晶门半导体(02878) - 2024 - 中期财报

Corporate Profile This section provides an overview of the company's business, vision, and its leading position in display and touch IC solutions Business Overview and Vision The company is a leading fabless semiconductor group designing, developing, and selling IC products and system solutions for various display and touch applications - The company is a leading semiconductor group specializing in the design, development, and sale of integrated circuit chip products and system solutions[2] - Products are widely applied in smartphones, tablets, TVs/monitors, laptops, wearables, electronic shelf labels, healthcare, smart home, and industrial devices[2] - The company's vision is to provide ultimate chip solutions for every display system[3] Financial Highlights This section summarizes the company's key financial performance and position, highlighting revenue and profit declines but stable financial health Key Financial Performance and Position For the six months ended June 30, 2024, the company experienced significant declines in revenue and profit, yet maintained a robust financial position with increased total assets and shareholder equity 2024 H1 Key Financial Data | Indicator | June 30, 2024 (US$ million) | June 30, 2023 (US$ million) | Change Percentage (%) | | :--- | :--- | :--- | :--- | | Performance | | | | | Sales | 61.9 | 85.3 | -27.4% | | Gross Profit | 19.8 | 27.9 | -29.0% | | Gross Margin (%) | 32.0 | 32.7 | -0.7% point | | Net Profit Attributable to Owners of the Company | 7.5 | 13.2 | -43.3% | | Earnings Per Share (US cents) | 0.30 | 0.53 | -43.4% | | Financial Position | | | | | Total Assets | 171.4 | 157.4 (Dec 31, 2023) | 8.9% | | Shareholders' Equity | 134.4 | 126.9 (Dec 31, 2023) | 5.9% | | Financial Ratios | | | | | Current Ratio | 4.59 | 4.96 (Dec 31, 2023) | | | Debt-to-Equity Ratio | 0.009 | 0.013 (Dec 31, 2023) | | - The Board does not recommend the declaration of an interim dividend for the six months ended June 30, 2024[5][7] Interim Condensed Consolidated Statement of Profit or Loss This section presents the company's consolidated profit or loss for the first half of 2024, showing a decline in revenue and net profit Consolidated Profit or Loss for H1 2024 For the six months ended June 30, 2024, the company's revenue was US$61,915 thousand, a 27.4% decrease year-on-year, with gross profit at US$19,843 thousand and net profit at US$7,471 thousand Interim Condensed Consolidated Statement of Profit or Loss (For the six months ended June 30) | Indicator | 2024 (US$'000) | 2023 (US$'000) | | :--- | :--- | :--- | | Sales | 61,915 | 85,334 | | Cost of Sales | (42,072) | (57,393) | | Gross Profit | 19,843 | 27,941 | | Research and Development Costs | (7,999) | (10,591) | | Selling and Distribution Expenses | (1,858) | (1,272) | | Administrative Expenses | (4,601) | (3,771) | | Other Income and Gains – Net | 18 | 32 | | Investment Income – Net | 2,096 | 902 | | Share of Profit/(Loss) of Associates | 58 | (76) | | Profit Before Tax | 7,557 | 13,165 | | Income Tax Expense | (86) | – | | Profit for the Period | 7,471 | 13,165 | | Profit Attributable to Owners of the Company | 7,471 | 13,165 | | Basic Earnings Per Share (US cents) | 0.30 | 0.53 | | Diluted Earnings Per Share (US cents) | 0.30 | 0.53 | Interim Condensed Consolidated Statement of Comprehensive Income This section details the company's comprehensive income for the first half of 2024, showing profit for the period and other comprehensive income components Consolidated Comprehensive Income for H1 2024 For the six months ended June 30, 2024, profit for the period was US$7,471 thousand, with total comprehensive income of US$7,473 thousand, primarily due to exchange differences on translating foreign operations Interim Condensed Consolidated Statement of Comprehensive Income (For the six months ended June 30) | Indicator | 2024 (US$'000) | 2023 (US$'000) | | :--- | :--- | :--- | | Profit for the Period | 7,471 | 13,165 | | Other Comprehensive Income/(Loss) | | | | – Exchange differences on translating foreign operations | 2 | (2,434) | | Total Comprehensive Income for the Period | 7,473 | 10,731 | | Attributable to Owners of the Company | 7,473 | 10,731 | Interim Condensed Consolidated Statement of Financial Position This section presents the company's consolidated financial position as of June 30, 2024, detailing assets, liabilities, and equity Consolidated Financial Position as at June 30, 2024 As of June 30, 2024, the company's total assets were US$171,401 thousand, with current assets accounting for US$160,076 thousand, reflecting a robust financial foundation with increased shareholder equity Interim Condensed Consolidated Statement of Financial Position (As at June 30) | Indicator | 2024 (US$'000) | December 31, 2023 (US$'000) | | :--- | :--- | :--- | | Non-current Assets | | | | Property, Plant and Equipment | 5,854 | 4,836 | | Right-of-use Assets | 3,084 | 1,391 | | Investments in Associates | 819 | 761 | | Equity Investments at Fair Value Through Other Comprehensive Income | 1,161 | 1,161 | | Other Receivables, Prepayments and Deposits | 407 | 679 | | Total Non-current Assets | 11,325 | 8,828 | | Current Assets | | | | Inventories | 28,102 | 27,920 | | Trade and Other Receivables, Prepayments and Deposits | 29,905 | 31,817 | | Pledged Bank Deposits | 6,000 | 6,000 | | Cash and Cash Equivalents | 96,069 | 80,339 | | Financial Assets at Fair Value Through Profit or Loss | – | 2,522 | | Total Current Assets | 160,076 | 148,598 | | Current Liabilities | | | | Trade and Other Payables | 32,101 | 26,908 | | Interest-bearing Bank Loans | 1,261 | 1,657 | | Lease Liabilities | 1,021 | 985 | | Tax Payable | 492 | 424 | | Total Current Liabilities | 34,875 | 29,974 | | Net Current Assets | 125,201 | 118,624 | | Total Assets Less Current Liabilities | 136,526 | 127,452 | | Non-current Liabilities | | | | Lease Liabilities | 2,118 | 521 | | Total Non-current Liabilities | 2,118 | 521 | | Net Assets | 134,408 | 126,931 | | Equity | | | | Issued Capital | 32,166 | 32,166 | | Reserves | 102,307 | 94,830 | | Non-controlling Interests | (65) | (65) | | Total Equity | 134,408 | 126,931 | Interim Condensed Consolidated Statement of Changes in Equity This section outlines the consolidated changes in equity for the first half of 2024, showing the movement of equity attributable to owners of the company Consolidated Changes in