The COVID-19 pandemic has forever altered the landscape of the global economy, and within this tumultuous environment emerged the power management chip designer, Biyiming TechnologyCapitalizing on the booming consumer electronics market while simultaneously benefiting from disruptions in overseas supply chains, the company experienced an unprecedented surge in performance prior to its Initial Public Offering (IPO). However, as the dust settles, questions loom over the sustainability of such explosive growth.

Biyiming Technology (688045.SH) primarily focuses on designing chips that manage electrical powerFollowing a Fabless model, the company outsources wafer fabrication and packaging testing to third-party suppliersIts products find applications in a variety of sectors, including LED lighting, general power supplies, and the rapidly growing Internet of Things (IoT) landscape

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But can this meteoric rise in revenue be maintained over the long term?

In the four years leading to its IPO, Biyiming's revenue figures tell an interesting story: 257 million yuan in 2018, 348 million yuan in 2019, 429 million yuan in 2020, and a staggering 887 million yuan in 2021. Meanwhile, net profits fluctuated between 20.97 million yuan to 237 million yuan over the same periodDespite showing relatively modest growth in the first three years, 2021 set the stage for an explosive increase preceding the planned listing on the STAR Market.

In May 2022, Biyiming finally became a publicly traded company offering its shares at a modest price-earnings ratio of 16.24, especially contrasting against the industry average of 41.66. Unfortunately, it did not take long before the company's stock fell below its listed price, hitting a low of 54.68 yuan just three days after the launch

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As it currently hovers around 70 yuan, the market capitalization stands around 5 billion yuanInvestors and analysts remain deeply concerned about whether Biyiming's stellar trajectory can endure the tests ahead.

Before the pandemic, Biyiming maintained a steady net profit of roughly 20 million yuanIt wasn’t until the latter half of 2020 that growth began to accelerate, spurred by an insatiable consumer appetite for electronics and disruptions to international supply chainsIn 2021, the company’s net profit surged to over 200 million yuanNevertheless, in the face of slowing revenue growth among comparable firms, the projections laid out during the IPO could face a significant reality check.

A concerning element of Biyiming's sales strategy is the heavy reliance on distributors, which is markedly higher than the industry average

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Many of these distributors have vague credentials, with some reporting zero employees contributing to social security paymentsThis raises valid suspicions about the authenticity of the company's previously announced high growth ratesConsequently, the firm could be at risk of a substantial performance reversal, endangering its current valuation of 5 billion yuan.

As the consumer electronics market moves in cycles, was Biyiming's IPO issued at a peak? The power management chip industry is not recognized for high growth, targeting sectors such as consumer electronics, industrial control, telecommunications, computing, and automotive electronicsPredominantly, Biyiming’s offerings cater to consumer electronics and industrial control.

Research from Guosheng Securities highlights that from 2018 to 2024, the consumer electronics segment within the power management chip market will grow from $9.7 billion to $10.3 billion at a mere compound annual growth rate of only 1.21%. Meanwhile, the industrial control segment is expected to rise from $3.56 billion to $4.62 billion, with a more promising annual growth rate of 5.35%.

Competition in the sector is also a key issue

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Foreign companies still hold significant market shares, and while many domestic chip manufacturers have made strides technologically, there remains a noticeable gap in performance when measured against international giantsIronically, the growth experienced by Biyiming can be traced back to trends sparked by the pandemic, such as the shift to remote working, which fueled demand for consumer electronics and, by extension, for power management chipsAs international supply chains encountered significant roadblocks, many industries began shifting their production reliance towards Chinese firms.

Biyiming has drawn comparisons with other notable companies in the industry, such as Jingsheng Mingyuan, Xinpeng Microelectronics, and Mingwei ElectronicsObserving quarterly reports reveals that since the third quarter of 2020, competitors have exhibited strong growth

Yet, this trend began to wane by the first quarter of 2022 as growth slowed significantly.

Within the consumer electronics sector, Biyiming's main rival is Jingsheng Mingyuan, which saw a revenue of 302 million yuan but suffered a net loss of 11.48 million yuan in early 2022, highlighting a considerable revenue decline of 25.93%. Similarly, Xinpeng Microelectronics, which competes with Biyiming in the industrial control domain, also exhibited stark slowdowns in growth when comparing results from 2021 to early 2022.

