Provide credit support to technology-based small and medium-sized enterprises (SMEs) in their early and growth stages, as well as to key areas for digitalization, intelligentization, high-endization, and greening technology transformation and equipment renewal projects.

Today, according to the official website of the People's Bank of China, to implement the spirit of the Central Economic Work Conference and the Central Financial Work Conference, to do a good job in the financial "five major articles," and to implement the decision-making deployment of the State Council's executive meeting on promoting a new round of large-scale equipment renewal and the replacement of consumer goods with old ones, the People's Bank of China has established a re-lending facility for scientific and technological innovation and technological transformation to encourage and guide financial institutions to increase their financial support for technology-based SMEs, key areas of technological transformation, and equipment renewal projects. The re-lending facility for scientific and technological innovation and technological transformation is a policy continuation of the original re-lending for scientific and technological innovation and the special re-lending for equipment renewal and transformation. It is reformed and improved on the basis of summarizing the experience of the two tools, supporting financial institutions to improve the quality and efficiency of financial services, and better meet the financing needs in the fields of scientific and technological innovation, technological transformation, and equipment renewal.

The re-lending facility for scientific and technological innovation and technological transformation has a quota of 500 billion yuan, an interest rate of 1.75%, a term of one year, and can be extended twice, with each extension term being one year. The recipients include 21 financial institutions such as the China Development Bank, policy banks, state-owned commercial banks, China Postal Savings Bank, and joint-stock commercial banks. The establishment of the re-lending facility for scientific and technological innovation and technological transformation will help guide financial institutions to provide credit support to technology-based SMEs in their early and growth stages, as well as to key areas of digitalization, intelligentization, high-endization, and greening technology transformation and equipment renewal projects, on the premise of independent decision-making and risk-bearing.

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Financial institutions, based on enterprise applications, refer to the list of candidate enterprises and project lists provided by the industry authorities, and decide autonomously whether to grant loans and the terms of the loans according to the principle of bearing their own risks. Financial institutions apply to the People's Bank of China for re-lending, and the People's Bank of China reviews the loan accounts. For loans that meet the requirements within the list of candidate enterprises or project lists, the People's Bank of China issues re-lending to financial institutions at 60% of the loan principal.

The Science and Technology Innovation Board (STAR Market) helps the integrated circuit industry to achieve high-level self-reliance and strength in science and technology. According to the Securities Times report, the integrated circuit industry is the foundation and core of the modern information industry and is a key force leading the new round of technological revolution and industrial transformation. In recent years, the STAR Market has played a strategic platform role, guiding various advanced and high-quality production factors to gather towards new quality productive forces such as integrated circuits, providing strong support for the high-quality development of the economy and society.Currently, the STAR Market has gathered 112 integrated circuit companies, covering the entire chain from design, manufacturing, packaging and testing, equipment, materials, to IP, forming a development pattern of leading head, complete chain, and collaborative innovation, becoming the "new force" of new quality productivity.

Several integrated circuit companies on the STAR Market recently expressed during the Shanghai Stock Exchange's research that with the warming of consumer electronics demand and the gradual destocking of downstream inventory, the industry as a whole is expected to welcome recovery. At the same time, the company grasps the trend of domestic substitution, continues to innovate in research and development, improves the quality of the company, strengthens investor returns, and effectively implements the "improving quality, increasing efficiency, and focusing on returns" action.

The overall net profit growth rate in the fourth quarter of last year was more than 50% compared to the previous quarter.

Since the second half of 2023, signals such as the recovery of downstream consumer electronics have gradually been conveyed to the industry chain, and the overall profitability of integrated circuits has been improved. Data shows that among the 112 semiconductor companies on the STAR Market, the fourth quarter of 2023 saw a single-quarter revenue and net profit increase of 8.6% and 56.3% respectively, with nearly 60% of companies achieving a net profit increase in the fourth quarter, showing a significant improvement in performance. Looking at the industry chain, various fields such as chip design, packaging and testing, and wafer foundry have shown positive signals to varying degrees.