Equity for H1 2024 For the six months ended June 30, 2024, equity attributable to owners of the company increased from US$126,996 thousand to US$134,473 thousand, primarily driven by profit for the period and exchange differences Interim Condensed Consolidated Statement of Changes in Equity (For the six months ended June 30) | Indicator | Issued Capital (US$'000) | Share Premium (US$'000) | Merger Reserve (US$'000) | Exchange Reserve (US$'000) | Equity Compensation Scheme Reserve (US$'000) | Fair Value Reserve (US$'000) | Other Reserves (US$'000) | (Accumulated Losses)/Retained Profits (US$'000) | Total Equity Attributable to Owners of the Company (US$'000) | Non-controlling Interests (US$'000) | Total Equity (US$'000) | | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | | As at January 1, 2024 | 32,166 | 78,032 | 2,082 | (2,541) | 18,647 | 1,019 | 230 | (2,299) | 126,996 | (65) | 126,931 | | Profit for the Period | - | - | - | - | - | - | - | 7,471 | 7,471 | - | 7,471 | | Other Comprehensive Income – Exchange Differences | - | - | - | 2 | - | - | - | - | 2 | - | 2 | | Total Comprehensive Income for the Period | - | - | - | 2 | - | - | - | 7,471 | 7,473 | - | 7,473 | | Equity Compensation Scheme | - | 60 | - | - | (384) | - | - | 384 | 60 | - | 60 | | As at June 30, 2024 | 32,166 | 78,092 | 2,082 | (2,539) | 18,263 | 1,019 | 230 | 5,556 | 134,473 | (65) | 134,408 | Interim Condensed Consolidated Statement of Cash Flows This section presents the company's consolidated cash flows for the first half of 2024, detailing cash generated from operating, investing, and financing activities Consolidated Cash Flows for H1 2024 For the six months ended June 30, 2024, net cash generated from operating activities was US$14,031 thousand, from investing activities was US$2,876 thousand, and net cash used in financing activities was US$1,150 thousand, resulting in a significant increase in cash and cash equivalents at period-end Interim Condensed Consolidated Statement of Cash Flows (For the six months ended June 30) | Indicator | 2024 (US$'000) | 2023 (US$'000) | | :--- | :--- | :--- | | Net Cash Flows from Operating Activities | 14,031 | 28,724 | | Net Cash Flows from Investing Activities | 2,876 | 229 | | Net Cash Flows Used in Financing Activities | (1,150) | (2,091) | | Net Increase in Cash and Cash Equivalents | 15,757 | 26,862 | | Cash and Cash Equivalents at Beginning of Period | 80,339 | 45,556 | | Effect of Exchange Rate Changes, Net | (27) | (1,544) | | Cash and Cash Equivalents at End of Period | 96,069 | 70,874 | Notes to the Interim Condensed Consolidated Financial Information This section provides detailed notes to the interim condensed consolidated financial information, covering general information, basis of preparation, and significant accounting policies General Information Solomon Systech Limited and its subsidiaries are a fabless semiconductor group specializing in designing, developing, and selling IC products and system solutions for various display and touch applications, incorporated in the Cayman Islands and listed on the HKEX - Solomon Systech Limited and its subsidiaries are a fabless semiconductor group specializing in the design, development, and sale of integrated circuit chip products and system solutions[18][21] - Products are widely applied in smartphones, tablets, TVs/monitors, laptops, electronic shelf labels, wearables, healthcare equipment, smart home devices, and industrial equipment[18][21] - The company was incorporated in the Cayman Islands on November 21, 2003, listed on the Main Board of the HKEX since April 8, 2004, and this interim financial information is presented in US dollars[19][21] Basis of Preparation The interim condensed consolidated financial information for the six months ended June 30, 2024, is unaudited and prepared in accordance with HKAS 34, to be read in conjunction with the company's 2023 annual financial statements - The interim condensed consolidated financial information has been prepared in accordance with Hong Kong Accounting Standard 34 "Interim Financial Reporting" issued by the Hong Kong Institute of Certified Public Accountants[20][21] - This financial information is unaudited and should be read in conjunction with the company's consolidated financial statements for the year ended December 31, 2023[20][21] Material Accounting Policies The accounting policies adopted in this period are consistent with those of the 2023 consolidated financial statements, with no material impact from the initial adoption of revised HKFRS standards - Accounting policies are consistent with those adopted in the consolidated financial statements for the year ended December 31, 2023, except for the initial adoption of revised Hong Kong Financial Reporting Standards[22][24] - The initially adopted amendments include HKAS 1 (Classification of Liabilities and Non-current Liabilities with Covenants), HKFRS 16 (Lease Liability in a Sale and Leaseback), and HKAS 7 and HKFRS 7 (Supplier Finance Arrangements)[23][24][25][27][28] - After assessment, these amendments had no impact on the Group's financial position or performance[26][28] Fair Value and Fair Value Hierarchy of Financial Instruments The Group's financial instrument fair value measurements are primarily concentrated in Level 2, with no transfers between levels during the period Fair Value of Financial Assets (US$'000) | Financial Assets | June 30, 2024 (Unaudited) | December 31, 2023 (Audited) | | :--- | :--- | :--- | | Equity Investments at Fair Value Through Other Comprehensive Income | 1,161 | 1,161 | | Financial Assets at Fair Value Through Profit or Loss | – | 2,522 | | Total | 1,161 | 3,683 | - Management has assessed that the fair values of short-term financial instruments such as cash and cash equivalents, pledged bank deposits, trade receivables, and trade payables approximate their carrying amounts[31] Assets Measured at Fair Value Hierarchy (June 30, 2024, US$'000) | Assets | Level 1 | Level 2 | Level 3 | Total | | :--- | :--- | :--- | :--- | :--- | | Investments at Fair Value Through Other Comprehensive Income | – | 1,161 | – | 1,161 | - For the six months ended June 30, 2024, there were no transfers between Level 1 and Level 2 fair value measurements, and no transfers into or out of Level 3 financial assets[34][36] Segment Information and Disaggregation of Revenue The Group operates in a single segment, designing, developing, and