profit between 190 million and 200 million yuan, which would signify a potential increase of 138% to 151%.

However, the company sought to clarify that their projections are preliminary estimates and have yet to undergo thorough audits.

Over 100 Million Yuan in Dividends Prior to IPO

The intended use of the funds from their IPO indicates a goal to raise 587 million yuan, with approximately 94.9 million yuan earmarked for supplementing working capital

Notably, during this IPO timeframe, Pioneer Precision executed multiple dividend distributions.

According to their prospectus, in 2020, after experiencing losses of 38.4 million yuan, they distributed 305,000 yuan in dividendsA year later, they achieved profits of 105 million yuan, awarding dividends amounting to 82.67 million yuan—about 79% of that year’s net profitIn 2022, they maintained the same level of profitability and distributed an additional 25 million yuan, representing 24% of their net profitCumulatively, before the IPO, they had distributed roughly 1.08 billion yuan in dividends, closely aligning with their net profit from 2021.

Shareholder relations indicate that the founder, You Li, and his family retain approximately 35% ownership of Pioneer PrecisionThis means they stand to receive nearly 40 million yuan from dividendsThe latest dividend allocations are noted to facilitate capital contributions by relevant shareholders into the company.

In response to inquiries regarding the substantial cash dividends paid alongside raising funds for liquidity during the IPO, Pioneer Precision underscored the necessity of operational funds due to the ongoing expansion of their business volume

They argue that some of the capital raised would adeptly address the growing operational demands, thereby supporting ongoing research and development as well as business growth.

The regulatory environment has tightened its oversight on companies that distribute large dividends while simultaneously seeking to augment capital for liquidityNew guidelines introduced by the Shanghai and Shenzhen stock exchanges on April 30 aim to manage issues surrounding sudden dividend payouts before going public, leading some companies to withdraw their IPO applications.

This tightening of regulations has also influenced Pioneer Precision’s fundraising directivesAn initial prospectus indicated a desire to raise around 208 million yuan for working capital, before later amending the goal to just under 95 million yuanNonetheless, the company remains in a strong financial position, with 279 million yuan in cash reported as of March 2023.