Southern Tech Innovation reported on August 7 that recently, Shenzhen Longtu Photomask Co., Ltd. was listed on the Science and Technology Innovation Board of the Shanghai Stock Exchange.

Longtu Photomask's issue price was 18.5 yuan, making it the first Science and Technology Innovation Board stock to apply the new pricing rule that excludes the top 3% of the highest bids in the pricing process.

This public offering of 33.375 million shares raised a total of 617 million yuan. Yesterday's opening price on the first day was 41 yuan, a 121.6% increase from the issue price; the closing price on the first day was 34.90 yuan, with a market value of 4.659 billion yuan on the first day.

Today, the company's closing price was 31.30 yuan, with a market value of 4.18 billion yuan.

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Founded in 2010, Longtu Photomask's main business is the research and development, production, and sales of semiconductor photomasks. It is a rare independent third-party semiconductor photomask manufacturer in China, mastering the key technology of manufacturing semiconductor photomasks for process nodes of 130nm and above.

What is a semiconductor photomask?Photomasks, also known as reticles or phototools, are indispensable pattern templates in the semiconductor manufacturing process. Like the "film" in a traditional camera, photomasks play a crucial role in transforming design patterns into physical products.

Photomasks serve as an intermediate bridge between upstream chip design companies and downstream wafer manufacturers. The photomasks have pre-designed circuit patterns, which, through a series of precise exposure processes, are "projected" onto the materials of the downstream process, thereby achieving mass production of products.

For a long time, American and Japanese manufacturers have held a monopoly position in the global third-party semiconductor photomask market. According to SEMI data, in the global semiconductor photomask market, the scale of photomask factories that are self-matched by wafer factories accounts for 65%, and the scale of independent third-party photomask manufacturers accounts for 35%. Among them, the independent third-party semiconductor photomask market is mainly controlled by three companies: American Photronics, Japanese Toppan, and Japanese DNP, which together account for more than 80% of the market share.

Longtu Photomask is a rare domestic independent third-party semiconductor photomask manufacturer, and the successful listing of Longtu Photomask can be said to have taken a step forward in the "domestic substitution" of semiconductor photomasks. The company is also the only company in the A-share market with a semiconductor photomask revenue ratio of over 90%.

With the development of downstream emerging industries such as new energy vehicles, photovoltaic power generation, and industrial automation, the domestic demand for semiconductor photomasks has increased significantly in recent years. This has also enabled Longtu Photomask to achieve an average annual compound growth rate of 38.56% in operating income from 2021 to 2023, and its net profit's average annual compound growth rate has exceeded 40%.

Looking back at the listing process of Longtu Photomask, it started with the acceptance of materials in May 2023, and the listing review process took about 1 year and 3 months, which is very efficient compared to the time consumed by most enterprises on the ChiNext, main board, or the Science and Technology Innovation Board.

Through this listing, Longtu Photomask will continue to increase investment in technological innovation. The company plans to raise funds of 663 million yuan, which will be directly used for the purchase of high-end equipment such as electron beam lithography machines and the construction of production lines. This will promote technological breakthroughs in semiconductor photomasks with 90nm, 65nm, and higher process nodes, strengthen the development of the industry, and enhance the level of independent control.

I. The performance is eye-catching, with an average annual compound growth rate of revenue close to 40%

According to the prospectus, Longtu Photomask's main business is the research and development, production, and sales of semiconductor photomasks.From 2021 to 2023, Longtu Photomask's business income was 113 million yuan, 161 million yuan, and 218 million yuan, respectively, with an average compound annual growth rate of 38.56%. The semiconductor photomask is the main source of income for Longtu Photomask. During the reporting period, the income from semiconductor photomasks was 86.7251 million yuan, 138 million yuan, and 198 million yuan, accounting for 76.28%, 85.44%, and 91.13% of the main business income, respectively.

Although Longtu Photomask's revenue in 2023 was 218 million yuan, the gross profit margin remained around 60%, and the net profit margin was close to 40%.

In terms of R&D investment, Longtu Photomask's R&D expenditure over three years was 9.318 million yuan, 15.3331 million yuan, and 20.1759 million yuan, accounting for 8.20%, 9.49%, and 9.24% of business income, respectively. At the same time, the company's R&D cost compound annual growth rate reached 47.15%, which is slightly higher than that of the same industry listed companies. The talent team of the R&D center also increased from 26 people at the end of 2021 to 42 people at the end of 2023.

