New Stock Analysis | Basic Semiconductor (09971): Lack of national allocation "locked funds" may exacerbate stock price volatility, and the difficulty of industry recovery is difficult to solve the profit dilemma.

Basic semiconductor (09971), known as the "first stock of SiC IDM chips in the Hong Kong stock market," officially launched its IPO on June 29. According to the prospectus, the company plans to globally issue 27.3862 million H shares (assuming the exercise of the over-allotment option), with 1.3694 million shares offered for public sale in Hong Kong and 26.0168 million shares for international placement. The price range for the IPO is set at HK$27.49 to HK$31.62 per share, corresponding to an IPO market value of approximately HK$8.365 billion to HK$9.622 billion. Based on this calculation, Basic Semiconductor is expected to raise HK$753 million to HK$866 million in this IPO. The IPO subscription will end on July 3, with pricing on July 6 and official trading on the main board of the HKEX on July 8. It is worth noting that the current Hong Kong new stock market is at a peak in terms of supply, with as many as 7 companies in the subscription stage, and the diversion of funds is evident. In the context of existing stock games, funds will only concentrate on targets with higher certainty in terms of fundamentals. Although Basic Semiconductor is expected to receive significant oversubscription in the public offering due to scarce chips, the short-term sentiment boost brought about by the chip structure may not be able to mask the long-term valuation pressure, and the stock price performance after listing may be significantly constrained. Without introducing cornerstone investors, the lack of lock-up for international placement Basic Semiconductor's IPO relies on the Hong Kong Stock Exchange's Chapter 18C special technology company listing channel, with the company's global offering of 27.3862 million H shares accounting for only 9% of the total share capital (assuming the over-allotment option is not exercised), with an issue market value of between HK$753 million and HK$866 million. Of these, the Hong Kong public offering of 1.3694 million shares accounts for only 5% of the offering, while the international placement of 26.0168 million shares accounts for 95%. With the increase in oversubscription multiples, the percentage under the public offering can be returned up to 20%. Although the current new stock supply in the Hong Kong stock market is relatively loose, Basic Semiconductor's public offering is expected to receive a significant oversubscription due to the strong demand for chips in the recent market, as well as the opening public offering ratio of only 5%. This has been reflected in the initial trading data, with the total subscription amount to Basic Semiconductor reaching HK$4.98 billion by 17:00 on June 29, with the public offering at the upper price estimate already being oversubscribed by approximately 115 times. However, this high enthusiasm for the public offering may not necessarily be a good thing for Basic Semiconductor, as the lack of cornerstone investors may pose challenges. Looking back at the performance of Chapter 18C new stocks, companies that are still in the phase of fulfilling their fundamentals often rely on a combination of "reducing the initial public offering ratio + introducing cornerstone investors to lock up international placement shares" to artificially tighten the floating shares and support the early stock price. In contrast, Basic Semiconductor's initial 5% public offering is already the retail minimum allowed under the Chapter 18C rules, and even if the oversubscription triggers a callback, the percentage can only reach up to 20% at mostwhile the pressing the public offering has been taken to the extreme, the core step of locking up international placement is completely missing. With almost no hard constraints on the international placement, once the high demand for the public offering pushes up the opening price on the first day of trading, the high-level redemption of institutional book-entry organizations for international placements is likely to proceed smoothly without any friction, which may lead to a situation where the stock price on the first day of listing opens high and then declines, or even breaks below the IPO price, and new investors should be cautious. However, although no cornerstone investors have been introduced, Basic Semiconductor has set a green shoe option. The stabilization manager may issue up to an additional 4.1078 million shares at the offering price, accounting for 15% of the total global offering size. If Basic Semiconductor experiences a break below the IPO price after listing, the green shoe will serve as the final cushion to stabilize the company's stock price. Three-year accumulated losses exceeding RMB 756 million, industry recovery does not solve profit dilemma With the high enthusiasm for new stock subscriptions in the Hong Kong stock market and the intensive investment in SiC as the core theme of the semiconductor sector, Basic Semiconductor's IPO undoubtedly has a significant short-term sentiment premium. However, it must be clear that the emotional-driven valuation increase only affects the early days of listing, and the anchor determining the final price trend of the stock is the company's fundamentals. For Basic Semiconductor, aiming to list on the Hong Kong Stock Exchange's Chapter 18C section, the biggest market consensus on its IPO has never been about the long-term imagination space of the SiC field, but the delayed realization of short-term profitability. According to the prospectus, Basic Semiconductor is estimated to incur adjusted net losses of approximately RMB 313 million, RMB 203 million, and RMB 240 million in 2023 to 2025, with a total accumulated loss of as high as RMB 756 million over three years. This dilemma primarily stems from the sudden