New stock foresight | Hehui Optoelectronics (688538.SH): Will the heavy losses going to Hong Kong, can they calibrate the value coordinates with AMOLED?

With accumulated losses of more than 7.3 billion yuan over the past three years, Shanghai Hehui North Electro-Optic Co., Ltd. (referred to as "Hehui Optoelectronics") has embarked on the journey to list in Hong Kong. According to the disclosure by GMTEight on April 23rd, Hehui Optoelectronics (688538.SH) submitted an application to the main board of the Hong Kong Stock Exchange, with CICC as the exclusive sponsor. This new journey in the capital market not only carries the expectations for the company to overcome its financial difficulties, but also concerns its future direction in the global AMOLED industry landscape. Leading Large-size AMOLED Panel Manufacturer in China The prospectus shows that Hehui Optoelectronics is a leading global manufacturer of AMOLED semiconductor display panels, focusing on research and development and production of AMOLED semiconductor display panels that provide people with extraordinary true colors, excellent visual experiences, and low power consumption. According to a report by Zuo Shi Consulting, based on cumulative sales volumes from 2022 to 2024, Hehui Optoelectronics ranks second globally and first in China among large-size manufacturers. In the field of tablet/laptop display panels, the company has ranked first in sales volume in the Chinese market for three consecutive years, with a market share of 73.3%; in the car display field, it ranks fourth globally in cumulative sales volume and second in China. Its products cover multiple sectors and have cooperated with well-known consumer electronics brands such as Honor, Transsion, and two of China's top five car manufacturers, as well as being adopted by a leading aircraft manufacturer in Europe. Hehui Optoelectronics' success is attributed to its diversified and differentiated product matrix, as well as its strong technological innovation capabilities. The company has built a product matrix covering multiple fields through cross-industry technologies empowered by AI, actively expanding into emerging application areas. The company has production capabilities for rigid, flexible, and Hybrid display panels, ranking first in China and second globally in rigid panel capacity in 2024, and achieving mass production of related technical products in the flexible product segment through research and development innovation. As of December 31, 2024, Hehui Optoelectronics has built 18 categories of core AMOLED technologies and obtained 1,243 authorized patents. Technologies such as Hybrid design and OLED stacked device design have effectively improved product performance, helping the company launch competitive products such as the 14-inch 2.8K stacked OLED Hybrid blade display panel, enhancing brand influence. In the rapidly evolving semiconductor display industry, this technological innovation capability is the core moat that sustains Hehui Optoelectronics in the market. Accumulated losses exceeding 7.3 billion in three years However, Hehui Optoelectronics faces challenges in its financial aspect. From 2022 to 2024, the company's revenues were approximately 4.191 billion yuan, 3.038 billion yuan, and 4.958 billion yuan respectively, with total losses and comprehensive losses of approximately 1.602 billion yuan, 3.244 billion yuan, and 2.518 billion yuan respectively during the same period, resulting in accumulated losses exceeding 7.3 billion yuan over three years. A detailed analysis of the causes of these losses reveals various factors. In terms of cost structure, the technology and capital-intensive nature of the AMOLED display panel industry leads to high production equipment, raw material procurement, and research and development costs for the company. From 2022 to 2024, the company's sales costs were 5.208 billion yuan, 5.421 billion yuan, and 6.490 billion yuan respectively, which continued to exceed revenues during the same period; meanwhile, the company's gross profit margin was 24.3%, 78.4%, and 30.9% respectively. This indicates that despite the company's position in the industry, competition remains fierce. To gain market share, the company may lower product pricing, resulting in sales prices not fully covering costs. At the same time, other competitors in the industry are constantly increasing their research and development and market expansion efforts. To maintain competitiveness, Hehui Optoelectronics needs to invest significant resources in product sales and research and development, further squeezing profit margins. Notably, continuous technological advancements also require the company to continuously invest in equipment upgrades and technological advancements, further