In terms of sales expenses, the expense ratio showed a certain downward trend, with a proportion of 3.92%, 3.07%, and 2.87% from 2021 to 2023, respectively. This is related to the company's focus on developing and deepening cooperation with major customers in the downstream semiconductor industry. The increase in the scale and proportion of major customers' income has led to an increase in income concentration, which in turn reduces the sales expense ratio.

From 2021 to 2023, Longtu Photomask's liabilities were 70.0967 million yuan, 49.1619 million yuan, and 78.3429 million yuan, with asset-liability ratios of 41.95%, 9.57%, and 12.40%, respectively. In 2022, the company's asset-liability ratio decreased significantly, mainly due to the company's equity financing and the introduction of external shareholders. Overall, the company's asset-liability ratio, current ratio, and quick ratio are all better than comparable companies in the same industry, and the company has a good debt-paying ability.

II. Taking the semiconductor photomask as the core, continuously improve the process node

Longtu Photomask closely follows the development route of domestic characteristic process semiconductors, continuously carries out technical research and product iteration. The process node of the semiconductor photomask corresponding to the downstream semiconductor products has been gradually improved from 1μm to 130nm. The products are widely used in the fields of power semiconductors, MEMS sensors, IC packaging, analog IC, and other characteristic process semiconductor fields, with terminal applications covering new energy, photovoltaic power generation, automotive electronics, industrial control, wireless communication, the Internet of Things, consumer electronics, and other scenarios.

Since its establishment ten years ago, the development and evolution of Longtu Photomask's main products can be divided into the following three stages:

According to the different substrate materials, Longtu Photomask's photomask products can be divided into two categories: quartz photomasks and soda photomasks. From 2021 to 2023, the income of quartz photomasks was 60.3885 million yuan, 112 million yuan, and 172 million yuan, with the proportion rising from 53.12%, 69.59% to 78.79%; the income of soda photomasks was 53.3041 million yuan, 49.125 million yuan, and 46.3021 million yuan, with the proportion falling from 46.88%, 30.41% to 21.21%.Divided by the following downstream application fields, Longtu Photomask's main business income can be divided into three major aspects, which are semiconductor photomasks, optical devices, and other fields.

In three years, the business income brought by semiconductor photomasks was 86.7251 million yuan, 138 million yuan, and 199 million yuan, respectively, with the proportion gradually rising from 76.28% to 85.44%, 91.13%.

III. Forming three major core technology systems, creating proprietary technical barriers

The semiconductor photomask industry highly depends on proprietary technology and has a distinct "Know-How" feature (referring to the crystallization of knowledge obtained through years of experience and practice, which is generally not protected by patents within the company, or complements patents, manifested as technical skills, professional knowledge, exclusive formulas, and belongs to the commercial secrets of intangible assets).

At present, Longtu Photomask has formed three major core technology systems covering CAM layout processing, photolithography, and inspection, which have solved the problems of precision and defect control in the high-precision photomask production process, and have reached a relatively leading level in the country in terms of process capability, precision control, and defect control.

In order to solve the distortion phenomenon of the lower wafer exposure and improve the resolution and accuracy of wafer exposure, it is necessary to perform secondary processing (OPC) on the photomask pattern in the CAM process, and offset the pattern deviation through pattern compensation.

Longtu Photomask has established its own unique rule-based OPC database through a large number of experiments and practical data, which can quickly and accurately perform automatic OPC compensation processing for various design layouts, and has achieved significant improvements in process and precision.

In the photolithography process, Longtu Photomask has independently developed a high-precision process control system to meet the harsh environmental requirements of precision equipment such as photolithography machines. By real-time monitoring and adjusting process parameters such as temperature, humidity, airflow disturbance, and micro-vibration, the position accuracy and overlay accuracy of the photomask products have been effectively improved, and the product defect level has been reduced.

At the same time, the company, based on its independent research and development of software algorithms and years of experience in photomask photolithography, has precisely controlled the output power, exposure time, focus depth, and beam spot shape of the exposure light source to perform reverse compensation and dynamic optimization of the exposure process, achieving fine control of the energy output of the photolithography machine, and significantly improving the product CD accuracy.Defects on photomasks are usually microscopic, and during the inspection process, Longtu Photomask can accurately detect nanometer-level defects on photomasks. It has also independently developed a set of defect repair and foreign object removal technologies, combining the physical effects of lasers with the chemical reactions of etching solutions to effectively eliminate the repair marks produced after laser repair, avoiding secondary damage caused by defect repair.

