In 2019, China's chip localization rate was only 30%, with CPUs accounting for only a single-digit percentage. That June, Hygon was added to the US Entity List under the Export Administration Regulations, forcing the company to rely entirely on independent research and development thereafter.

Fast forward to 2022, the localization rate of CPUs had reached nearly 40%. By 2024, during the operator's centralized procurement, the domestic CPU market share had approached 70%.

The majority of this 70% share is divided among six domestic companies: Huawei Hisilicon, Loongson Technology, Hygon, Zhaoxin, Shenwei, and Phytium. Among these top players, only Hygon and Zhaoxin are based on the x86 instruction set. In terms of core count and hyper-threading, Hygon leads Zhaoxin.

As the leader, Hygon has reaped the benefits of domestic substitution. These "dividends" are reflected in Hygon's impressive financial report for the third quarter of 2024.

Behind the Explosive Results

In the third quarter of 2024, Hygon generated revenue of 2.374 billion yuan, up 78.33% year-on-year, with net profit attributable to shareholders of 672 million yuan, a staggering 199.9% increase year-on-year.

Regarding this performance, Hygon attributed it to increased investment in R&D, leading to competitive products and growing market demand.

Looking back, in 2019, when the domestic chip market share was less than 30%, Hygon's revenue was only 379 million yuan. By the end of 2023, however, revenue had soared to 6.012 billion yuan, and reached 6.137 billion yuan in the first three quarters of 2024. Profits also surged, from a loss of over 83 million yuan in 2019 to a profit of 1.263 billion yuan in 2023, and 1.526 billion yuan in the first three quarters of 2024. This robust profitability underscores the relentless development momentum of domestic computing power chips.

Meanwhile, compared to semiconductor companies like Allwinner Technology, Well Lead and JHF Semiconductor, which reported third-quarter net profit growth rates of 820.01% and 542.5% respectively, Hygon's performance may not seem as remarkable.

However, Digital Intelligence Research found that while the explosive growth of companies like Well Lead and Allwinner appears impressive, it's actually a turnaround from a previous downturn. For instance, Well Lead's net profit attributable to shareholders for the first three quarters of 2020 to 2024 was 1.727 billion yuan, 3.518 billion yuan, 2.149 billion yuan, 368 million yuan, and 2.47 billion yuan, representing growth rates of 1177.75%, 103.78%, -38.91%, -82.86%, and 1595.8% respectively. Despite the strong showing in 2024, Well Lead's performance has yet to recover to 2021 levels.

Unlike Well Lead, Hygon's performance has shown no discernible cyclical pattern. From 2020 to the third quarter of 2024, Hygon's net profit attributable to shareholders grew steadily, from a loss of 39.14 million yuan to 327 million yuan, 804 million yuan, 1.263 billion yuan, and 1.526 billion yuan, demonstrating Hygon's stability and ability to navigate economic cycles.

Behind this steady profit growth, Hygon's gross and net profit margins have also increased steadily. The gross profit margin has risen from 37.31% in 2019 to 63.43% in the first half of 2024, with only a slight narrowing in 2022 compared to 2021.

Similarly, the net profit margin has soared from -36.23% in 2019 to 32.58% in the first half of 2024, surpassing peers and even rivaling A-share giants like Yangtze Power and Pien Tze Huang.

Behind this stable profitability, Digital Intelligence Research found that Hygon relies on the highly compatible and widely used x86 instruction set. Its high-end Hygon 7285 outperforms domestic peers and even international giants in terms of core count and memory. Looking ahead, Hygon is poised for a showdown with giants like Intel and AMD.

In the long run, market analysts predict that China's information technology application market will exceed 300 billion yuan by 2027, with a compound annual growth rate of nearly 50%. As the core of this market, the CPU market is poised for significant growth, which will undoubtedly benefit Hygon.

Collective Shareholder Sell-offs

On August 12, 2022, Hygon officially listed on the STAR Market at an IPO price of 36 yuan per share. On its debut, the stock closed 66.94% higher, valuing the company at nearly 140 billion yuan.

However, the stock subsequently experienced volatility, dropping to 36.15 yuan per share by October 12. But it then rebounded, reaching an all-time high of 148.7 yuan per share on October 9, 2024, valuing the company at a staggering 309.14 billion yuan.

Since its inception, Hygon has undergone multiple rounds of financing, attracting investors such as Chengdu Industry Group, Chaos Investment, CITIC Securities, Guoke Holdings, CBC Capital, and Changhong Electric. As the stock price climbed, initial shareholders began selling off their shares en masse.

Hygon's third-quarter report revealed that Chaos Investment, led by renowned investor Ge Weidong, sold 4.133 million shares, realizing a profit of approximately 320 million yuan based on the weighted average price. After the sale, Chaos Investment still held 19.1958 million shares, valued at 2.553 billion yuan at the price of 132.99 yuan per share on October 18.

Notably, this was not Chaos Investment's first sell-off. In July 2020, Chaos Investment participated in a capital increase at a price of 11.21 yuan per share, contributing 44.59 million yuan, equating to an initial investment of approximately 500 million yuan. From 2023 to present, Chaos Investment has sold Hygon shares for over 2 billion yuan.

In addition to Chaos Investment, Haihe Industry Fund's Haihe Special Fund and Guoke Holdings also sold 1 million and 5.703 million shares, respectively, leaving them with 21.8658 million and 21.4648 million shares in Hygon. According to Digital Intelligence Research, Haihe Special Fund and Guoke Holdings have collectively realized over 600 million yuan and over 2.4 billion yuan through share sales.

Other initial shareholders, such as Rongtai Zhonghe and Zhongke Turing, have also been selling shares continuously. Currently, Zhongke Turing has disappeared from the top ten circulating shareholders list.

Dependence on Sugon

Hygon has a close relationship with another listed company, Sugon.

In its 2023 annual report, Hygon's top five customers accounted for an astonishing 99.14% of sales. The largest customer alone contributed 45.46% of sales, and the report explicitly states that this customer is affiliated with a listed company.

Undoubtedly, this major customer is Sugon.

Ironically, after gaining over 40% in 2024, Sugon's market value reached 80.8 billion yuan, while Hygon's surpassed 300 billion yuan. Based on Sugon's 27.96% stake in Hygon, its holding is valued at 83.88 billion yuan, exceeding its own market value.

As such, any fluctuations in Hygon's share price will affect Sugon. If Hygon continues its upward trajectory, it will undoubtedly propel Sugon's market value beyond the 100 billion yuan mark. Conversely, if Hygon reverses course, Sugon will inevitably suffer the consequences.