Accelerating Storage Chip Business Layout: Zhongwei Semiconductor Plans 160 Million Yuan Capital Increase in Zhuhai Boya

Recently, SMIC Microelectronics (688380.SH) announced that, based on strategic planning considerations and the company’s need to accelerate the development of its storage chip business, the company plans to use its own funds of 160 million yuan to increase its investment in Zhuhai Boya Technology Co., Ltd. (hereinafter referred to as “Zhuhai Boya” or “Target Company”). After the transaction is completed, the company will hold a 20% stake in Zhuhai Boya. However, Zhuhai Boya has been operating at a loss for three consecutive years, with gross profit margins below the industry average, which has also attracted market attention to this investment.

SMIC Microelectronics is a chip design company centered on MCUs (microcontroller units), dedicated to providing one-stop integrated solutions for intelligent control fields. Earlier this year, SMIC Microelectronics released its first SPI NOR Flash, officially entering the storage product market. The company stated that this investment in Zhuhai Boya is part of its efforts to further improve and enhance its industrial layout, aligning with its overall development strategy, and will help optimize its business structure and promote industrial synergy.

Regarding the transaction pricing, according to the announcement, the valuation method and result for this transaction were negotiated between the target company and the current round of investors, considering the current investment environment in the semiconductor primary market, and based on the valuation from the previous financing round (pre-money valuation of 2 billion yuan). The valuation also took into account Zhuhai Boya’s revenue, gross profit margin, and profit for three consecutive years from 2023 to 2025, as well as forecasts for 2026, including revenue, gross profit margin, profit, and product R&D. Fully considering the synergy effects between the company and the target company, the pre-investment valuation was set at 640 million yuan, with an investment of 160 million yuan, resulting in a post-investment stake of 20% in Zhuhai Boya.

This also means that compared to the previous valuation, Zhuhai Boya’s pre-investment valuation has been discounted by as much as 68%. Regarding the reasons for the significant reduction in Zhuhai Boya’s valuation, a reporter from the Economic Information Daily contacted SMIC Microelectronics on March 23. An employee from the company’s securities department stated that these questions are not convenient to answer over the phone.

It is worth noting that Zhuhai Boya had applied for an IPO on the STAR Market in 2022. In March 2023, the company and its sponsor, China Merchants Securities, applied to withdraw their IPO application, and the Shanghai Stock Exchange terminated its review. According to the prospectus and other application documents, institutional investors invested in Zhuhai Boya in August 2021. This was the last round of financing before its IPO, with a pre-money valuation of about 2 billion yuan at that time.

The announcement shows that from 2023 to 2025, Zhuhai Boya’s product shipments are expected to be 692 million, 602 million, and 434 million units, respectively, with corresponding revenues of 180 million yuan, 170 million yuan, and 197 million yuan. Its gross profit margins are projected to be -14.24%, 4.10%, and 12.39%, indicating ongoing losses. During the same period, the company’s operating cash flow is expected to be -64.93 million yuan, -46.78 million yuan, and -30.97 million yuan, while cash flows from financing activities are projected to be 16.62 million yuan, 52.19 million yuan, and 20.25 million yuan, mainly relying on financing to sustain daily operations. The company’s cash reserves continue to decline, and operational pressure remains high.

Despite the less optimistic financial data, Zhuhai Boya’s progress in technological accumulation and product structure optimization remains noteworthy. The announcement indicates that Zhuhai Boya was founded in 2014 by a team including overseas returnee PhDs. It is a chip design company focusing on NOR Flash (non-volatile flash memory) and other storage chips, recognized as a national high-tech enterprise and a “Little Giant” specialized and innovative enterprise. The founder, DI LI, previously worked at Micron Technology and FISO Semiconductor, and is a senior expert in flash memory technology. The core technical team includes several professionals with over 10 years of experience in flash memory chip design, mass production, and marketing. Currently, the company has 118 employees, including 75 R&D personnel, accounting for 63.56%.

From a business perspective, Zhuhai Boya’s product structure has been continuously improving in recent years, with a decreasing proportion of mature process products and an increasing share of advanced process products. The proportion of 55nm/65nm products has decreased from 93.7% to 58.7%, while 50nm products have increased from 6.3% to 35.9%. Starting in 2025, 40nm products will begin shipping, gradually shifting toward higher-end products. The company has also achieved breakthroughs in high-capacity products, successfully introducing 1Gb large-capacity products to the market, which have higher unit prices and gross margins. Additionally, the company’s inventory structure has improved, with high-priced inventory gradually cleared, helping to increase gross profit margins year by year.

SMIC Microelectronics stated in the announcement that by 2026, as the storage chip market recovers, Zhuhai Boya is expected to enter a period of rapid growth once it secures sufficient operating funds, with shipment volumes, revenue scale, and gross profit margins likely to continue rising, achieving profitability.

However, SMIC Microelectronics also warned of the risks of investment not meeting expectations. The company indicated that if future industry changes, technological innovation, or product iteration fail to meet market demands, leading to a severe deterioration in the target company’s operations, it may be required under relevant accounting standards to recognize fair value changes in this investment, which could directly erode the company’s current profits.