Fortior hopes to ride China chip wave to high valuation

The maker of microchips used in BLDC motors has filed for a Hong Kong IPO that could raise several hundred million dollars
Key Takeaways:
- Fortior has becoming the latest Chinese chipmaker to apply for a Hong Kong IPO, targeting international investors eager to buy into China’s semiconductor growth story
- The company, which designs chips used in motors, posted 54% revenue growth in the first nine months of last year and is solidly profitable
By Doug Young
The outlook for many Chinese sectors is quite cloudy these days, dampened by weak consumer sentiment and growing resistance to Chinese exports overseas. But one area that seems immune to such troubles is the country’s microchip sector, which has become a government darling lately as China tries to wean itself from reliance on other countries’ products.
A growing number of Chinese companies from the sector are taking advantage of that favoritism to raise big sums from state-backed investors and on capital markets. Most such companies previously confined themselves to stock exchanges in Shanghai and Shenzhen, targeting domestic investors. But a growing number are looking slightly farther to Hong Kong, eying a growing field of international investors looking for a piece of the action.
The latest of those is Fortior Technology (Shenzhen) Co. Ltd. (688279.SH), which filed a Hong Kong listing application in mid-January, and updated the document on Jan. 24. Unlike some of its peers to list in Hong Kong recently, which have attracted controversy for various reasons like lawsuits and trade sanctions, Fortior looks notable for its lack of controversy. The company also has a relatively long history for a Chinese semiconductor maker, dating back to 2010.
It’s anchored by a couple of industry veterans, brothers Bi Lei, its chairman, and CTO Bi Chao, whose professional roots and citizenship are both in Singapore, whose microchip market is more mature than China’s though still lags the most advanced Asian markets in Taiwan, Japan and South Korea. The sum of all those parts is a company that appears to have ducked most of the controversy surrounding some Chinese chipmakers and is also showing some impressive growth recently.
The listing’s sole underwriter is CICC, China’s leading investment bank, which means it’s likely targeting Asia-based investors. The company is already listed on Shanghai’s Nasdaq-style STAR Market, where its latest market value is 19.4 billion yuan ($2.7 billion). That implies Fortior is likely aiming to raise at least $270 million in its Hong Kong listing if it sells around 10% of its shares, and possibly more.
All that said, we’ll take a closer look at Fortior’s actual business, and its positioning that has allowed it to largely steer clear of all the controversy surrounding Chinese chipmakers. The company specializes in brushless DC (BLDC) motor control and driver chips, which are different from traditional motors because they are powered by electromagnetic forces.
Such motors are generally considered more efficient than more traditional types, and make up a growing part of the overall market for motors used in everything from power tools to home appliances and electric vehicles (EVs). The listing document cites third-party research saying BLDC motors grew from 12% of the overall global motor market in 2019 to 20% in 2023. Such motors are expected to keep taking share in the years ahead to make up about a third of the global motor market by 2028.
Homegrown company
Fortior is the sixth largest seller of BLDC motor chips in China, with 4.8% of the market. But it’s also notable for being the only homegrown Chinese company in the top 10 sellers, with the rest coming from other parts of Asia, North America and Europe. That means the company is likely to get more favorable treatment than many of its rivals due to its China roots, such as becoming a preferred supplier for many state-owned manufacturers.
The company’s finances look quite solid and are even showing the types of strong recent growth that should get investors excited. Its revenue rose 27% year-on-year to 411 million yuan in 2023. The growth rate doubled to 54% in the first nine months of last year when it generated 433 million yuan in sales versus 282 million yuan in the year-ago period.
The company’s operations look quite stable in terms of other metrics, with its cost of sales steady at about 47% over the last two years. Most of its other expenses also seem under control, and its R&D spending has actually come down from 20.6% of revenue in 2023 to 15% in the first nine months of last year, showing it is gaining economies of scale. Its gross margin has also been relatively steady at between 52% and 53% over the last three years.
The bottom line has been that Fortior’s profit rose 48% to 184 million yuan in the first nine months of last year from 124 million yuan a year earlier. While that slightly trails the 54% revenue growth over that time, the difference looks due to a smaller contribution from “other income and gains” that are likely unrelated to its core operations.
As we noted earlier, Fortior listed on Shanghai’s STAR Market in April 2022, raising about 1.9 billion yuan at that time. Its stock has done quite well since then, more than doubling from its IPO price of 82 yuan to its latest close of 210 yuan. That strong performance is no doubt a factor leading it to now pursue this second listing in Hong Kong.
A look at various valuation metrics show that Chinese chip companies are currently valued quite highly compared with their global peers, reflecting investor belief that the group will continue to get strong state support. Fortior’s Shanghai-listed shares currently trade at a high price-to-earnings (P/E) ratio of 82, similar to the 81 for Hong Kong-listed shares of leading Chinese contract chipmaker SMIC (0981.HK; 688981.SH). Like Fortior, SMIC’s Hong Kong and Shanghai-listed shares have both done quite well lately, roughly doubling since last September.
By comparison, Western chipmakers Infineon (IFX.DE) and STMicroelectronics (STM.US), which are also global leaders in BLDC motor chips, trade at far lower P/E ratios of 24 and 14, respectively.
Two other Chinese chip designers to list recently in Hong Kong have also done well. Shares of Horizon Robotics (9660.HK), whose chips are used for autonomous driving, are up 12% from their IPO price last October. And InnoScience (2577.HK), a maker of gallium nitrate (GaN) chips, is up by an even larger 34% from its December listing price.
All those signs, combined with its lack of controversy, look good for Fortior, leading us to predict the listing should enjoy healthy demand and price strongly if it makes it to market later this year.
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