Under the chip stock boom, Amlogic is making another attempt at the Hong Kong Stock Exchange

With the rapid development of artificial intelligence, the demand for related chips has surged. Amlogic, which has been listed on the Shanghai Stock Exchange's STAR Market, is once again applying for a listing in Hong Kong. Key Points: The company achieved a profit of 870 million yuan last year. Operating cash flow outflow was 230 million yuan. Liu Zhiheng In recent years, the explosion of AI has led to a supply-demand imbalance for related chips, which major countries view as a battleground. Amid the global chip frenzy, the capital market is flocking to chip stocks; companies with chip businesses are hardly worried about the market. Chip design company Amlogic (Shanghai) Co., Ltd. (688099.SH) is also riding this wave to go public. Amlogic primarily designs system-on-chip (SoC) solutions, integrating functions such as central processing unit (CPU), graphics processing unit (GPU), memory control, communication, audio and video, and AI acceleration into a single chip, typically used in smartphones, televisions, set-top boxes, AIoT (Artificial Intelligence Internet of Things), communications, and smart vehicles. In simple terms, the characteristic of SoC is that it combines multiple functions into one chip, serving as the core carrier of "intelligent terminal devices." To trace the origins of Amlogic, we go back to 1995 when the company was registered in California, USA under the name AMTEK. In 2000, John Zhong became the chairman, and in 2003, Amlogic was founded in mainland China. The company was listed on the Shanghai Stock Exchange's STAR Market in 2019. Last September, the company submitted its first listing application to the Hong Kong Stock Exchange, but ultimately returned empty-handed. This time, it is seizing the chip boom to make a comeback. Lei Jun Exits Investment Xiaomi's founder Lei Jun invested in Amlogic in 2018, holding a 3.41% stake, but will fully exit by 2024. Additionally, TCL has also invested in Amlogic, holding 10.16% of the company's A shares. Amlogic has been deeply engaged in SoC chip design for about 30 years. According to Frost & Sullivan data, the company ranks fourth globally in terms of revenue for smart terminal SoC chips in 2024, with a market share of only 1.2%. However, it ranks first in China and second globally in the field of home smart terminal SoC chips, with a global market share of approximately 17.7%. By the end of 2025, Amlogic's cumulative chip shipments are expected to exceed 1 billion units. According to Frost & Sullivan data, in 2024, one in every three smart set-top boxes will be equipped with an Amlogic smart set-top box chip, and one in every five smart TVs will be equipped with a chip designed by the company. The company's business covers over 270 mainstream global operators, including TV brands such as Hisense, TCL, and Skyworth, as well as AIoT manufacturers and automotive manufacturers. In the past three years, the company's revenues were 5.371 billion, 5.926 billion, and 6.791 billion yuan, with profits of 499 million, 819 million, and 870 million yuan, and gross margins of 33.2%, 37.1%, and 137.8% Geopolitical Threats At first glance, Amlogic has performed well in various aspects, but there has been a significant reversal in operating cash flow. In 2023 and 2024, it is expected to generate operating cash flows of RMB 887 million and RMB 950 million, respectively, but last year it experienced an outflow of RMB 225 million, which surprised the market, as there had previously been ample operating cash inflow. Why such a sudden change? Amlogic explained that due to changes in payment arrangements by some major suppliers of wafer manufacturing, the advance payments for goods had to increase significantly by RMB 365 million. The company stated that to ensure supply chain stability, it had to comply with the suppliers' requests. Additionally, the company pointed out that as a semiconductor design company, it needs to outsource wafer manufacturing services to foundries and use third-party suppliers' architecture IP, design software, and tools during the R&D process. Some suppliers are affected by U.S. export control regulations, which has a certain impact on the company. The two issues above ultimately stem from the company's exposure to international trade policies, geopolitical factors, trade protection measures, export controls, and economic sanctions, which have cast a significant shadow over the company's business, finances, and operational performance. Intense Market Competition Competition is also a major issue. In the SoC market, the global leaders are undoubtedly Taiwan's MediaTek (2454.TW) and the United States' Qualcomm (QCOM.US), both of which have advanced technology and large scales. In mainland China, Rockchip (603893.SH) is leading the way, and the market holds it in high regard, believing it has considerable growth potential. As for HiSilicon, the market believes it stands to benefit the most from national policies. Compared to several industry peers, Amlogic may only be considered a leading company in a niche segment. Currently, MediaTek has a price-to-earnings ratio of about 26 times, Qualcomm about 27 times, and Rockchip, supported by high growth concepts, has a price-to-earnings ratio as high as 69 times. Amlogic's price-to-earnings ratio in the A-share market is as high as 39 times. Although its scale is not on par with MediaTek and Qualcomm, and its growth concept is not as strong as Rockchip, the recent valuation gap between A-shares and H-shares often sees the latter surpassing the former. Conservatively, the company should be able to list in Hong Kong at a price-to-earnings ratio of 35-40 times