selling IC products and system solutions, with H1 2024 revenue of US$61,915 thousand primarily from Hong Kong, Europe, Taiwan, and Japan - The Group has consistently operated in a single operating segment, which is the design, development, and sale of proprietary IC products and system solutions[37][40] Revenue from Contracts with Customers by Geographical Market (US$'000) | Region | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Hong Kong | 36,878 | 46,427 | | Mainland China | 2,007 | 1,917 | | Taiwan | 8,538 | 9,899 | | Japan | 2,339 | 11,968 | | Europe | 11,891 | 12,600 | | Korea | 101 | 121 | | Southeast Asia | 29 | 124 | | United States | 31 | 2,113 | | Others | 101 | 165 | | Total | 61,915 | 85,334 | Revenue from Contracts with Customers by Product Type (US$'000) | Product Type | H1 2024 | H1 2023 | | :--- | :--- | :--- | | New Display ICs | 36,385 | 39,847 | | OLED Display ICs | 8,843 | 9,290 | | Mobile Display and Mobile Touch ICs | 9,826 | 33,177 | | Large Display ICs | 6,861 | 3,020 | | Total | 61,915 | 85,334 | - For the six months ended June 30, 2024, the largest and second largest customers were located in Hong Kong and Europe, with sales of US$27,630,000 and US$10,588,000 respectively, each accounting for over 10% of the Group's total sales[48][49] Profit before tax The Group's profit before tax for the six months ended June 30, 2024, was US$7,557 thousand, with cost of sales at US$44,323 thousand and a net reversal of provision for obsolete inventory of US$2,542 thousand Profit Before Tax Components (US$'000) | Item | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Cost of Sales | 44,323 | 55,926 | | Net (Reversal of Provision)/Provision for Obsolete or Slow-moving Inventories | (2,542) | 1,127 | | Depreciation of Property, Plant and Equipment | 760 | 710 | | Depreciation of Right-of-use Assets | 723 | 659 | | Exchange Differences, Net | (319) | (1,564) | Finance income – net For the six months ended June 30, 2024, the Group recorded net finance income of US$2,096 thousand, primarily from interest income offset by interest expenses on bank loans and lease liabilities Finance Income – Net (US$'000) | Item | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Interest Income | 2,132 | 934 | | Interest Expense on Bank Loans | (1) | – | | Interest Expense on Lease Liabilities | (35) | (32) | | Total | 2,096 | 902 | Income tax The Group's total income tax expense for the six months ended June 30, 2024, was US$86 thousand, mainly current tax in other jurisdictions, with no Hong Kong profits tax provision due to available tax losses - The Group made no provision for Hong Kong profits tax due to available tax losses carried forward from previous years to offset assessable profits[53][54] Income Tax Expense (US$'000) | Item | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Current – Other Jurisdictions – Current Period Expense | 86 | – | | Total Income Tax Expense for the Period | 86 | – | Earnings per share For the six months ended June 30, 2024, both basic and diluted earnings per share attributable to owners of the company were 0.30 US cents, a decrease from 0.53 US cents in the prior year - Basic earnings per share were 0.30 US cents, calculated based on profit attributable to owners of the company of US$7,471,000 and a weighted average of 2,495,652,351 ordinary shares outstanding[56][57] - Diluted earnings per share were 0.30 US cents, adjusted for all potentially dilutive ordinary shares during the period, with no dilutive effect in H1 2024[58][59] Dividend The Board resolved not to declare an interim dividend for the six months ended June 30, 2024, consistent with the prior year - The Board resolved not to declare an interim dividend for the six months ended June 30, 2024 (six months ended June 30, 2023: nil)[60][61] Trade and other receivables, prepayments and deposits As of June 30, 2024, the Group's net trade receivables increased to US$18,947 thousand, with the majority aged 1-30 days, and impairment provisions rising to US$322 thousand Trade and Other Receivables, Prepayments and Deposits (US$'000) | Item | June 30, 2024 (Unaudited) | December 31, 2023 (Audited) | | :--- | :--- | :--- | | Trade Receivables – Net | 18,947 | 17,292 | | Other Receivables, Prepayments and Deposits | 10,878 | 14,344 | | Prepayments to Related Parties | 96 | 221 | | Impairment Provision | (16) | (40) | | Total | 30,312 | 32,496 | Ageing Analysis of Trade Receivables (US$'000) | Ageing | June 30, 2024 (Unaudited) | December 31, 2023 (Audited) | | :--- | :--- | :--- | | 1–30 Days | 12,279 | 12,102 | | 31–60 Days | 3,417 | 2,430 | | 61–90 Days | 1,779 | 1,257 | | 91–180 Days | 1,472 | 1,197 | | Over 360 Days | – | 306 | | Total | 18,947 | 17,292 | Movement in Impairment Provision for Trade Receivables (US$'000) | Item | June 30, 2024 (Unaudited) | December 31, 2023 (Audited) | | :--- | :--- | :--- | | At Beginning of Period/Year | 123 | 214 | | Impairment Provision/Reversal of Impairment | 199 | (91) | | At End of Period/Year | 322 | 123 | Trade and other payables As of June 30, 2024, the Group's total trade and other payables increased to US$32,101 thousand, with trade payables of US$14,284 thousand primarily aged within 1-90 days Trade and Other Payables (US$'000) | Item | June 30, 2024 (Unaudited) | December 31, 2023 (Audited) | | :--- | :--- | :--- | | Trade Payables | 14,284 | 8,610 | | Accrued Expenses and Other Payables | 12,959 | 13,140 | | Contract Liabilities | 3,386 | 3,282 | | Contract Liabilities to Related Parties | 202 | 456 | | Refund Liabilities | 1,270 | 1,420 | | Total | 32,101 | 26,908 | Ageing Analysis of Trade Payables (US$'000) | Ageing | June 30, 2024 (Unaudited) | December 31, 2023 (Audited) | | :--- | :--- | :--- | | 1–30 Days | 4,693 | 3,891 | | 31–60 Days | 4,473 | 3,529 | | 61–90 Days | 4,766 | 765 | | Over 90 Days | 352 | 425 | | Total | 14,284 | 8,610 | Issued capital As of June 30, 2024, the company's authorized share capital was 5,000,000,000 ordinary shares of HKD0.10 each, with 2,495,652,351 shares issued and fully paid, totaling US$32,166 thousand, with no share options exercised during the period Issued Capital (US$'000) | Item | June 30, 2024 (Number of Shares) | June 30, 2024 (US$'000) | December 31, 2023 (Number of Shares) | December 31, 2023 (US$'000) | | :--- | :--- | :--- | :--- | :--- | | Authorized: Ordinary Shares of HKD0.10 each | 5,000,000,000 | 64,433 | 5,000,000,000 | 64,433 | | Issued and Fully Paid: At January 1 | 2,495,652,351 | 32,166 | 2,494,352,351 | 32,149 | | Exercise of Share Options | – | – | 1,300,000 | 17 | | At End of Period/Year | 2,495,652,351 | 32,166 | 2,495,652,351 | 32,166 | - No share options were exercised during the period ended June 30, 2024[70] Equity compensation scheme The company adopted a share option scheme in 2013 to incentivize participants, with 19,240,000 unexercised share options as of June 30, 2024, representing 0.77% of total issued shares - The company adopted the 2013 Share Option Scheme on May 28, 2013, to provide participants with an opportunity to acquire shares and encourage collaboration to enhance company value[71][173][174] Movements in 2013 Share Option Scheme (Number of Share Options, in thousands) | Item | June 30, 2024 (Unaudited) | December 31, 2023 (Audited) | | :--- | :--- | :--- | | At Beginning of Period/Year | 29,600 | 27,150 | | Granted During Period/Year | – | 5,900 | | Exercised During Period/Year | – | (1,300) | | Cancelled/Lapsed During Period/Year | (10,360) | (2,150) | | At End of Period/Year | 19,240 | 29,600 | | Weighted Average Exercise Price (HKD) | 0.612 | 0.684 | - At the end of the reporting period, the total number of exercisable share options under the 2013 Share Option Scheme was 18,990,000 (December 31, 2023: 28,850,000)[74][75] - As of June 30, 2024, a total of 19,240,000 valid share options remained unexercised, representing 0.77% of the company's total issued shares[177] Capital commitments As of June 30, 2024, the Group had contracted but unprovided capital expenditure of US$596 thousand, primarily for property, plant, and equipment Capital Commitments (US$'000) | Item | June 30, 2024 (Unaudited) | December 31, 2023 (Audited) | | :--- | :--- | :--- | | Property, Plant and Equipment | 596 | 2,297 | - Save as disclosed above, there were no other significant capital commitments[77] Related parties transactions The Group engaged in various related party transactions with China Electronics Corporation (CEC) and its subsidiaries/associates, including IC product sales and leasing services, with changes in related party receivables and contract liabilities balances - China Electronics Corporation (CEC), through its subsidiary Huada Semiconductor Co, Ltd, holds approximately 28.3% of the company's issued shares, making it a substantial shareholder[78] Related Party Transactions (US$'000) | Item | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Sales: Subsidiaries of CEC | 27,630 | 32,566 | | Sales: Associates of CEC | 303 | 591 | | Lease Service Fees: Subsidiaries of CEC | 15 | 17 | Year-end Balances Arising from Sales/Purchases (US$'000) | Item | June 30, 2024 (Unaudited) | December 31, 2023 (Audited) | | :--- | :--- | :--- | | Trade Receivables: Subsidiaries of CEC | 4,679 | 4,856 | | Trade Receivables: Associates of CEC | 86 | 82 | | Prepayments: Subsidiaries of CEC | 96 | 221 | | Contract Liabilities: Subsidiaries of CEC | 202 | 456 | Remuneration of Key Management Personnel (US$'000) | Item | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Salaries, Allowances, Bonuses and Other Benefits | 1,125 | 1,116 | | Contributions to Pension Schemes | 22 | 25 | | Equity-settled Share-based Payments | – | 83 | | Total Remuneration Paid to Key Management Personnel | 1,147 | 1,224 | Independent Review Report This section presents the independent review report, outlining the auditor's conclusion on the interim financial information Auditor's Conclusion on Interim Financial Information Ernst & Young has reviewed the company's interim financial information in accordance with HKSRE 2410 and found no matters suggesting it was not prepared in all material respects according to HKAS 34 - Independent auditor Ernst & Young has reviewed the interim financial information in accordance with Hong Kong Standard on Review Engagements 2410[87][90] - The scope of a review is substantially less than an audit, and therefore no audit opinion is expressed[87][90] - Based on the review, nothing has come to their attention that causes them to believe the interim financial information is not prepared, in all material respects, in accordance with HKAS 34[88][91] Chief Executive Officer's Message This section provides the CEO's message, covering the company's performance in H1 2024, market opportunities, product innovation, and future strategies H1 2024 Performance Overview In H1 2024, the company faced global economic challenges and weak consumer electronics demand, leading to a short-term decline in sales and profit, though shipments increased sequentially from H2 2023 - The global economy faces severe challenges, with persistent inflation, high interest rates, and geopolitical tensions pressuring growth, while weak domestic demand in China impacts consumer electronics[93][95] - Inventory adjustments in the semiconductor industry are nearing completion, with supply and demand gradually rebalancing[93][95] H1 2024 Key Performance Indicators | Indicator | H1 2024 | H1 2023 | YoY Change | H2 2023 | QoQ Change (vs 2023 H2) | | :--- | :--- | :--- | :--- | :--- | :--- | | Shipments | Approx 170 million units | Approx 176.5 million units | -3.7% | Approx 159.5 million units | +6.6% | | Sales Revenue | US$61.9 million | US$85.3 million | -27.4% | | | | Net Profit Attributable to Owners of the Company | US$7.5 million | US$13.2 million | -43.3% | | Significant growth | Business Foundation & Market Opportunities The company flexibly adjusted its product portfolio, benefiting from China's home appliance subsidy policy, leading to a doubling of large display IC revenue and significant growth in OLED display IC shipments - Benefiting from China's home appliance subsidy policy, large display IC product revenue more than doubled year-on-year[98][101] - OLED display IC shipments increased by nearly 30% quarter-on-quarter compared to H2 2023, driven by market opportunity capture and high-demand electronic product iterations[98][101] - Shipments of new display IC bistable display products continued stable growth, but gross margin and average selling price of three-color display labels (E4) were affected by market competition and the anticipated launch of next-generation four-color displays (E5)[99][101] - Mobile display and mobile touch IC product shipments experienced a significant decline due to the continued weakness in