The initial public offering of BASICSEMI (09971), often referred to as the first SiC IDM chip stock on the Hong Kong market, officially commenced on June 29th.

According to the prospectus, the company plans a global offering of 27.3862 million H-shares (assuming the over-allotment option is not exercised).

This comprises 1.3694 million shares for the Hong Kong public offering and 26.0168 million shares for the international placement.

The price range has been set between HK$27.49 and HK$31.62 per share, implying a post-IPO market capitalisation of approximately HK$8.365 billion to HK$9.622 billion.

Based on this, the total expected proceeds from the IPO are estimated to be between HK$753 million and HK$866 million.

The subscription period will conclude on July 3rd, with pricing expected on July 6th and official trading on the main board of the Hong Kong Exchange slated for July 8th.

It is noteworthy that the Hong Kong IPO market is currently experiencing a peak in supply, with as many as seven other new listings in the subscription phase concurrently, highlighting a significant capital diversion effect.

In this environment of limited capital chasing multiple opportunities, funds are likely to concentrate only on targets with higher fundamental certainty.

In contrast, while BASICSEMI's public offering may achieve substantial oversubscription due to the scarcity of its shares, the company still faces significant operational challenges.

The short-term enthusiasm driven by this share structure may struggle to mask long-term valuation pressures, potentially constraining post-listing share price performance.

No Cornerstone Investors and a Lack of Locked-up International Placement Shares

The IPO of BASICSEMI is being conducted under Chapter 18C of the Hong Kong Exchange's rules for specialist technology companies.

The global offering of 27.3862 million H-shares represents only 9% of the company's total share capital (assuming the over-allotment option is not exercised), with a corresponding offering size between HK$753 million and HK$866 million, indicating a relatively small overall issuance.

The Hong Kong public offering portion is only 1.3694 million shares, or 5% of the total offering, with the international placement making up the remaining 95% or 26.0168 million shares.

The public offering portion can be scaled up to a maximum of 20% through clawback if oversubscription reaches certain thresholds.

Despite the current ample supply of new Hong Kong listings, the confluence of three factors—recent high enthusiasm for new listings, semiconductors being a market focus, and the initial low 5% public offering ratio—makes substantial oversubscription for BASICSEMI's public offering a near-certainty.

This was already reflected in the first-day margin financing data; as of 5 p.m. on June 29th, total margin financing for BASICSEMI reached HK$4.98 billion, representing an oversubscription of approximately 115 times for the public offering based on the upper price limit.

However, for BASICSEMI, which lacks cornerstone investors, this "high public offering heat" may not necessarily be a positive.

Reviewing the performance of past Chapter 18C listings, companies whose fundamentals are still developing often employ a combination of "minimising the initial public offering ratio + introducing cornerstone investors to lock up international placement shares" to artificially tighten the free float and support the share price in the early listing period through scarcity.

BASICSEMI's initial 5% public offering ratio is already the minimum retail portion allowed under Chapter 18C rules; even if clawback is triggered, the maximum can only reach 20%—it has maximised the "public offering suppression" tactic, but completely lacks the core element of "locking up the international placement."

With almost no hard constraints on the international placement, if public offering enthusiasm drives up the opening price on the first trading day, bookrunners for the international placement could cash out at elevated levels with little friction.

This could lead to a scenario where the share price "opens high and closes low" or even falls below the issue price on the first day, a risk that IPO participants should be cautious of.

Nevertheless, although no cornerstone investors were introduced, BASICSEMI has established a "greenshoe" over-allotment option.

The stabilising agent can issue up to an additional 4.1078 million shares, representing 15% of the total global offering size.

If BASICSEMI's share price falls below the issue price after listing, the "greenshoe" will serve as a final "buffer" to help stabilise the share price.

Three-Year Cumulative Loss Exceeds 756 Million Yuan; Industry Recovery Unlikely to Resolve Profitability Dilemma

The current high sentiment for Hong Kong IPOs, coupled with SiC being a core focus within the semiconductor sector attracting intensive capital, undoubtedly provides BASICSEMI with significant short-term sentiment premium for this IPO.

However, it is crucial to recognise that valuation increases driven by sentiment only affect the initial listing period; the ultimate anchor for share price trajectory remains the company's fundamentals.

For BASICSEMI rushing to list under Chapter 18C, the market's primary point of contention regarding its IPO has never been the long-term potential of the silicon carbide (SiC) sector, but rather the persistently delayed realisation of short-term profitability.

According to the prospectus, from 2023 to 2025, BASICSEMI's adjusted net losses were approximately 313 million yuan, 203 million yuan, and 240 million yuan, respectively, with a cumulative three-year loss totalling a substantial 756 million yuan.

This predicament stems first from a sharp downturn in the industry cycle: during the global chip shortage of 2021-2022, SiC products once enjoyed high premiums.

However, with the concentrated release of domestic and international production capacity and a batch of new entrants flooding the sector, price competition has long since intensified.

