The recent announcement from Dongguan, a rapidly developing city in China’s Guangdong province, has stirred excitement in the investment worldThe news revolves around the impending IPO of Guangdong Tianyu Semiconductor Co., Ltd., a leading supplier of silicon carbide (SiC) epitaxial wafers, which is set for debuting on the Hong Kong Stock ExchangeThis ambitious move signifies a remarkable journey for the company that has garnered substantial recognition in the semiconductor industry.

On December 23, the Hong Kong Stock Exchange revealed that Tianyu Semiconductor had filed for its IPO, creating anticipation among investors and industry watchers alikeWith CITIC Securities taking the lead as the sole sponsor, the company aims to harness the booming demand for high-performance materials, particularly in the burgeoning electric vehicle (EV) marketBased on data from Frost & Sullivan, Tianyu Semiconductor holds a commanding market share of 38.8% by revenue and 38.6% by volume in China’s SiC epitaxial wafer market, establishing itself as a formidable player on both the domestic and global stage, where it ranks among the top three with approximately 15% market share.

This is not the first time Tianyu Semiconductor attempted to go public

In June 2023, the company submitted its application to the Shenzhen Stock Exchange but later decided to terminate its agreement with CITIC Securities, signaling a pivot back to Hong Kong just four months laterThis strategic move indicates the company’s urgency to tap into the broader capital markets amidst a backdrop of escalating demand for semiconductor technologies.

The rise of Tianyu Semiconductor can be traced back to the entrepreneurial vision of its founders, Li Xiguang and Ouyang ZhongTheir professional trajectories offer a glimpse into the dynamism that fuels the company’s innovative spiritOuyang started his journey in 2003 with Dongguan Jintian Paper Co., Ltd., which grew to be the largest grayboard production base globallyLi, on the other hand, held executive management roles at Hongchang Cement Products and Guangdong Yuebiao, a company dedicated to multimedia production

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Their collective expertise led them to recognize the critical role of electronics and high-end equipment manufacturingIn 2009, they founded Tianyu Semiconductor in Dongguan, marking the company’s entry into the semiconductor sector.

Specializing in the research, development, mass production, and sales of self-developed silicon carbide epitaxial wafers, Tianyu Semiconductor has been at the forefront of innovation in niche applications like electric vehicles, renewable energy, and smart grid technologiesThe company's particular focus on 4H-SiC epitaxial wafers has driven its growth, establishing it as a pioneering entity in a previously underdeveloped segment of the market.

Over the years, Tianyu Semiconductor made significant technological advancements, particularly in the areas of 8-inch silicon carbide epitaxy and multilayer epitaxy technologiesAs of October 31, 2024, the company achieved an annual capacity of around 420,000 pieces of 6-inch and 8-inch epitaxial wafers, positioning itself as one of the largest producers in China

The sales figures highlight the surging demand; from 17,001 pieces sold in 2021, the volume dramatically increased to 132,072 pieces in 2023, representing a staggering compound annual growth rate (CAGR) of 178.7%.

Tianyu's ability to transition from a loss in 2021 of about 180 million RMB to a net profit of 28 million RMB in 2022 showcases its resilient business model amid an evolving marketplaceMoreover, its revenue skyrocketed from 154.6 million RMB in 2021 to over 1.17 billion RMB by 2023, reflecting a CAGR of 175.2%. However, in the first half of 2024, the company strategically lowered its prices to amplify its market penetration, which did yield a decrease in revenueThis temporary setback is viewed as a calculated maneuver amidst expectations of increased demand for 8-inch wafers in the coming years, which could further stabilize its financial performance.

Strategic partnerships have played a crucial role in Tianyu Semiconductor's growth trajectory

Companies like Huawei and BYD have made significant early investments, bolstering Tianyu's position in the marketIn July 2021, Huawei's venture capital arm, Haibo Science and Technology, invested approximately 70 million RMB to acquire a stake in Tianyu, establishing it as a key institutional shareholderFollowing this, BYD acquired a minority stake, enhancing its influence in the supply chain of semiconductor materials essential for electric vehicles.

From 2021 to 2024, Tianyu Semiconductor successfully completed five rounds of financing and witnessed a notable increase in share value, with its cost per share skyrocketing from 2.93 RMB to 41.96 RMB, an increase of over 13 timesThe popularity of the stock has made Tianyu a hot commodity among investors, underscoring the confidence in its future growth potential.

As Tianyu heads into its IPO, the stakes are highThe founders, along with a consortium of investors, control over 58% of the company, while significant stakeholders like Huawei and BYD hold 6.56% and 1.5%, respectively