The "boom" of capital in the camera industry

"Follow your own path and leave others with no way to follow." This seems to have become the main theme of competition in the mobile camera industry in 2014, and it also seems likely to continue in 2015.

The so-called "taking our own path" means leveraging capital power to increase the production capacity and sales volume of camera products, in order to expand our market share in the field of mobile phone cameras and establish our competitive advantage in this area.

Based on this, Bo Gao began to hear in early 2014 that a certain listed company had started to explore the camera module industry, a certain camera module was preparing for capital operation, and a company's plan for going public through a shell acquisition was about to succeed. Shilir International (00732.HK) was preparing to split its touch screen and camera business for listing.

The true outcome gradually came to light. Ucitel Technology (01478.HK) successfully listed on the Hong Kong stock exchange on December 2, 2014. For a while, the mobile phone camera industry seemed to be witnessing a "boom" of capital.

"This prosperity has a somewhat 'self-serving' flavor." Some camera module manufacturers' bigwigs actually view the aforementioned capital moves with a detached attitude, because some capital operations are somewhat superficial in nature. These listed companies in China are eager to find real industries to boost their performance, and the market size of camera modules does indeed have room for imagination.

However, the reality is that there is a quantity of camera modules but no profit. Brother Gang learned from various information sources that in 2014, Shunyu Optics (02382.HK) had camera module revenue of around 6.4 billion yuan, Ophir Optics (002456.SZ) had camera module revenue of around 3 billion yuan, and Shilie International had camera module revenue of around 2.3 billion yuan. Although the revenue scale was decent, the combined gross profit margin of the products was only around 10%. Of course, this figure has not been officially confirmed by all the manufacturers.

Perhaps precisely because of this, the revenue of Ophir Optoelectronics has been continuously expanding, while its stock price has remained hovering around 20 yuan. The stock price of Shilin International has been continuously declining, dropping from 4.3 Hong Kong dollars in October 2014 to 3 Hong Kong dollars. The newly listed Qutai Technology also remained below its offering price on January 6th. These phenomena should reflect the true attitude of the capital market towards the camera module market.

The production capacity of mobile phone camera modules has become severely overcapacity, and the profit margin of these products has been continuously declining. In 2012, it was 15%, in 2013, it was 12%, and in 2014, it might only be around 5%.” Said a senior executive in the camera industry.

Some camera module manufacturers also said that although the profit margins of camera module products are relatively low, the total sales volume can be very large and the net profit is also considerable. Therefore, some investors who have a deeper understanding of this industry tend to like it more.

In fact, the capital investors are still closely monitoring the developments of the hidden giants in the domestic mobile phone camera industry.

Boi Gang learned from manufacturers of VCM motors, Zhonglan Electronics, Wufang Optoelectronics (an infrared filter manufacturer), and other upstream camera manufacturers that capital parties, including venture capital and funds, have been in close contact with these upstream manufacturers and are actively seeking investment opportunities.

Because the production capacity of essential components for mobile phone cameras such as camera chips, VCM zoom motors, blue glass, and lenses is still very limited and these products have high technical requirements. However, due to the small revenue scale of their specific fields, it is difficult for industrial investment to expand significantly like the camera module products do. Therefore, industrial investment is reluctant to get involved.

The fundamental reason why this industry is favored by capital (including venture capital and funds) is that it is a component processing industry, requiring large investment and having relatively low technical content. The higher the position of the camera component in the upstream, the higher the technical content and the higher the profit of the products.

Perhaps the data can better illustrate the situation.

Fuxian Optoelectronics, established in 2010, specializes in infrared cutoff filters and blue glass filters. Its annual output exceeded 180 million yuan in 2013 and is expected to exceed 400 million yuan in 2014.

Established only three years ago, Zhonglan Electronics specializes in VCM motor products. The mathematical formula for achieving a revenue of 300 million yuan in 2014 was: 600 people + 600 square meters of production workshop = 300 million yuan.

It is reported that Zhonglan Electronics plans to go public in China in 2016, and the listing time of Wufang Optoelectronics is also within three years.