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Written by Geng Chen, Yueyang, and Liang Fei from Huachuang Securities Research Institute and Donghua University. Influenced by factors such as macroeconomic development, the upgrading of the manufacturing industry, and policy support, China’s laser industry has become one of the industries that attract significant attention. In recent years, China’s laser industry has experienced rapid development, serving as one of the main drivers in the global laser sector. To achieve sustainable growth for the company and the industry as a whole, companies within this sector are actively expanding their production capacity and launching new projects. Due to the capital- and technology-intensive nature of the laser industry, many companies face challenges such as funding constraints, talent shortages, difficulties in establishing internal control systems, and technical pressures. To better address the above issues, companies in the industry choose to go public. Just in the first half of this year, there were no fewer than 7 laser companies preparing to go public. This article selects three representative listed companies in China’s laser industry – Han’s Laser, AGC Technology, and Raycus Laser – and analyzes their financial data from previous to recent years. Since the circumstances of each company are not exactly the same, the impact of going public on their financial performance and operational development is analyzed from different perspectives (Note: This article examines only the financial data for the three years before and after going public, in order to reflect the direct changes that occur as a result of going public). No key analysis data for 2020). Performance analysis of a listed company before and after listing: For Han’s Laser, going public significantly enhanced the company’s financing capabilities and improved its cash flow situation. Table 1 shows Han’s Laser’s key financial figures over the years (data source: Wind). As can be seen from Table 1, in the three years prior to listing, the company’s total assets, main business revenue, and number of employees all increased at a very rapid pace; the overall increases from 2001 to 2003 were 135%, 165%, and 175%, respectively. However, the accounts receivable increased from 39 million yuan in 2001 to 82 million yuan in 2003, representing a total increase of 104%. Furthermore, the net cash flow from operating activities was negative in 2001 and 2002. It can be analyzed that the company is facing a shortage of funds at present. In 2003, when China joined the WTO, international competition intensified, and at that time China was still far behind developed countries in terms of industrial laser technology and its industrial application. The company needed to participate in the international division of labor in order to grow and develop; relying solely on its own accumulated resources and a model of incremental development would not be sufficient to cope with the competitive environment in the future. Therefore, the company urgently needs to address the issue that its existing funds are insufficient to meet the requirements for expanding its business scale; hence, it has chosen to go public in order to achieve better development. So, can going public truly help Han’s Laser to develop better? As can be seen from Table 1, the company completed the construction of two projects funded through fundraising in 2005. The growth rate of its core business that year was 36%, with the YAG pulsed laser welding machines, part of those funded projects, making a significant contribution to this growth. At the same time, all projects funded through fundraising were completed in 2006, and the market prospects for semiconductor-pumped solid-state frequency-doubling lasers and microfabrication systems remained optimistic. The related products developed by the company have been launched on the market in bulk. It can be seen that the number of employees increased at a very rapid pace after the company went public: 31% in 2005 and 76% in 2006, while the revenue growth rate further increased to 60% in 2006. Meanwhile, in 2006, by improving sales incentive mechanisms, enhancing the collection of payments, optimizing production plans, and strengthening inventory management, as well as by making greater use of modern financial tools, the company was able to see some improvement in the issue of operating cash flow that had plagued it for years. The net cash flow from operating activities for that year was 7.77 million yuan, an increase of 34.52 million yuan compared to the same period the previous year. After adjusting for the impact of Dagu Crownhua and Dagu High-Precision, which were included in the company’s consolidated financial statements only starting in December of the reporting period, the net cash flow generated from operating activities for the whole year was 14.21 million yuan, an increase of 40.96 million yuan compared to the previous year. Since 2006 to the present, the company’s operating cash flow has been positive throughout, and it has remained relatively ample. Through going public, the company has diversified its financing channels. To date, it has carried out 8 rounds of direct financing, raising a total of 5.28 billion yuan, which has further strengthened the company’s financial strength. Each of these financings was used to fund research and development for related projects, thereby strengthening the company’s technical barriers. In 2007, the company filed a total of 211 patents, representing a 145.35% increase compared to the previous year; this marked the highest number of patent applications in the company’s history. Table 2 shows the key financial metrics of Grand Laser over the past 5 years (data source: Wind). As can be seen from Table 2, the company has experienced rapid growth over these five years; the average annual compound growth rate of its main business revenue was 11% from 2016 to 2019. Its operating cash flow remained quite stable, and the company’s scale continued to expand, with the average annual compound growth rates for total assets and the number of employees being 20% and 10%, respectively. After going public, Han’s Laser has maintained its leading position in the industry and continued to develop steadily. The listing of Huagong Technology facilitates the recruitment of industry talent and accelerates the implementation of projects. Originally an enterprise run by a university, Huagong Technology was established in 1997 and went public in 2000. The funds raised through the initial public offering from 2006 to 2008 were used for the development of laser-related products, the technological upgrading of equipment for producing laser holographic (wide-format) anti-counterfeiting packaging, enterprise-level computer information integration systems based on Internet/Intranet, the technological upgrading of production facilities for sensitive components, biomedical projects, and projects aimed at the industrialization of full-wavelength conversion and optical transceiver modules. Regarding the laser product development project, the company invested a total of 113 million yuan in it. From the completion of this investment until December 31, 2008, the company achieved a total profit from its core business of 373 million yuan. Through the implementation of this project, the company has evolved from an ordinary school-run enterprise into