The chip design link has shown a clear trend of improvement on a quarterly basis, with a net profit of 1.759 billion yuan in the fourth quarter of last year, a quarter-on-quarter increase of 91.33%, and a revenue of 28.533 billion yuan, a quarter-on-quarter increase of 14.52%. Among them, the domestic CPU leader, Higuang Information, achieved a revenue of 2.07 billion yuan in the fourth quarter of last year, a year-on-year increase of 58.5%; it achieved a net profit attributable to the parent company of 360 million yuan, a year-on-year increase of 138.3%. The revenue and profit growth rate further improved compared to the first three quarters, and the current market value has reached nearly 190 billion yuan.

Similarly, the packaging and testing link, which is close to the terminal market, has also shown signs of recovery, with a quarter-on-quarter revenue increase of 7.14% and a net profit increase of 26.67% in the fourth quarter. Advanced packaging represented by Qizhong Technology has shown a significant trend of improvement on a quarterly basis last year. The company achieved a revenue of 1.629 billion yuan for the year, a year-on-year increase of 23.71%; it achieved a net profit of 370 million yuan, a year-on-year increase of 22.10%, mainly benefiting from the recovery of demand for packaging and testing of non-display chips such as display driver chips, power management chips, and RF front-end chips.

In the wafer foundry link, the net profits of the three industry leaders, SMIC, Huahong Company, and Jinghe Integration, all improved quarter-on-quarter in the fourth quarter of last year, and the utilization rate of capacity gradually increased. Since the second quarter of 2023, Jinghe Integration has benefited from the certain effects of downstream destocking, and the utilization rate of capacity has continued to increase. By the end of 2023, it has once again reached more than 90%. The company expects the revenue for the first quarter of 2024 to be between 2 billion and 2.3 billion yuan, with an increase of more than 100%; Huahong Company's performance report for the fourth quarter of 2023 also stated that the current utilization rate and price have bottomed out, and it is expected that the revenue for the first quarter of 2024 will increase slightly quarter-on-quarter, and the gross margin will gradually improve after the second quarter.

The performance of the semiconductor equipment leader company is stable.

The STAR Market has become a gathering place for China's semiconductor equipment companies. According to the latest market size data from CINNO Research, among the top ten semiconductor equipment manufacturers in mainland China, seven are listed companies on the STAR Market. Zhongwei Company, Shengmei Shanghai, Tuojing Technology, and Huahai Qingke are ranked second to fifth, with annual revenue all breaking through the 2 billion yuan mark. Xinyuan Micro, Zhongke Feice, and Xinyi Chang follow closely, ranking sixth, eighth, and tenth respectively.

Benefiting from the continuous improvement of domestic substitution rates, the performance of semiconductor equipment companies has maintained steady growth. According to the performance express data, the 13 semiconductor equipment companies listed on the STAR Market achieved a total revenue of 23.955 billion yuan in 2023, a year-on-year increase of 29.72%; they achieved a net profit of 5.374 billion yuan, a year-on-year increase of 27.46%. The compound annual growth rate of net profit in the past three years has reached 56%, and the resilience of performance growth remains unchanged.Zhongke Feice, Jing Sheng Shares, Tuojin Technology, and SMIC are 4 companies with net profit growth exceeding 50%. Among them, Zhongke Feice, which went public in May 2023, achieved profitability in its first year after listing and will successfully remove the "U" after disclosing its annual report. Benefiting from the urgent demand for domestic equipment from downstream customers, the company's semiconductor testing and metrology equipment order volume continues to grow. In 2023, the company achieved a revenue of 891 million yuan, a year-on-year increase of 74.95%; and a net profit of 142 million yuan, a year-on-year increase of 1090.26%.

SMIC, a leader in semiconductor etching equipment, has a sufficient order backlog and maintains high growth across cycles. From 2012 to 2023, the company's average annual revenue growth rate exceeded 35% over more than ten years. In 2023, the company achieved a revenue of 6.264 billion yuan, a year-on-year increase of 32.15%, and a net profit of 1.786 billion yuan, a year-on-year increase of 52.67%. The company's CCP etching equipment has achieved multiple batch sales on the world's most advanced 5-nanometer production lines and the next generation of even more advanced production lines. In 2023, the company's new order amount was about 8.36 billion yuan, a year-on-year increase of about 32.3%.