Prospectus data shows that the average selling price of the company's core product, SiC power modules, plummeted from 2,558.7 yuan to 677 yuan over three years, a drop exceeding 73%, with the unit price shrinking by nearly three-quarters.

The IDM (Integrated Device Manufacturer) full-chain model chosen by the company further amplifies the pressure from the cyclical downturn.

While the IDM model can maximise profits during an industry upswing through full-chain control, during a downturn with low capacity utilisation, fixed costs such as factory depreciation, equipment amortisation, and cleanroom maintenance for wafer fabs and packaging plants are rigid expenditures that cannot be avoided by reducing capacity.

In 2025, the utilisation rate of the company's Wuxi production base, responsible for wafer manufacturing, was only 40%, hitting a new low since 2023.

This excessively low capacity utilisation directly leads to persistently high fixed cost allocation per unit product.

Squeezed from both ends, BASICSEMI has yet to escape negative gross margins: gross loss margins for 2023-2025 were 59.6%, 9.7%, and 10.9%, respectively.

This means that in 2025, for every 100 yuan of products sold, the company incurred a direct cost loss of 10.9 yuan.

If the negative gross margin is a visible gap on the income statement, then persistently high operating expenses are the hidden drag preventing losses from narrowing.

From 2023 to 2025, the combined sales, administrative, and R&D expenses as a percentage of revenue reached 89.2%, 71.2%, and 90.9%, respectively.

This is equivalent to nearly 90 cents of every yuan of revenue generated being used to cover various operating costs, almost completely eroding the safety margin for profitability.

Further breaking down the expense structure, R&D investment is the most significant rigid expenditure: over the past three years, it has consistently accounted for 30%-35% of revenue, reaching 35.3% in 2025.

This high-intensity investment is essentially a necessary stage for the company to build its full-chain IDM capabilities and advance automotive-grade products from certification to mass production—such upfront expenditures tied to long-term competitiveness are difficult to flexibly reduce with short-term revenue fluctuations, directly prolonging the arrival of a profitability inflection point.

Fortunately, BASICSEMI is approaching its listing amid a window of marginal improvement in the industry.

Following the first round of price increases in April, global power semiconductor leaders like Infineon and TI will initiate a second round of price hikes on July 1st, prompting nearly 20 industry chain companies to adjust prices simultaneously, bringing a glimmer of positive sentiment for BASICSEMI, which is mired in continuous losses.

However, analysing the industry structure reveals that the benefits of this recovery have clear boundaries, presenting a distinctly structural trend.

On the silicon-based front, driven by high-demand sectors like AI data centres, 800V new energy vehicles, and solar-plus-storage, and with 8-inch wafer capacity being squeezed by AI/HBM, IGBTs and MOSFETs have become the most certain beneficiaries of this industry recovery.

This does not directly overlap with BASICSEMI's main SiC business, presenting a mixed picture for the company.

The positive aspect is that the gate driver business, accounting for 33% of total revenue, can benefit from IGBT price increases; this is also the company's only segment with a positive gross margin.

The concerning aspect is that SiC power modules, which account for nearly 40% of revenue, are currently in the "deep water" of domestic substitution.

To narrow the price gap with IGBTs and accelerate market penetration, the domestic market still adheres to a "penetration first" strategy, leading to intense price competition.

This makes it difficult for Infineon's second-round price increases to smoothly translate to the domestic automotive module segment, and the downward momentum of a 73% ASP decline over two years has not yet been halted.

The profitability challenges for SiC discrete devices (diodes, single MOSFETs) are even more severe, with the segment's gross loss margin remaining as high as 65.4% in 2025, far from turning positive.

This is mainly constrained by two factors: firstly, on the cost side, substrate prices surged 170% within the year, but downstream industrial and consumer electronics customers have extremely low acceptance of price increases, rendering the cost-pass-through mechanism nearly ineffective.

Secondly, on the capacity side, the Zhongshan and Pingshan module production lines are in the ramp-up phase, prioritising the internal wafer supply of the IDM, which puts pressure on the utilisation rate for discrete devices and further worsens the allocation of unit depreciation costs.

Although the IDM model possesses long-term cost-hedging logic, new capacity additions in Zhongshan, Wuxi, and Pingshan are only expected to be concentratedly released between Q4 2026 and 2027.

During this interim period, high external substrate purchase costs may continue to erode the space for profitability recovery.

Thus, although the power semiconductor industry has entered a recovery phase, the characteristics of structural divergence are significant.

BASICSEMI internally also presents an "uneven" picture: only the gate driver business possesses certain earnings elasticity, while the SiC power modules and discrete devices, which are the mainstays of revenue, remain deeply mired in profitability difficulties.

Given the short-term constraints faced by these core businesses, the timing for the company's overall profitability realisation may be delayed, and investors should not hold overly high expectations for a profit turnaround in the near to medium term.