Looking back at Biyiming's rapid ascent provides a clearer understanding of its dynamicsIn an extensive response to valuation inquiries, Biyiming revealed that in 2020, its primary income was 429 million yuan — representing a 23.33% year-on-year growth — yet the latter half of the year showed a striking 39.59% growth rate

Yielding revenue figures of 110 million yuan and 135 million yuan in the third and fourth quarters respectively indicated a consistent growth trajectory along with its peers during that period.

As reported in early 2022, Biyiming's revenue and net profits clocked in at 168 million yuan and 29.17 million yuan, demonstrating year-on-year growth of 13.15% and 30.34%. Forecasts for the first half of 2022 expect revenues between 380 million to 500 million yuan, suggesting minimal growth of 0.44% to 32.16% compared to the previous yearWorryingly, signs pointed to possible declines in both revenue and profits during the second quarter.

Another crucial area for Biyiming arises from its general illumination products, which include finished chips and post-testing wafers, comprising a significant portion of its operating income

However, the market remains intensely competitive, with key players like Jingsheng Mingyuan, Mingwei Electronics, and Shilan Microelectronics dominating the field.

Biyiming has entered into emerging avenues with its newly developed motor drive control productsHowever, sales from this product line are in the early stages of evaluation, pulling in a modest income of merely 2.14 thousand yuan in 2020 and 95.18 thousand yuan in 2021.

From an operational perspective, Biyiming’s backlog orders from 2019 to 2021 amounted to 81.62 million yuan, 454 million yuan, and 354 million yuan respectively, illustrating a drop of over 100 million yuan from peak-level orders at the end of 2020. This trend suggests that the company’s growth phase may have reached its pinnacle.

Furthermore, Biyiming's gross profit margin took a substantial hit—falling 5.83 percentage points compared to the preceding year during the first quarter of 2022, indicating a worrying reduction in profitability.

An alarming aspect beneath Biyiming's accelerated growth is the overwhelming reliance on distributors, with several clients exhibiting questionable qualifications

The authenticity of numerous transactions before the company's IPO stands under scrutiny, raising red flags about revenue legitimacy.

Curiously, among Biyiming's top five clients, only Lipuxin operates on a direct sales basisThe segment delivered revenues of 81.66 million, 79.57 million, and 121 million from 2019 to 2021, primarily sourcing post-testing wafers.

The high levels of distributors also sharply contrast with peer firmsWhile Mingwei Electronics in their 2021 report reported distributor revenues falling below 60%, Biyiming recorded a staggering 70% share of distributor revenue, rising every consecutive year—a situation that raises significant concerns.

Seemingly innocuous, Biyiming’s reliance on distribution sales raises questions about the quality and longevity of their client relationships

An intriguing example is Suzhou Younuo Electronics Technology CoLtd, which jumped into the spotlight as Biyiming’s fourth largest client in 2021, contributing approximately 5.15 million yuan in salesHowever, public records reveal that the company was established in 2009 with a meager registered capital of only 100,000 yuan, and as of the same year, it reported a mere two employees contributing to social security.

Similarly, Zhenyuan Technology and Shenzhen Gaofeng source primarily from BiyimingThe former reported sales contributions of 45.78 million yuan, 64.62 million yuan, and 92.32 million yuan for the respective years, ranking as the second-largest client each year.

Public records show Zhenyuan was established in September 2014 and has a registered capital of 1 million yuan, reporting only 10 employees as of 2019, with social security contributions unreported for subsequent years.

Another noteworthy case involves Zhongshan Sudian Electronics, a company whose sales figures were rolled into Zhenyuan

However, discrepancies arise as shareholders of Zhongshan Sudian were recorded having minor stakes that intertwine with Zhenyuan’s ownership, drawing attention from regulators.

In addition, observations reveal that Shenzhen Gaofeng, contributing between 1.884 million and 3.741 million in sales, was established in 2013 with a registered capital of only 300,000 yuan, reporting zero employees contributing to social security in 2021.

Even more troubling is the case of Youhao Electronics, which became a distributor early on but reported an outstanding contribution of 1.909 million yuan in sales for 2020. Public records show that this company was established in October 2019 with zero paid-in capital and has had no social security payments reported.

The world of Biyiming Technology is riddled with complexities and potential pitfalls