adding to the cost burden. For example, from the layout and upgrade of the 4.5th to the 6th generation AMOLED production lines, each step requires massive capital investment, and these costs take a long period to gradually digest. In terms of financial leverage, to meet the funding needs for business expansion and technological research and development, the company heavily relies on debt financing. From 2022 to 2024, the scale of interest-bearing bank loans and other loans grew continuously, reaching 13.075 billion yuan, 14.2 billion yuan, and 17.908 billion yuan. This results in high financial expenses for the company, with financial costs of 310 million yuan, 524 million yuan, and 647 million yuan respectively from 2022 to 2024. From the perspective of asset-liability ratio, the data in the prospectus shows that Hehui Optoelectronics' asset-liability ratio was 45%, 51%, and 60% respectively from 2022 to 2024, showing an upward trend year by year. This means that as the debt size increases, the company's debt burden continues to grow, and financial risks accordingly increase. This high-debt financial structure may bring greater operational pressure to the company during industry downturns. Stable Growth Outlook for the AMOLED Panel Industry It is worth noting that Hehui Optoelectronics still exhibits some positive financial trends. The company's asset size remains relatively stable, and the compound annual growth rate of AMOLED semiconductor display panel sales volumes from 2022 to 2024 reached 30.4%. In the future, the company is expected to reduce unit costs and increase product gross profit margins through scale effects. If the cost structure can be optimized, expenses properly controlled, and operational efficiency improved, the profitability is expected to improve. For example, with the increase in production line capacity utilization and cost optimization in raw material procurement, the production costs of unit products are expected to further decrease, thereby increasing profit margins. Moreover, the optimistic development prospects of the AMOLED semiconductor display panel industry also provide Hehui Optoelectronics with opportunities to improve its financial situation. According to Zuo Shi Consulting's report, the global market for AMOLED semiconductor display panels shows significant growth in terms of sales revenue. From 2020 to 2024, the market size increased from 259.9 billion yuan to 388 billion yuan, with a compound annual growth rate of 10.5%. Among them, the RGB-OLED market size increased from 22The market size increased from 7.7 billion yuan to 350.3 billion yuan, with a compound annual growth rate of 11.4%, and the penetration rate increased from 87.6% to 90.3%; the market size of non-primary color OLED increased from 32.2 billion yuan to 37.7 billion yuan, with a compound annual growth rate of 4.0%.It is expected that from 2024 to 2030, the global general AMOLED semiconductor display panel market will continue to expand at an annual compound growth rate of 9.6%, with the market size expected to reach 673.2 billion yuan by 2030. Among them, the market size of RGB-OLED is expected to grow to 627.9 billion yuan, with an annual compound growth rate of 10.2% and a further penetration rate of 93.3%; the market size of non-three-color OLED is expected to reach 45.3 billion yuan, with an annual compound growth rate of 3.1%. AMOLED semiconductor display panels based on RGB-OLED color display technology are mainly used in terminal products with 27 inches and below, such as tablets/laptops, smartphones, and smart wearable devices, occupying a dominant position in the market. Hehui Optoelectronics is in the mid-to-large size AMOLED semiconductor display panel sub-market, benefiting from the overall industry growth trend. With technological progress and cost reduction, mid-to-large size AMOLED panels are expanding applications in more fields such as automotive displays, with promising market prospects. Overall, Hehui Optoelectronics has achieved significant accomplishments in the field of AMOLED, and with its leading industry position and technological innovation capabilities, it has a certain competitive edge in the market. Despite facing losses currently, with industry development and the implementation of measures such as optimizing product structure, increasing capacity utilization, and strengthening cost control, the company is expected to achieve profit growth and gain more development space in the global AMOLED market. For investors, Hehui Optoelectronics has both development potential and risks, and whether it can break through financial difficulties with the help of the capital market, realize the transformation of technological advantages into commercial value, is worth continuous attention.