the personal consumer market[99][101] Continuous Product Innovation & Future Prospects The company continues to invest in R&D for high-value-added new products, expanding into new markets like automotive and large e-paper, with several new products nearing mass production or market launch - For new display ICs, small-sized four-color display labels are nearing trial production, expected to drive both volume and price increases upon mass production[100][102] - OLED display ICs will expand into smart home solutions and IoT demand, with IC products supporting transparent PMOLED displays already developed[102] - For mobile display and mobile touch ICs, a human-machine interface display platform co-developed with TFT-LCD panel manufacturers will enter mass production in H2, and mini-LED backlight solutions are being developed for automotive applications by 2025[103] - Large display ICs have achieved mass production for several mainstream new products with major display manufacturers and have been authorized to develop next-generation P2P high-speed transmission interface display driver ICs, with project initiation expected in Q3[104] - Development of automotive driver IC solutions has commenced, targeting mass production for mainstream Chinese automotive systems by 2025[104] - In the medium and large e-paper market, large quantities of full-color e-paper notebook and e-reader driver IC sets have been shipped, with international brand end products expected in H2[105][106] Future Outlook and Strategies The company anticipates continued global economic uncertainty and price pressure in consumer electronics in H2, focusing on R&D for high-value-added products and expanding into emerging applications like automotive and large e-paper - The global economic outlook for H2 remains uncertain, with high interest rates, trade frictions, and policy variables continuing to impact personal electronic consumption, leading to short-term price pressure on products[107][110] - Wafer foundries are expected to maintain stable prices in H2[107][110] - The company will continue to invest in R&D for high-value-added new products, consolidate its market leadership, and actively expand into emerging application areas such as automotive devices and medium-to-large e-paper[108][110] - The company will closely monitor market changes, flexibly adjust its product portfolio, and focus on technological advancements to maintain its competitive edge[108][110] Management Discussion and Analysis This section provides management's discussion and analysis of the company's business and financial performance, including a review of operations, outlook, and financial results Business Review In H1 2024, global economic slowdown and weak consumer electronics demand impacted the company, though semiconductor inventory destocking neared completion, with varied performance across product lines Overall Business Performance In H1 2024, global economic growth slowed, impacting consumer electronics demand in China, while semiconductor inventory destocking neared completion, leading to a 3.7% YoY decline in shipments but a 6.6% QoQ increase - Global economic growth remains in deceleration, with the Chinese market significantly impacting consumer electronic product demand due to real estate contraction and weak domestic demand[111][114] - Overall industry inventory destocking is nearing completion, with market supply and demand gradually balancing; wafer foundries' price reductions from last year have reflected in the period, easing cost pressure[111][114] H1 2024 Shipments and Sales Revenue | Indicator | H1 2024 | H1 2023 | YoY Change | H2 2023 | QoQ Change (vs 2023 H2) | | :--- | :--- | :--- | :--- | :--- | :--- | | Shipments | Approx 170 million units | 176.5 million units | -3.7% | 159.5 million units | +6.6% | | Sales Revenue | US$61.9 million | US$85.3 million | -27.4% | | | New Display ICs New Display ICs, primarily bistable display products like electronic shelf labels, saw stable shipment growth but reduced revenue due to lower average selling prices from market competition and the transition to four-color display technology - New Display IC products primarily refer to bistable display products, with stable shipment growth during the period[115][116][119] - Due to retailers awaiting the launch of new generation four-color displays (E5) and market competition, the average selling price of three-color display labels (E4) decreased, leading to reduced revenue[116][119] - The company supports E Ink's development of Spectra™ 3100 display IC solutions for electronic shelf labels and retail signage, successfully achieving four-color display[116][119] - Small-sized four-color display labels are expected to undergo trial production soon, with mass production anticipated to drive both volume and price increases in the New Display IC segment[116][119] - Medium and large-sized e-paper related display IC products will be reclassified under the Large Display IC business[118][119] OLED Display ICs The Group, as the world's largest PMOLED display driver IC manufacturer, saw OLED display IC shipments remain flat YoY but significantly increase QoQ, driven by market opportunities and high-demand product iterations - The Group is the world's largest PMOLED display driver IC manufacturer, holding a dominant market share by shipment volume during the period[120][122] - OLED display IC shipments remained largely flat year-on-year but increased significantly by nearly 30% compared to H2 2023, primarily due to the Group's timely capture of market opportunities and iterations of individual high-demand electronic products[120][122] - The company launched a series of price-competitive icon ICs suitable for 1 to 4-inch displays, helping to expand the large panel market for smart home appliances[121][122] - Newly developed IC products supporting transparent PMOLED displays, with their end products launched during the period, can be applied in transparent display applications such as diving masks[121][122] - In 2023, the company launched the world's first small-sized passive micro-LED display driver IC – SSD2363, and is actively engaging with various customers to apply this product to high-value projects such as automotive devices[123][126] Mobile Display and Mobile Touch ICs Due to persistent weakness in the personal consumer market, particularly in game controller IC sales, the Group's mobile