As a top-tier designer of magnetic sensor chips in China, Orient-Chip has developed a rich product matrix covering downstream applications in consumer electronics, industrial automation, security surveillance and other fields while extending its presence into optical sensors and power management chips. In 2021, the Company’s magnetic sensor chips successfully entered the supply chain of first-tier auto manufacturers, and the cooperation is likely to extend to power management chips and optical sensors going forward. Looking ahead, we expect Orient-Chip to deeply benefit from the trend of auto electrification and intelligentization.

We initiate coverage with a “BUY” rating.

Overview: Leading domestic magnetic sensor chip manufacturer marches into the power management chip field, focusing on consumption and building presence in vehicles.

Founded in 2005, Orient-Chip started with magnetic sensor chip products, and then continued to expand product categories and application fields to optical sensor chips and power management chips. The Company’s products are widely used in consumer electronics, industrial control, automotive electronics, medical equipment, smart security surveillance, smart home and many other downstream fields. Its customers include Gree, Midea, Edifier, Hikvision, Danfoss, Xiaomi, Samsung, Transsion, Wingtech and other well- known manufacturers in various fields. As of 2021, the Company’s revenue/ attributable net profit (ANP) reached Rmb537mn/Rmb125mn (+85%/+184% YoY), respectively. Looking ahead, Orient-Chip takes the lead in achieving breakthroughs in the field of new energy vehicles (NEVs) with magnetic sensor chips as its key products, which is likely to drive the rapid introduction of chips for power management, optical sensors and other product lines in the automotive and other markets, injecting new momentum into subsequent development.

Sensor chips: Focusing on magnetic sensor chips, Orient-Chip successfully entered the automotive market.

The intelligent sensor chips are the basis of internet of everything (IoE).Orient-Chip focuses on the magnetic/optical sensor fields, and achieved revenue of Rmb190mn/10mn, accounting for 35%/2% of the total, respectively, in 2021. 1) Magnetic sensors are based on the Hall/ magnetoresistive effect which enables contactless measurement of physical information such as switch, position, speed and current, which are widely used in automotive, industrial and consumer electronics applications.

According to Yole, the global market space was about US$3bn in 2021, and the CAGR may reach about 10% over 2021-27. At present, European, American and Japanese manufacturers such as Allegro, Infineon, AKM, Melexis, and TDK occupy a major market share, while domestic manufacturers hold a relatively low share and mostly focus on consumer electronics. The Company currently focuses on switch, linear and motor- driven magnetic sensor products and is expanding to the fields of angle and current sensor chips. The key technical performance of the products on sale has been tied with overseas major manufacturers with a price advantage.

Orient-Chip has acquired well-known customers in the consumer electronics field with a global share of about 1.1%. It is also actively building its presence in automotive electronics field with some of the chips recognized as automotive-grade products. The Company successfully entered the supply chain of first-tier automakers, fueling future growth. 2) Optical sensor is the core component on the emitter end of 3D sensing technology, which includes infrared (IR) LED and vertical cavity surface emitting lasers (VCSEL). They are used for facial recognition, machine vision and other fields. According to Yole Development’s calculation, the target market space of Orient-Chip’s optical sensors (IR-LED and VCSEL) in 2021 was about US$4.3bn, and mainstream suppliers include Lumentum, II-VI, AMS, TRUMPF, etc. The Company’s optical sensors have been supplied in batches to offline terminal equipment of facial recognition payment, and have been applied to the intelligent industrial robot solutions of the German PMD Group. Going forward, the revenue growth will likely grow with the increasing penetration of 3D sensing technology.

Power management chips: Continue to expand categories and form synergy with the magnetic sensor chip business.

Power management chip has the largest growth headroom among all the analog chips, which includes many niche tracks such as direct current to direct current (DC/DC) converter, alternating current to direct current (AC/DC) converter, linear & low-dropout (LDO) regulators, integrated circuit (IC) drive, etc. According to Frost & Sullivan (quoted from the prospectus of Southchip), the global market space in 2021 was about US$38bn, and the CAGR is likely to be nearly 8% in the next 5 years. Like magnetic sensor market, this market is also dominated by major overseas manufacturers such as TI, ADI, and Infineon. The Company’s power management chip business is mainly based on various drives such as screen bias, flashlight, backlight, and LED lighting.

It is actively promoting the development of motor drives, DC/DC and other product lines, and plans to enter lithium battery charging/protection chip fields. In 2021, Orient-Chip’s power management business revenue reached Rmb280mn, accounting for 52% of the total. At present, the Company’s power management chips are dominated by consumer electronics. With the active promotion of automotive-grade products and synergy with the magnetic sensor chip business, it is likely to further fuel room for growth.

Development path: Continue to expand the product lines, based on consumer electronics, and enter the field of automotive electronics.

Orient-Chip continues to enrich its product categories in the field of magnetic sensor, optical sensor and power management chips. In terms of magnetic sensor chips, the Company has built a complete product mix covering switch, current and location sensors. In terms of power management chips, it also has general chips such as DC/DC, LDO and switches, and specialized chips for screen bias, flashlight, backlight, audio amplifier and so on. Orient-Chip is also actively building presence in motor drives, and has formed a diversified product matrix including brushless chips and stepper. At the same time, it also actively marches into the industrial and automotive electronics markets. At present, the magnetic sensor has taken the lead in achieving breakthroughs in the field of NEVs, and is likely to drive the rapid introduction of power management, optical sensors and other product lines in the automotive and other markets to gain new growth momentum for future development.

Potential risks: Less-than-expected downstream demand; intensified market competition;