Company's business..1) Founded in 1980, Xiansihang is headquartered in Hong Kong. It started as a semiconductor component-based electronic component distribution company. It established a joint venture company with domestic electronic distributors, and mainly distributes hard disk memory. . The company is one of Samsung Electronics and Fairchild Semiconductor's largest semiconductor distributors in the Asia Pacific region. 2) In 2007, the company announced its stake in Wavesquare Inc. in South Korea. Wavesquare is principally engaged in the manufacture of vertical ultra-high brightness light-emitting diode (LED) wafers. So far, Sishang has held a 26.9% stake in Wavesquare, which is a single major shareholder. 3) In 2009, the company established the joint venture company Flex Technology to distribute LEDs for display backlight modules to supply Samsung's TV and computer screens. 4) In addition, the company first announced its participation in the French company Accupix Co. in March 2010. The latter is the industry leader in 3D shutter glasses technology for TVs, which is designed to provide 3D TV LCD shutter glasses and related solutions. So far, Sishang holds approximately 19% of Accupix. The transformation is based on LED manufacturing. Semiconductor lighting technology continues to break through and the application field is expanding. At present, the technology of LED in the field of indication and display is basically mature and has been widely used; the technology in the field of medium and large size backlights is becoming more and more mature, and the market share is gradually increasing. Because of the management's confidence in the LED industry prospects, in 2007, Wavestar entered into a share-based acknowledgment agreement. This strategic deployment marks the Group's formal expansion of its business into the LED chip product market. Wavesquare was founded in 2006. In 2008, it began to develop vertical LED chips. In the second half of 2010, it officially mass-produced patented LED chips. Think ahead to become the exclusive distributor of Wavesquare in Greater China. Valuation: There are only a few traders in the market who make profit estimates for Xiansi. Currently, the valuation of Xiansi is about 8.3 times FY11 P/E and 4.8x FY12 P/E. We believe that Xiansihang is transforming into an LED-based manufacturing and distribution company. The current average valuation of international LED manufacturers is 40.4 times and 23.2 times this year and the next fiscal year price-earnings ratio. Once the revenue of the new LED factory is consolidated into the income statement and the penetration of Wavesquare's products increases, Accupix's 3D glasses demand follows the growth of 3D TV, and we believe that the first-line valuation will be adjusted following the company's transformation. Traditional LED manufacturing technology: Traditional horizontal chips commonly use sapphire as a substrate, and then fabricated into a bipolar wafer by MOCVD equipment. According to the company, in the process, the crystal film and the sapphire substrate are integrated, and the LED chip is to be an electrode, but the sapphire substrate itself is not electrically conductive. Therefore, the electrode (P pole, N pole) of the InGaN element above the sapphire substrate must be processed. The technology is produced on the same side. However, the disadvantages of the wafer fabricated in this way are: 1) poor conductivity because the sapphire substrate is not electrically conductive; 2) the light transmission area is small because the two electrodes are on the same side, covering a part of the light-emitting area; 3) low thermal conductivity LED performance is not good, but because of the limited heat generated by low-power LEDs, sapphire substrates have advantages in the low-power market; 4) lead to shortage of sapphire substrates and rising prices. Wavesquare's main technology: In order to improve the performance of LED chips and adapt to the growing high-power market, manufacturers use various methods to separate the sapphire substrate from the crystalline film. It is common to use laser technology to separate the two. CREE (CREE.US) and SemiLEDS (LEDS.US) are all laser methods. However, according to the management, the finished products of laser technology are very high, and the rate of return is relatively low. Wavesquare's approach is to immerse the film wafer in a special chemical liquid to separate the sapphire substrate from the crystalline film. The advantage of this method is that the chemical liquid does not damage the surface of the wafer, the process is simple, and it is easy to mass-produce. The sapphire substrate after separation can be recycled to reduce the finished product and improve the return rate. The company said that the gross profit margin can reach 40-50%. The luminous intensity of Wavesquare LED products can be compared with that of its peers. It is expected that the LED of its brand of one-watt chip can reach an average of 120lm lumens (the average lumen of LEDs on a market of one-watt chips: 100lm), and it is planned to be launched in the Chinese market first. It was gradually distributed to the rest of the world. As of September 2010, Wavesquare did not contribute to the profitability of Xiansi. Capacity expansion plan: At present, Wavesquare's production capacity is about 1 million LED chips per year, and the capacity is gradually expanding by 4 to 5 million in 1H11, but this is still not enough to achieve economic scale. First, we will work with Wavesquare to expand our investment plan to invest US$45 million (including the US$25 million in the first thinking and US$15 million in Wavesquare) to build an LED manufacturing plant in Korea and expand its production capacity to 15 million. The new factory is 100% owned by Xiansi, and then sells LED chips to Wavesquare at a price set by both parties. At present, Wavesquare is a joint venture company, and its revenue is not consolidated into the financial statements of Xiansi, but the revenue of the new factory will be consolidated into the profit and loss statement of Xiansi. The company expects the new plant to start operation in 1Q12. 3D Eyewear Business: Accupix, another associate company that pioneered the creation of 3D glasses for active 3D glasses, Accupix became the exclusive supplier of LG. First thought is the exclusive aftermarket parts distributor outside of Accupix Korea. According to the Samsung survey, the sellers are willing to equip each 3D TV with 3.8 pairs of glasses. In addition, LG-Electronics predicts that the demand for 3D TV in 2010 will be 338,033 units, while the demand for glasses for 3D glasses is three times that of TV, reaching 1,014,099 pairs. Management believes that Accupix will be one of the main beneficiaries as 3D TV penetration increases. Issuance of Taiwan Depositary Receipts: In October 2010, Xiansi announced that the Board of Directors had approved the issuance of Taiwan Depositary Receipt (TDR). It is expected to raise funds for new businesses, and because technology companies are generally more valued in the Taiwan market than the Hong Kong market. So far, the company has not disclosed further information and time for TDR listing. However, investors should be aware of the risk that their earnings will be diluted after the issuance of TDR.
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