display and mobile touch IC product shipments and revenue significantly declined - During the period, due to the continued weakness in the personal consumer market, especially affecting game controller IC sales, the Group's mobile display and mobile touch IC product shipments and revenue significantly declined[124][127] - The Group is jointly developing a human-machine interface display platform with several leading small and medium-sized TFT-LCD display panel manufacturers, with mass production expected in H2[125][127] - The company is developing mini-LED backlight solutions, with the FPGA development platform completed, and standard IC development to follow, with products expected to launch in 2025 for automotive applications[128] Large Display ICs Benefiting from China's home appliance subsidy policy, Large Display IC product shipments and revenue more than doubled year-on-year, with new product mass production and development in automotive and e-paper markets - During the period, benefiting from a series of home appliance subsidy policies introduced by China at the end of 2023, Large Display IC product shipments and revenue more than doubled compared to the same period last year[130][131] - The company collaborated with major display panel manufacturers to mass produce several mainstream new products for international end brands, including high refresh rate gaming monitors and smart TVs[132][135] - The company was authorized by a major Chinese display panel manufacturer to develop next-generation P2P high-speed transmission interface display driver ICs, with the project expected to commence in Q3 of this year[132][135] - Development of automotive driver IC solutions has officially begun, targeting mass production by 2025 for mainstream Chinese automotive systems[133][135] - In the medium and large e-paper market, large quantities of full-color e-paper notebook and e-reader driver IC sets have been shipped, with international brand end products expected in H2[134][135] Outlook The company anticipates continued global economic uncertainty and price pressure in H2, focusing on developing high-value-added products and expanding into emerging applications like automotive and large e-paper to ensure competitiveness - Global inflation, trade frictions, and policy uncertainties will keep interest rates high, impacting personal consumption expenditure, with products still facing short-term price pressure[136][139] - Wafer foundries are expected to maintain original prices or decrease them in H2, with a low chance of price increases[136][139] - The Group will allocate more resources to developing high-value-added new products to strengthen its capabilities and prepare for economic recovery[137][139] - The Group will actively expand into emerging application areas such as automotive devices and medium-to-large e-paper, believing automotive devices hold significant market potential[138][139] - The company will continue to closely monitor market changes, flexibly adjust its product strategy, and focus on improving technology to ensure its competitiveness[138][139] Financial Review The Group's H1 2024 revenue and gross profit declined due to high inflation and the e-shelf label technology transition, but strong liquidity was maintained, with increased cash and cash equivalents Revenue and Results Overview The Group's H1 2024 revenue decreased by 27.4% to US$61.9 million, with gross profit at US$19.8 million and a gross margin of 32.0%, primarily due to high inflation and strategic inventory clearance during the e-shelf label technology transition H1 2024 Revenue and Results Overview | Indicator | H1 2024 | H1 2023 | YoY Change | | :--- | :--- | :--- | | Revenue | US$61.9 million | US$85.3 million | -27.4% | | Gross Profit | US$19.8 million | US$27.9 million | -29.0% | | Gross Margin | 32.0% | 32.7% | -0.7% point | | Selling and Distribution Expenses | US$1.9 million | | +46.1% | | Administrative Expenses | US$4.6 million | | +22% | | R&D Costs | US$8.0 million | US$10.6 million | -24.5% | | R&D Costs as % of Total Sales | 12.9% | 12.4% | +0.5% point | | Net Profit Attributable to Owners of the Company | US$7.5 million | US$13.2 million | -43.2% | | Interim Dividend | Not recommended | Nil | | - The decrease in sales revenue and gross profit was primarily due to the impact of high inflation on consumer electronic product demand and the strategic clearance of E4 IC inventory during the transition from three-color (E4) to four-color (E5) electronic shelf label technology, leading to lower average selling prices[140][142] Liquidity and Financial Resource Despite a year-on-year decrease in net profit attributable to owners of the company in H1 2024, it remained higher than H2 2023, demonstrating strong liquidity with a current ratio of 4.59 and increased interest income - Net profit attributable to owners of the company in H1 2024 remained higher than H2 2023, primarily due to better product development strategies and stringent cost control measures[143][144] Liquidity Position (US$'000) | Indicator | June 30, 2024 (Unaudited) | December 31, 2023 (Audited) | | :--- | :--- | :--- | | Current Assets | 160,076 | 148,598 | | Current Liabilities | 34,875 | 29,974 | | Net Current Assets | 125,201 | 118,624 | | Current Ratio | 4.59 | 4.96 | | Interest Income | 2,132 (H1 2024) | 934 (H1 2023) | Treasury Management The Group's internal treasury review team actively monitors its investment portfolio to enhance returns on cash reserves, with total cash and pledged bank deposits increasing to US$102.1 million, primarily invested in bank deposits - The Group has an internal treasury review team responsible for implementing treasury management policies, reviewing the overall investment portfolio, and regularly monitoring investment performance to enhance returns on cash reserves[148][152] - As of June 30, 2024, cash and cash equivalents and pledged bank deposits totaled US$102.1 million, an increase of US$15.7 million[149][152] - Of this, US$6.0 million denominated in US dollars is pledged to banks for financing operating purposes[149][152] - The Group's major receivables and payables are settled in US dollars, and no derivative instruments are used to hedge its operational foreign exchange risks[151][152] Capital Expenditure and Contingent Liabilities In H1 2024, the Group's capital expenditure was US$1,778,000, with contracted but