As of the end of 2023, Longtu Photomask has obtained 43 patents, including 16 invention patents and 27 utility model patents. In addition, there are 36 computer software copyrights.

The proprietary technologies of Longtu Photomask are not easy to protect in the form of patents, but these proprietary technologies have formed a technological dividend for it, and also constitute a high industry barrier for semiconductor photomasks.

IV. Strong matching ability with upstream and downstream, stable customer concentration

Independent third-party semiconductor photomask manufacturers need to design and produce semiconductor photomasks for wafer processing that meet the requirements of both chip design companies and wafer manufacturers based on the design drawings provided by upstream chip design companies and the manufacturing process requirements provided by downstream wafer manufacturers.

In the process of continuously pursuing industry technological progress, Longtu Photomask has not only formed a large number of proprietary technologies but also has a strong matching ability with upstream and downstream.

The main raw materials for Longtu Photomask are quartz substrates, soda substrates, and optical films, and the main suppliers are companies such as Global International, Qiu Jiu Technology, Shao Guang Core Materials, Wei Ze Technology, S&S TECH Corp, etc.

Longtu Photomask's customers include, on the one hand, chip manufacturers, MEMS sensor manufacturers, advanced packaging manufacturers, and chip design companies, such as SMIC Integrated, Shi Lan Micro, Ji Ta Semiconductor, Huahong Semiconductor, Xin Tang Technology, BYD Semiconductor, Liang Micro, Yan Dong Micro, Yue Xin Semiconductor, Chang Fei Advanced, Yang Jie Technology, Ying Ji Xin, Xin Peng Micro, Si Da Semiconductor, etc.

On the other hand, it also involves well-known universities and research institutions engaged in basic technology research, such as Tsinghua University, Shanghai Jiao Tong University, Fudan University, Zhejiang University, etc.

From 2021 to 2023, the sales concentration of the top five customers of Longtu Photomask was relatively stable, all of which were major customers in the process semiconductor industry.Five, three people are the actual controllers, and there is no controlling shareholder.

Ke Hanqi, Ye Xiaolong, and Zhang Daogu hold 26.33%, 26.33%, and 19.56% of the equity of Longtu Photomask respectively. Ke Hanqi controls 3.76% of the company's equity through Shenzhen Qilong Valley Investment Partnership (Limited Partnership). The three people control a total of 75.99% of the equity of Longtu Photomask, and the above three parties are the joint actual controllers of the company. The company has no controlling shareholder.

In addition, Nanhai Growth, Huiyou Haojia, Huatong Hongxin, Ruiyang Partnership, Shi Lan Holding, and Ginkgo Valley No.1 are external institutional shareholders.

The board of directors of Longtu Photomask consists of 5 members, namely Chairman Ke Hanqi, Director and General Manager Ye Xiaolong, Director Zhang Daogu, and two independent directors, Yuan Zhenchao and An Fengwei.

Ke Hanqi is a post-60s, a graduate student majoring in solid physics. He has worked as an engineer and department manager in Shenzhen Qianke Enterprise Group, and also served as the president of the business division and vice president of the group in China Southern Glass Group Co., Ltd. Since February 2018, Ke Hanqi has been working at Longtu Photomask.

Ye Xiaolong, a bachelor's degree in environmental design, has served as the deputy general manager of Shenzhen Qingyi Photoelectric Co., Ltd. from the market department manager, and has been working at Longtu Photomask since April 2010.

Zhang Daogu, a bachelor's degree in mechanical manufacturing technology and equipment. He has served as the deputy factory director of Huanggang Aluminum Industry Company in Hubei Province, and has also served as the general manager of Shenzhen Meike Computer Design Co., Ltd. He has been working at Longtu Photomask since February 2018.

Conclusion: Downstream innovation drives the growth of semiconductor demand, and the pace of domestic substitution is accelerating.

In recent years, with the continuous maturity of new technologies such as new energy vehicles, photovoltaics, autonomous driving, new generation mobile communications, and artificial intelligence, the speed of terminal product updates and iterations has accelerated, promoting the rapid development of the semiconductor industry and also creating a large market demand for semiconductor photomasks.Once, foreign manufacturers held a monopoly in the field of semiconductor photomasks, but with the rise of independent third-party semiconductor photomask manufacturers like Longtu Photomask, it is expected to accelerate the pace of domestic substitution and fill the gap in China's high-end semiconductor photomask field.