Jing Sheng Shares, which went public in April 2023, has reached a leading domestic level with its core product, the semiconductor-grade single-crystal silicon furnace, and has achieved mass production of processes above 28nm. Benefiting from the rapid development of the downstream market, the company's sales scale continues to expand. In 2023, the company achieved a revenue of 406 million yuan, a year-on-year increase of 82.70%; and a net profit of 72.1895 million yuan, a year-on-year increase of 109.03%.

According to forecasts from relevant institutions, the expansion of mature processes in China will remain strong in 2024, and domestic semiconductor equipment is expected to continue to develop rapidly. SMIC's first-quarter performance guidance indicates that its capital expenditure in 2024 will be on par with that of 2023; Huahong Company, in order to promote the production of its Wuxi No. 2 factory, has entered a period of high capital expenditure, with its guidance pointing to a capital expenditure of about 2.3 billion USD in 2024, a significant increase from 996 million USD in 2023.

With the further accelerated development of emerging industries such as AI, cloud computing, and big data, the demand for related chips is relatively strong, making the semiconductor equipment industry, which is the foundation of chip manufacturing, worth looking forward to.

It is worth mentioning that innovation plays a leading role in the development of new quality productive forces and is also the unchanging main theme of the integrated circuit industry. Thanks to continuous R&D investment, the innovative achievements of the integrated circuit enterprises on the STAR Market have been remarkable in the past year. Loongson Technology, which focuses on processor design, released the new generation of general-purpose processor Loongson 3A6000 in November 2023. It is a new generation of general-purpose processor independently developed and controllable by our country, marking a milestone breakthrough in the degree of independence and controllability and product performance of domestic CPUs.

Implementing "Quality Improvement, Efficiency Enhancement, and Focus on Returns" in Practice

In the survey, many companies said that in the past year, facing the downturn of the industry and weak demand, the company actively took a number of targeted measures to continuously improve the current situation of operations, integrating the concept of "quality improvement, efficiency enhancement, and focus on returns" into daily business management, taking the improvement of the quality of listed companies as the anchor, and truly rewarding investors.

Jingfeng Mingyuan, the leading company in LED lighting driver chips, actively took measures such as inventory clearance and product cost structure optimization. It introduced that the industry inventory has basically returned to a reasonable level, the company's operating situation is gradually improving, and the loss has been significantly narrowed.

Vanchip, a radio frequency front-end chip company, in the context of the low prosperity of downstream consumer electronics, continues to expand its product matrix. The new product, the high integration module L-PAMiD, has quickly achieved market breakthrough and sales growth with its excellent performance. It has been introduced to many domestic brand mobile phone customers and has achieved large-scale mass production and shipment, promoting the steady improvement of the company's performance. The company's net profit in 2023 increased by nearly double.Image sensor company SmartSens is actively exploring downstream fields such as consumer electronics and automotive, in addition to its original field of security surveillance. In 2023, the company's high-end flagship smartphone camera application with a high-grade 50-megapixel product has been mass-produced and shipped smoothly, continuously increasing its market share in the consumer electronics field, creating a second growth curve for the company. Both the company's fourth-quarter revenue and net profit have seen significant growth, and it has turned a profit.

Looking forward to the development of chips in 2024, TF Securities Research Institute has indicated that the semiconductor cycle is expected to bottom out and rebound, entering a new upward cycle. With the recovery of terminal demand such as consumer electronics and the leadership of emerging demands like artificial intelligence, the overall profitability of the integrated circuit industry is expected to continue to improve.

Several companies listed on the STAR Market in the integrated circuit sector have expressed that they will continue to adhere to the concept of "investor-oriented," focusing on improving the quality of the company and investment value, taking the lead in developing new quality productive forces, and taking practical actions to support high-level technological self-reliance and strengthen market confidence.

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