unprovided capital expenditure of US$596,000 as of June 30, and no other significant capital commitments or contingent liabilities Capital Expenditure and Commitments (US$'000) | Item | H1 2024 | H1 2023 | | :--- | :--- | :--- | | Capital Expenditure | 1,778 | 122 | | Contracted but Unprovided Capital Expenditure (as of June 30) | 596 | 2,300 (Dec 31, 2023) | - Save as disclosed above, the Group had no other significant capital commitments or contingent liabilities[153][157] Acquisition and Disposal of Material Subsidiaries and Associates During the review period, the Group did not acquire or dispose of any material subsidiaries or associates - During the review period, the Group did not acquire or dispose of any material subsidiaries or associates[154][158] Charge of Assets As of June 30, 2024, pledged bank deposits amounting to US$6.0 million were pledged to banks for securing bank facilities - As of June 30, 2024, pledged bank deposits amounting to US$6.0 million (December 31, 2023: US$6.0 million) were pledged to banks for securing bank facilities[155][159] Human Resources and Remuneration Policy As of June 30, 2024, the Group had 309 employees, with a 12.6% decrease in staff costs due to lower bonuses, and remuneration policies based on individual performance - As of June 30, 2024, the Group had 309 employees, with approximately 37% based at the Hong Kong head office and the remainder in Mainland China and Taiwan[156][160] - Employee salaries and other benefits expenses decreased by 12.6% to approximately US$11.1 million, primarily due to lower bonuses resulting from reduced profits in the previous year[156][160] - Remuneration policy is determined based on individual employee performance, offering provident funds, pension schemes, medical and other insurance, and discretionary bonuses[156][160] Directors' Interests This section details the interests of directors and the chief executive in the company's shares and share options as of June 30, 2024 Directors' and Chief Executive's Interests in Shares and Share Options As of June 30, 2024, Executive Director Mr. Wang Huazhi held 5,600,000 ordinary shares and 6,000,000 share options, representing 0.46% of the issued share capital, with no directors exercising share options during the period Directors' and Chief Executive's Interests in Ordinary Shares and Share Options of the Company (As at June 30, 2024) | Director Name | Nature of Interest | Number of Shares Held | Number of Share Options Held | Total | Percentage of Company's Issued Share Capital | | :--- | :--- | :--- | :--- | :--- | :--- | | Dr. Chan Ching Ho, Independent Non-executive Director | Beneficial Owner | – | 1,600,000 (ii) | 1,600,000 | 0.06% | | Mr. Wang Huazhi, Executive Director | Beneficial Owner | 5,600,000 | 6,000,000 (iii) | 11,600,000 | 0.46% | - At no time during the period did any Director or Chief Executive (including their spouses and children under 18) own, or were granted, or exercised any rights to subscribe for shares of the company or its associated corporations required to be disclosed under the SFO[165][166][167] Substantial Shareholders' Interests This section outlines the interests of substantial shareholders in the company's shares as of June 30, 2024 Interests of Substantial Shareholders As of June 30, 2024, Huada Semiconductor Co, Ltd, China Electronics Corporation, and China Electronics Information Industry Group Co, Ltd (CEC) each held a long position of 706,066,000 ordinary shares, representing 28.29% of the company's issued share capital Interests of Substantial Shareholders in Ordinary Shares of the Company (As at June 30, 2024) | Shareholder Name | Capacity | Nature of Interest | Number of Shares Held | Percentage of Company's Issued Share Capital | | :--- | :--- | :--- | :--- | :--- | | Huada Semiconductor Co, Ltd | Beneficial Owner | Long Position | 706,066,000 | 28.29% | | China Electronics Corporation | Interest of Controlled Corporation | Long Position | 706,066,000 | 28.29% | | China Electronics Information Industry Group Co, Ltd | Interest of Controlled Corporation | Long Position | 706,066,000 | 28.29% | - China Electronics Information Industry Group Co, Ltd (CEC) is a state-owned electronic information technology enterprise group directly managed by the central government of the People's Republic of China[170][171] Share Option Scheme This section provides an overview of the company's share option scheme, including its objectives, terms, and details of share option movements Scheme Overview The company adopted the 2013 Share Option Scheme on May 28, 2013, for a 10-year term, to incentivize participants by offering opportunities to acquire company shares and enhance company value - The company adopted the 2013 Share Option Scheme on May 28, 2013, for a term of 10 years, aiming to provide participants with an opportunity to acquire shares and encourage collaboration to enhance the company's value for the benefit of the company and its shareholders as a whole[173][174][176] - Under the scheme, the total number of shares that may be issued shall not exceed 10% of the company's issued share capital at the date of approval of the scheme or 30% of the company's issued share capital from time to time[174][176] - The total number of shares of the company issued and to be issued upon exercise of share options granted to any participant in any 12-month period shall not exceed 1% of the company's issued shares[175][176] Share Option Details and Movements The subscription price for share options is determined by the Board, not less than the higher of the closing price on the grant date or the average closing price of the preceding five business days - The subscription price for share options shall be the higher of: (a) the closing price of the shares as stated in the daily quotation sheet of the Stock Exchange on the date of grant; and (b) the average closing price of the shares as stated in the daily quotation sheets of the Stock Exchange for the five business days immediately preceding the date of grant[176] - As the 2013 Share Option Scheme expired on May 27, 2023, no share options were granted during the review period[177] - As of June 30, 2024, a total of 19,240,000 valid share options remained unexercised, entitling holders to subscribe for 19,240,000 shares of the company, representing 0.77% of the company's total issued shares[177] Movements in 2013 Share Option Scheme (Number of Share Options, in thousands) | Item | Held at January 1, 2024 | Granted During Period | Exercised During Period | Cancelled/Lapsed During Period | Held at June 30, 2024 | | :--- | :--- | :--- | :--- | :--- | :--- | | Total | 29,600 | – | – | (10,360) | 19,240 | Share Option Valuation The company uses a binomial pricing model to calculate the fair value of granted share options, with key parameters including grant date, share price, exercise price, expected life, volatility, risk-free rate, and dividend yield - The company uses a binomial pricing model ("Model") to calculate the fair value of granted share options[184][186] Key Parameters for Share Option Valuation (Granted in 2023) | Parameter | Granted on May 25, 2023 | Granted on March 24, 2023 | | :--- | :--- | :--- | | Number of Share Options Granted (in thousands) | 5,400 | 500 | | Total Value of Share Options – US$ equivalent (thousands) | 114 | 14 | | Share Price at Grant Date (HKD) | 0.455 | 0.500 | | Exercise Price (HKD) | 0.463 | 0.546 | | Expected Life of Share Options (Years) | 2 | 3-4 | | Annual Volatility | 76.9% | 77.2%-83.6% | | Risk-free Rate | 3.64% | 2.78%-2.84% | | Dividend Yield | 2.33% | 2.33% | - The calculated fair value has inherent subjectivity and uncertainty due to given assumptions and the limitations of the model itself[186] Corporate Governance and Supplementary Information This section covers the company's adherence to corporate governance codes, review of financial information, and investor relations activities Compliance with Corporate Governance Code For the six months ended June 30, 2024, the company consistently complied with all applicable code provisions of the Corporate Governance Code as set out in Appendix C1 of the Listing Rules - For the six months ended June 30, 2024, the company consistently complied with all applicable code provisions of the Corporate Governance Code as set out in Appendix C1 of the Listing Rules[187] Compliance with the Model Code The company maintains written guidelines for securities transactions by directors and relevant employees, which are no less exacting than the Model Code, and all directors confirmed compliance during the period - The company maintains written guidelines for securities transactions by directors and relevant employees, with terms no less exacting than the required standards set out in Appendix C3 of the Listing Rules[187] - All directors confirmed compliance with these guidelines for the six months ended June 30, 2024, and the company is unaware of any non-compliance by relevant employees with the Model Code[187] Purchase, Sale or Redemption of the Company's Listed Shares During the six months ended June 30, 2024, neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's listed shares - During the six months ended June 30, 2024, neither the company nor any of its subsidiaries purchased, sold, or redeemed any of the company's listed shares[187] Review of Interim Condensed Consolidated Financial Information The unaudited interim condensed consolidated financial information has been reviewed by management and the audit committee, and by the company's independent auditor, Ernst & Young, in accordance with HKSRE 2410 - The unaudited interim condensed consolidated financial information has been reviewed by management in conjunction with the audit committee[187] - This information has been reviewed by the company's independent auditor, Ernst & Young, in accordance with Hong Kong Standard on Review Engagements 2410[187] Investor Relations and Communications The Group actively communicates with investors, including institutional investors, sell-side analysts, and retail investors, holding conference calls in H1 2024, with shareholders able to access the latest information via the company website - The Group adopts a proactive approach to communicate with the investing public, including institutional investors, sell-side analysts, and retail investors[188][190] - In H1 2024, the Group continued to hold conference calls with investors and analysts[188][190] - Shareholders can access the latest information on the Group's website (www.solomon-systech.com) from time to time[188][190] Publication of Interim Results on the Stock Exchange's Website and the Company's Website The company published all interim financial and related information for the Group, as required by the Listing Rules, on the Stock Exchange's website and its own website on August 22, 2024 - The company published all interim financial and related information for the Group, as required by the Listing Rules, on the Stock Exchange's website (www.hkexnews.hk) and its own website (www.solomon-systech.com) on August 22, 2024[189][191] Definitions and Glossary This section provides definitions of key terms and abbreviations used in the report to aid reader comprehension Key Terms and Abbreviations This chapter provides definitions of key terms and abbreviations used in the report to help readers understand the financial report content Corporate and Shareholder Information This section provides general corporate and shareholder-related information, including financial calendar, listing details, and contact information General Corporate Information This chapter provides the company's financial calendar, share listing information, issued shares, share registrar, independent auditor, legal counsel, board members, authorized representatives, company secretary, qualified accountant, corporate communications/investor relations contact, head office address, and company website - The financial year-end is December 31, with interim results announced on August 22, 2024[194] - Shares are listed on the Main Board of The Stock Exchange of Hong Kong Limited under stock code 2878, with a trading unit of 2,000 shares and trading currency in HKD[194] - As of June 30, 2024, the number of issued shares was 2,495,652,351[194] - The company has independent auditor Ernst & Young and legal counsel Loeb & Loeb LLP[194][195] - Board members include Executive Director Mr. Wang Huazhi (Chief Executive Officer), Non-executive Directors Mr. Ma Yuchuan (Chairman), Mr. Wang Hui, and Ms. Liu Fei, and Independent Non-executive Directors Mr. Chan Chi Kwong, Dr. Chan Ching Ho, and Dr. Kwok Hoi Sing[196] - The company's head office is located at Hong Kong Science Park, with corporate communications/investor relations email at ir@solomon-systech.com[196]