downturn in the industry cycle: During the chip shortage from 2021-2022, SiC products enjoyed high premiums, but with the concentration of domestic and international production capacity releases and a large number of players entering the field, price wars have intensified. Data from the prospectus shows that the average selling price of the company's core product, SiC power modules, has dropped from HK$2558.7 to HK$677 over three years, a decrease of more than 73%, with the price plummeting by nearly three-quarters. The company's choice of the IDM full chain model further exacerbates the downward pressure in the industry cycle. While the IDM model can maximize profits by controlling the entire chain during the industry's upswing, in a period of low capacity utilization, the fixed costs such as depreciation of wafer manufacturing facilities, equipment amortization, and cleanroom operations are rigid expenditures that cannot be mitigated by reducing capacity. In 2025, the utilization rate of the company's wafer manufacturing facility in Wuxi was only 40%, marking a new low since 2023, and the low capacity utilization directly leads to high fixed costs per unit product. Under this dual squeeze, Basic Semiconductor has yet to move out of the red zone: with gross loss ratios of 59.6%, 9.7%, and 10.9% from 2023 to 2025, in 2025, for every HK$100 in sales, the company bears a direct cost loss of HK$10.9. If the current negative gross profit situation is a visible gap on the income statement, the sustained high operating expenses are the hidden drag that makes losses difficult to narrow. From 2023 to 2025, the companys combined sales, management, and R&D expenses accounted for 89.2%, 71.2%, and 90.9% of revenue, respectively. This means that almost 90% of every dollar earned is used to cover operating costs, and the profit margin is almost completely eroded. Breaking down the cost structure further, R&D investment is the most critical fixed expenditure: over the past three years, its share of revenue has consistently remained in the 30%-35% range, reaching 35.3% in 2025. This high-intensity investment is essentially necessary for the company to build IDM full chain capabilities and advance the certification and mass production of automotive-grade productsthis type of far-sighted expenditure tied to long-term competitiveness is difficult to flexibly reduce with short-term revenue fluctuations and directly prolongs the arrival of the profit turning point. Fortunately, as Basic Semiconductor approaches its listing, it is entering a window of marginal improvement in the industry. Following the first round of price increases in April, global power semiconductor leaders such as Infineon and TI will start a second round of price hikes on July 1, leading to nearly 20 companies in the industry chain simultaneously adjusting prices, bringing a hint of optimism on the expectation front for Basic Semiconductor, which is facing continuous losses. However, if we look at the industry chain structure in detail, this recovery dividend actually has clear boundaries and presents apparent structural characteristics. At the silicon-based end, driven by high demand industries such as AI data centers, new energy vehicles at 800V, and optical storage, as well as the AI/HBM occupying the 8-inch wafer capacity, this makes IGBT and MOSFET the most certain segments in this industrial recovery. But for Basic Semiconductor, whose main business is SiC, the situation is more of a mixed bag. The "pleasure" comes from the fact that the Gate Driver business, which accounts for 33% of total revenue, can benefit from the price increase of IGBT, which is the only profitable sector for the company. The "concern" lies in the SiC power module, which accounts for nearly 40% of revenue and is currently in the "deep water" of domestic substitution. To reduce the price gap with IGBT for accelerated penetration, the domestic market still emphasizes a "penetration-first" strategy, leading to a price competition deadlock that has prevented the second round of price increases from Infineon from smoothly transferring to the domestic automotive module end, and the inertia in the 73% decline in ASP has not yet been stopped. The profit dilemma for SiC discrete devices (diodes, transistors) is even more severe, with a gross loss ratio of 65.4% in this sector in 2025, still far from turning positive. This is mainly due to two factors: on the cost side, substrate prices have surged by 170% this year, but downstream industrial and consumer electronics customers have a very low acceptance of price hikes, leading to an almost ineffective cost transmission mechanism. On the capacity side, the module production lines in Zhongnan and Pingshan are in a ramp-up phase, which has priority access to the wafer supply inside the IDM, putting pressure on the utilization rates of discrete devices and further deteriorating the amortization per unit depreciation. Although the IDM model has a long-term cost hedging logic, the additional capacity in Zhongshan, Wuxi, and Pingshan is not expected to be released until the fourth quarter of 2026 to 2027. During this window, the high cost of external substrate purchase may continue to erode the space for profit recovery. Therefore, although the power semiconductor industry is in a recovery trajectory, there are significant structural differentiations. The internal situation of Basic Semiconductor also shows a "mixed" scenario: while the Gate Driver business has a certain performance elasticity, the SiC power modules and discrete devices, which are the pillars of revenue, are still deeply mired in a profit quagmire. Due to the short-term pressure factors faced by the core businesses mentioned above, the overall profitability realization point for the company may be delayed, and investors should not have overly high expectations for profit turnaround in the short to medium term.