New Stock Preview | GoerTek Microelectronics: Backed by Goertek Inc., a 28 billion unicorn also needs to go to Hong Kong for "supplementing blood"

On January 20, Goertek Inc. (002241.SZ), a giant in the consumer electronics industry, announced that it plans to spin off its subsidiary Goertek Micro for listing on the main board of the Hong Kong Stock Exchange. On the same day, Goertek Microelectronics Co., Ltd. submitted its listing application to the main board of the Hong Kong Stock Exchange, with CICC, China Securities Co., Ltd. International, CMB International, and UBS Group as joint sponsors. It is reported that Goertek Microelectronics is the only subsidiary of Goertek Inc. that operates in the microelectronics related business. As early as November 2020, Goertek Inc. announced plans to spin off Goertek Micro for listing on the ChiNext board of the A-share market in the Shenzhen Stock Exchange. However, due to the impact of the epidemic, Goertek Micro and the sponsors voluntarily applied to suspend the listing review process. In October 2022, Goertek Micro's initial public offering was approved by the ChiNext Listing Committee, but it ultimately fell through. Currently, backed by Goertek Inc., Goertek Microelectronics is also thriving in the capital market. According to the "2024 Global Unicorn List" released by the Hurun Research Institute, Goertek Micro is a unicorn company with a value of 28 billion yuan. However, even as a 28 billion unicorn, Goertek Microelectronics seems to be unable to escape the fate of "going public for capital injection". What is the reason behind this? Performance fluctuations, sudden drop in cash flow According to reports, Goertek Microelectronics is a global leading provider of intelligent sensor interaction solutions. With a powerful one-stop intelligent sensor interaction platform as its core, it is committed to working with global partners to jointly promote the transformation of the next generation of intelligent sensor interaction. The company has built a one-stop platform, Uni Sense, covering all key technical aspects of intelligent sensor interaction solution including material research and development, chip design, packaging testing, algorithm software development, system design, etc. The company's platform allows for rapid reuse and expansion of full-stack capabilities in different application areas, enabling the provision of flexible and diverse high-performance intelligent sensor interaction solutions covering sensors, SiPs, and sensor interaction modules at the optimal cost according to customer needs. As of September 30, 2024, Goertek Microelectronics has provided over 400 solutions, widely used in around 30 types of intelligent terminals such as smartphones, smart headphones, VR/AR devices, smart cars, and smart homes, making it the provider with the richest portfolio of intelligent sensor interaction solutions in China according to CIC's report. In addition, during the past performance period, the company's sensor shipments have exceeded 4 billion units. According to the CIC report, based on the 2023 revenue, Goertek Microelectronics is the eighth largest global provider of intelligent sensor interaction solutions and the largest in China. However, despite the accumulated influence in the market, the company's overall performance has been fluctuating in recent years. According to the prospectus, in 2022 and 2023, the company's revenue was 3.12 billion yuan and 3 billion yuan respectively, a year-on-year decline of 3.85%; net profit was 325 million yuan and 289 million yuan respectively, a year-on-year decline of 11.08%. As of the first 9 months of 2024, the company achieved revenue of 3.266 billion yuan, a year-on-year increase of 52.12%; and net profit of 243 million yuan, a year-on-year increase of 8%. It can be seen that the downward trend in Goertek Micro's performance in 2023 was more obvious, but there has been some improvement in the first 9 months of 2024. Amidst fluctuating performance, Goertek Micro's cash flow has also started to fluctuate. In 2023, the company's net cash flow from operating activities was 600 million yuan, a decrease from 693 million yuan in the same period of 2022. As of the first 9 months of 2024, the company recorded negative cash flow, with a net cash flow from operating activities of -26 million yuan. In addition, as of the first 9 months of 2024, the company's cash and cash equivalents at the end of the period were 2.049 billion yuan, a decrease from 2.111 billion yuan in the same period of 2023. Furthermore, a worrying trend is the increasing liabilities of Goertek Micro in the period. In 2022 and the first 9 months of 2024, the company's total liabilities were 1.009 billion, 1.196 billion, and 1.570 billion yuan respectively, showing an upward trend. It can be seen that along