New Stock Interpretation | When will the profit logic of Hehui Optoelectronics' Hong Kong IPO, the leader in large size, be realized?

Recently, the leading AMOLED panel manufacturer and Hehui Electronics have gone through a hearing at the Hong Kong Stock Exchange, marking the beginning of the process for their H-share listing. This company, which has been listed on the Science and Technology Innovation Board for nearly five years, is coming to the Hong Kong stock market with a phase of "increasing revenue and reducing losses". Since its establishment in 2012, the company has successfully broken the long-term monopoly of international giants in the high-end display field through continuous investment in technology research and development and large-scale production. In just over ten years, it has made a magnificent transformation from small and medium-sized AMOLED panels to medium and large-sized AMOLED panels. However, the panel industry is a capital-intensive and technology-intensive industry that requires investment before profitability. The company is still in a phase of continuous losses. With the continuous expansion of the AMOLED industry, can Hehui Electronics leverage its layout of large-sized products and technological accumulation to open up new growth space in the fierce competition? Breaking through in the medium and large-sized AMOLED market, positioning in the differentiated market track It is understood that Hehui Electronics is a company specializing in the research and manufacturing of AMOLED semiconductor display panels, using RGB-OLED display technology and achieving mass production through the 4.5th and 6th generation production lines. Since its establishment, the company has continued to focus on this technology and successfully achieved the mass production of China's first batch of AMOLED panels in 2014 using the 4.5th generation production line, and then expanded into the medium and large-sized application fields in 2019 through the 6th generation production line. In terms of product layout, Hehui Electronics adopts a strategy of "both rigid and flexible", having the production capacity for both rigid, flexible, and Hybrid AMOLED panels. The product sizes range from approximately 0.95 inches for wearable device display panels to 27 inches for large-sized panels, covering multiple application scenarios such as smartphones, wearable devices, tablets and laptops, and car displays. Among them, the company has a relatively prominent market position in the medium and large-sized AMOLED panel market. According to industry data, based on the sales volume of medium and large-sized AMOLED panels in 2024, the company ranks first among Chinese manufacturers with a market share of about 51%. In the tablet and laptop market, the company also ranks among the industry leaders, with its market share in related products exceeding sixty percent. With the growth in mobile office and high-end tablet demand, medium and large-sized AMOLED panels are considered an important growth point for the industry in the coming years, making it a core direction of the company's focus. However, despite having a certain foundation in technology and market layout, Hehui Electronics is still in a phase of continuous losses, which is a typical feature of the AMOLED panel industry. According to the prospectus, the company's revenue is approximately RMB 4.19 billion, RMB 3.04 billion, and RMB 4.96 billion in 2022, 2023, and 2024 respectively. In terms of profit, the company's gross losses were approximately RMB 1.018 billion, RMB 2.383 billion, and RMB 1.532 billion in 2022, 2023, and 2024 respectively; while the net losses were approximately RMB 1.602 billion, RMB 3.244 billion, and RMB 2.518 billion during the same period, with a net loss of approximately RMB 1.37 billion in the first nine months of 2025. Scaling up losses: exploring the inflection point of profitability in the panel cycle Although Hehui Electronics is still in a phase of operating losses during the past performance period, this is a typical industry rule in the early development stage of the heavy asset semiconductor display industry. From an operational perspective, some of the company's profitability indicators have shown improvement, such as EBITDA being negative RMB 1.013 billion in 2023, turning positive to RMB 21.40 million in 2024, and reaching approximately RMB 604 million in the first nine months of 2025. This indicates that with the improvement in capacity utilization and product structure optimization, the company's operational cash generation capacity has improved. Additionally, the company's operational cash flow has also improved. As of the nine months ending September 30, 2025, Hehui Electronics has achieved positive operational cash flow, with a net inflow of RMB 360 million. The core DRIVE behind this financial turnaround lies in the manifestation of economies of scale - as the output of the 6th generation production line steadily increases, the unit fixed costs are effectively diluted, coupled with lean management measures, production efficiency is experiencing a leap. In the future, the company's profitability logic mainly relies on several key factors: firstly, the scale effect brought by the improvement in capacity utilization. With the gradual increase in production capacity of the 6th generation production line, the depreciation cost per product will decrease, helping to improve the gross profit margin. Secondly, the upgrade of the product structure - the company is increasing the proportion of high value-added products such as tablets, laptops, and car displays, in order to increase the overall average selling price. And thirdly, localizing the supply chain and lean production management, by increasing the proportion of local supplier purchases and optimizing production processes to reduce raw material and manufacturing costs. Looking at the long term, the AMOLED industry itself has obvious economies of scale. Many panel manufacturers have experienced long-term losses in the early stages, but as technology matures and capacity is released, profitability often gradually improves. Therefore, for Hehui Electronics, capital market financing is not only an important channel for supplementary funds, but also helps to support its production line upgrades and technological research and development, thereby positioning itself more favorably in future industry competition. From the Science and Technology Innovation Board to the Hong Kong stock market, Hehui Electronics' IPO journey this time is a key step in broadening its financing channels and optimizing its capital structure. The raised funds will mainly be used for the technological upgrade of the 6th generation AMOLED production line, research and development of new products, and repayment of part of the loans, which will undoubtedly help the company to consolidate its existing advantages while making strides towards higher technological levels. However, for investors, subscribing to Hehui Electronics' H-shares fundamentally means investing in a long-term story about the "Chinese AMOLED follower". This story includes both its first-mover advantage and market share in the potentially huge medium and large-sized market track, as well as the challenges of continuous losses, high debts, and fierce competition. In the cyclical industry of display panels, whether Hehui Electronics can ultimately navigate through the cycle, prove its value to the market with continuous performance improvements post-listing, will be the most noteworthy focus.