one of the most competitive high-power laser equipment manufacturers in China, boasting the strongest technical innovation capabilities, the widest range of products, and the largest scale in the laser industry. In 2006, 2007, and 2008, the revenue generated by these product lines accounted for 32.76%, 40.51%, and 47.22% of the total revenue respectively. At the same time, the company has successfully developed a large number of patents and proprietary technologies in the laser industry. It owns two world-class laser cutting machine brands, one world-class plasma cutting machine brand, and one world-class laser brand. With a complete industrial chain, it enjoys a clear competitive advantage, and the benefits of scale are gradually becoming apparent. Regarding the technical renovation project for laser holographic (wide-format) anti-counterfeiting packaging production equipment, the company invested 48 million yuan in this project. From the completion of the investment until the end of 2008, it generated a total profit from its core business of 350 million yuan. Through the implementation of this project, the company established China’s first production line for laser holographic (wide-format) anti-counterfeiting packaging materials, becoming the largest domestic manufacturing base for such laser holographic anti-counterfeiting products. By investing in projects to upgrade the technology of production bases for sensitive electronic components, as well as in projects related to full-wavelength conversion and the industrialization of optical transceiver modules, the company has established the largest production base for such sensitive electronic components in China. It is also the only manufacturer in China’s optical communication devices industry to possess a complete set of production lines covering chip epitaxy, die fabrication, component production, and mass production of modules. Table 3: Huagong Technology’s financial data for the past five years (Data source: Wind). As can be seen from Table 3, the company has experienced rapid growth in recent years; the average annual compound growth rate of its main business revenue was 18% from 2016 to 2019. Although the pandemic had a significant impact on this industry in 2019, the company still managed to maintain a growth rate of 4.35%. There was further rapid recovery in the third quarter of 2020, which demonstrates the strong performance of the company. It can also be seen that net profit increased significantly in 2019, indicating the company’s strong ability to control costs. The company has maintained relatively rapid growth in terms of scale, with an average annual compound growth rate of 20% from 2016 to 2019; the number of employees remains relatively stable at present. With its listing, Ruike Laser has begun to enter the high-power laser market, thereby increasing the proportion of domestically produced alternatives. Founded in 2007 and going public in 2018, the company has, through over a decade of efforts, acquired a series of patents in the field of lasers; its products have broken foreign monopolies. At present, the company’s technical level ranks second in the world, only behind IPG. In order to meet the strategic requirements set forth by **policies aimed at replacing traditional manufacturing technologies with laser technology, as well as to achieve its own strategic goals, the company has chosen to go public in order to better implement the projects funded through this issuance – namely, the development and industrialization of high-power fiber lasers, and the establishment of an engineering center for the industrialization, research, and application of medium- to high-power semiconductor lasers. A total of 1.119 billion yuan was invested in this project, with a construction period of 3 years. It features several key highlights, as shown in Table 4: Table 4 Comparison of Ruike Laser’s performance in the years before and after its listing (Data source: Wind). 1) China has a high degree of dependence on imports for high-power fiber lasers; in 2018, the rate of domestic substitution was around 10%. After its launch, the market share in the domestic market reached 24.3% in 2019, compared to 12% in 2017 and 17.3% in 2018, showing rapid growth in market share. The company has achieved a situation in which domestic and imported products compete evenly in the field of medium- and low-power continuous fiber lasers ； In the field of high-power fiber lasers, the company has achieved vertical integration of the upstream supply chain, including specialty fibers, fiber optic components, and semiconductor lasers. It has been able to supply 12 kW high-power continuous fiber lasers in bulk, thereby gradually opening up the market for such lasers. The construction period for this project was 3 years, with an investment payback period of around 6.5 years. In the short term, the goals set for high-power laser development through these funding initiatives are already showing results, and it is expected that Ruike Laser will achieve significant success in this area in the future. 2) Technically, the R&D projects in 2019 progressed smoothly, and some of the research outcomes have already shown initial results. In particular, progress in the development of high-power fiber lasers and their key components met the expected goals, providing reliable technical support for the adjustment of the company’s product portfolio. Specifically, research and development projects such as the “single-module 3 kW continuous fiber laser,” the “12 kW continuous fiber laser,” “high-power fiber laser transmission cables,” “high-power gratings,” and “high-power pumping sources” have all achieved phased results. Some of these products are now available for mass production and sale. The transition to using these newly developed core components has significantly reduced the company’s material costs, enhanced the competitiveness of its products in the market, and provided technical support for the application of its products in the field of laser welding. The company’s investment in research and development has seen rapid growth in recent years; from 2016 to 2019, this investment increased from 38 million yuan to 118 million yuan, with a compound annual growth rate of 45.9%. In the first three quarters of 2020, the company’s performance declined by 22% on a year-on-year basis due to the severe impact of the pandemic, but it recovered rapidly in the fourth quarter, demonstrating its strong strength. 3) Financially, the company’s operating revenues for 2018, 2019, and the first three quarters of 2020 were 1.462 billion yuan, 2.010 billion yuan, and 1.433 billion yuan respectively. In 2020, the impact of the pandemic was severe, yet the company still managed to achieve profit growth; it experienced very rapid growth in 2018 and 2019. It is expected that, once the pandemic subsides, the company will continue to show rapid growth thanks to the projects funded by its capital raises. About the author: Geng Chen is an assistant to the director at Huachuang Securities Co., Ltd., as well as a top-tier electronics analyst; he is primarily engaged in researching listed companies in the electronics industry. Yueyang, Huachuang Securities Co., Ltd., Associate Researcher, mainly engaged in research on listed companies in the consumer electronics and Apple-related industries. Liang Fei, a student at Donghua University. Source: Optoelectronic News