with the declining cash flow, the increasing scale of liabilities has undoubtedly exacerbated the company's liquidity pressures to a certain extent. However, fortunately, the company's total assets have been increasing, totaling 5.179 billion, 5.639 billion, and 6.274 billion yuan during the reporting periods. Based on the above, amidst fluctuating performance and increasing liquidity pressure, Goertek Micro, despite holding a certain market position in the sensor race, also faces hidden growth worries. On a high-growth track, but plagued by "major customer dependence" Whether in the smart consumer electronics field or other emerging industries, intelligent sensor interaction solution providers play a crucial role. For example, in the field of smart consumer electronics, terminal manufacturers tend to cooperate directly with key component providers, jointly define intelligent sensor interaction solutions, and have them customized and developed by intelligent sensor interaction solution providers to shorten product launch cycles and provide a better experience for end users. The importance of intelligent sensor interaction solutions is also evident in other emerging fields such as automotive electronics, smart homes, industrial applications, and medical applications. The coverage of multiple areas has obviously also led to the rapid growth of the market for intelligent sensor interaction solutions. In 2023, the global market size of intelligent sensor interaction solutions reached 186.0 billion yuan. Thanks to the value increase brought by AI enabling the penetration rate of terminals, it will grow to 151.7 billion yuan by 2028 with a compound annual growth rate of 9.6% during the period. Currently, sensors dominate the global market for intelligent sensor interaction solutions, with a share of 41.7% in 2023. In the future, the importance of SiP and sensor interaction modules in the market for intelligent sensor interaction solutions will continue to rise, with their respective shares increasing from 23.9% and 34.4% in 2023 to 24.1% and 40.4% in 2028.Image source: GoerTek IPO prospectusHowever, although the market for intelligent sensor interaction solutions has shown high growth characteristics, the fierce industry competition in this race track is estimated to put a lot of pressure on GoerTek. According to Zhaoshi Consulting's data, the competition in the global intelligent sensor interaction solution market will remain fierce in 2023. In terms of sales in 2023, the company is the eighth largest in the world and the largest in China as a provider of intelligent sensor interaction solutions. However, the competitive environment remains intense, especially with major participants from the United States, Europe, Japan, and South Korea dominating the global market with outstanding technical expertise, advanced design capabilities, and extensive customer relationships. In this context, GoerTek still exhibits a clear "large customer dependence," with the company's successful operations largely dependent on maintaining strong relationships with several customers. According to the prospectus, from 2022 to September 2024, the revenue from the top five customers accounted for 75.5%, 74.3%, and 79.9% of the total revenue respectively. The sales revenue from the largest customer - customer A accounted for 56.1%, 49.4%, and 61.8% of the total revenue during the same period. It is worth mentioning that customer A of GoerTek seems to be Apple Inc. According to the prospectus, customer A is a US-listed multinational company established in 1976, mainly engaged in the design, manufacture, and sale of consumer electronics, software, and online services. They mainly require a customized acoustic sensor with an IPX8 water resistance rating, capable of withstanding a depth of six meters underwater, while maintaining industry-leading acoustic performance. In addition, the parent company Goertek Inc. is a well-known Apple industry chain enterprise, leading to speculation that customer A of GoerTek is Apple Inc. However, even so, GoerTek still faces the development risk of over-reliance on large customers. The company warned of the risk in the prospectus that if the company fails to expand its customer base or if relationships with these customers are disrupted, the business, financial condition, and operating performance of the company may be adversely affected. In summary, it is not difficult to see that GoerTek's listing in Hong Kong is obviously expected but unexpected. Although it has advantages such as gathering top effects and being backed by the giant Goertek Inc. with a market value of 94.929 billion yuan as of January 22nd, the company's fluctuations in performance, decreasing cash flow, and increasing liabilities have prompted the company to seek "replenishment" in Hong Kong.