There is a precedent for the synergistic development of semiconductor EDA and IP in the world, but Primarius's net loss hit a new high last year, and the performance performance of the post-acquisition industrial synergy is a question mark.

With a cumulative loss of more than 100 million yuan in the past four years of listing, Primarius Electronics (688206.SH), a domestic EDA manufacturer, has started industrial integration and plans to achieve a "EDA+IP" business layout through the acquisition of two target companies.

According to the announcement, Primarius intends to acquire 100% of the equity of Chengdu Ruichengxin Microelectronics Technology Co., Ltd. (hereinafter referred to as "Ruichengxin") and 45.64% of the equity of Naneng Microelectronics (Chengdu) Co., Ltd. (hereinafter referred to as "Naneng") by way of cash payment and issuance of shares, and raise matching funds, the transaction price of the underlying assets has not yet been determined, and the share issue price is 17.48 yuan per share.

If this transaction is completed, Primarius will achieve "EDA+IP" industry synergy. There is a precedent for the coordinated development of semiconductor EDA and IP in the world, but Primarius Electronics' net loss hit a new high last year, and Ruichengxin's revenue and profit both fell sharply, which also put a question mark on the industrial synergy effect after the acquisition.

On April 14, Primarius shares resumed trading, closing up 4.93% at 24.92 yuan, with a total market value of 10.8 billion yuan.

Last year's performance of the underlying assets was "Waterloo".

For the purpose of this transaction, Primarius said that the company will become the first listed company in China with deep synergy between EDA and semiconductor IP, and the company will be able to obtain tens of thousands of sets of various physical IP libraries of the target company, which will provide the best support and drive for the company's related EDA tool research and development, and accelerate the development of EDA tools and customer introduction. It can provide comprehensive EDA and IP solutions for dozens of fabs and hundreds of design house customers.

As the "first domestic EDA stock", Primarius has seen steady growth in operating income since its listing in 2021 four years ago, but its profitability has fluctuated greatly, with two years of profit and two years of loss, and continuous losses and an expanded amount of net profit in the past two years.

According to the performance forecast, in 2024, Primarius will increase revenue without increasing profits, and its net profit will continue to lose and the scale of loss will be the highest after listing. The company is expected to achieve operating income of 419 million yuan, a year-on-year increase of 27.4%, and the net profit is expected to continue to be lost, and the net profit attributable to the parent company and the net profit attributable to the parent after deducting non-profit are expected to lose 87 million yuan and 82 million yuan respectively. Primarius said that during the reporting period, the company's EDA software licensing, semiconductor device characterization test system and other businesses achieved rapid growth, and R&D expenses and share-based payment expenses affected profitability.

As of the end of the third quarter of last year, Primarius had an undistributed profit loss of 102 million yuan, and the loss is expected to expand after the release of the annual report. The profitability of the listed company itself is insufficient, and the performance of Ruichengxin Micro is not ideal, and last year's operating income and net profit were significantly reduced year-on-year.

According to the announcement, Ruichengxin Micro will achieve operating income of 357 million yuan in 2024 and 653 million yuan in the same period in 2023, a year-on-year decrease of 296 million yuan or 45.32%; The net profit was 34.2696 million yuan, compared with 89.3888 million yuan in the same period of 2023, a year-on-year decrease of 55.1192 million yuan or 61.66%.

The reporter noted that in 2024, Ruichengxin's chip customization services and other business revenue will decline sharply, from 483 million yuan in the same period last year to 190 million yuan, a decrease of 60.66%, which is the main reason for the decline in overall revenue; Revenue from semiconductor IP licensing services decreased slightly from $170 million to $166 million.

Regarding the reasons for the decline in the performance of Ruichengxin Micro, the announcement of the acquisition plan did not give a targeted explanation, but mentioned: "The market competition in the domestic semiconductor IP industry is becoming more and more fierce, Ruichengxin Micro has taken the initiative to shrink the chip customization business, increased investment in IP licensing business, and focused on semiconductor IP licensing business by means of epitaxial mergers and acquisitions of Naneng Micro, and the scale and proportion of IP licensing business have continued to increase." ”

In this context, the market is highly concerned about whether the consolidation of Ruichengxin Micro can improve the profitability of Primarius? Ruichengxin Micro once mentioned in the prospectus that the company's semiconductor IP technology research and development and innovation focus on the needs of the Internet of Things, and the Internet of Things market has many application directions, intelligent manufacturing, Internet of vehicles and other application directions are still in the cultivation period, and new application directions are emerging.

Ruichengxin Micro once failed to "break through" the Science and Technology Innovation Board

According to the acquisition plan, Ruichengxin Micro was established in 2011 and is an enterprise in the field of high-end semiconductor IP licensing and chip customization services, providing solutions with physical IP technology as its core competitiveness for automotive electronics, industrial control, Internet of Things, wireless communications, artificial intelligence and other fields. Naneng Micro is a holding subsidiary of Ruichengxin Micro, and its main products and services include semiconductor IP licensing services such as high-speed interface IP and analog IP, as well as chip customization services.

Primarius is principally engaged in EDA software development, and the company currently has no controlling shareholder or actual controller, and it is expected that there will be no actual controller after the completion of this transaction. EDA software is the core basic tool in the upstream of the semiconductor industry chain, and the EDA industry is a trioligopoly pattern globally, dominated by Synopsys, Cadence and Siemens EDA, accounting for about 75% of the global market share. Domestic manufacturers started late, and there is a big gap from the industry leader.

The first financial reporter noticed that Ruichengxin Micro voluntarily withdrew its IPO application for the Science and Technology Innovation Board in March 2023, only 9 months after the IPO application was accepted, and it was not inquired by the exchange during this period.

Up to now, the transaction price has not been determined, by comparing the cash strength of Primarius Electronics with the valuation of Ruichengxin Micro at the time of filing, the listed company's acquisition funds may mainly rely on the issuance of shares to raise funds.

According to the prospectus, the latest financing post-investment valuation of Ruichengxin Micro before the listing was 4.878 billion yuan. According to the amount of funds raised and the number of shares issued, the market value of Ruichengxin Micro is expected to be about 5.2 billion. As of the end of the third quarter of last year, Primarius' monetary funds were 1.216 billion yuan, the lowest value since its listing.

According to the prospectus (declaration draft) of Ruichengxin Microelectronics, the company's customers include hundreds of chip design companies such as ZTE Microelectronics, BYD, Unisplendour Tongxin, China Resources Micro Holdings, Hisense, TCL, Silergy, Broadcom (Broadcom), and Xinyuan System (MPS). Among them, many customers are also venture capital shareholders of Ruichengxin Micro.

Through the equity structure, Dachen Chuanghong, Zhangjiang Torch, Gimpo Venture Capital, Shanghai Kechuang and Chengdu High-tech Investment and other institutions all hold more than 1% of the shares of Ruichengxin Micro, and BYD (002594. SZ), Tongfu Microelectronics (002156. SZ), China Resources Micro (688396. SH) and other listed companies directly or indirectly hold shares of Ruichengxin Micro.

It is worth noting that the latest industrial and commercial information shows that shareholders such as Zhangjiang Torch, Shanghai Kechuang and China Resources Micro Holdings are no longer on the list of shareholders and may have triggered the buyback, which may be one of the reasons for the listing of the merger curve.