Long-term loss-making EDO aims to raise funds through listing to attack "flexible technology"

AMOLED semiconductor display panel manufacturer EDO has re-submitted its application for listing in Hong Kong after receiving approval from the China Securities Regulatory Commission earlier this month.

Key Points:

• To raise funds for its transformation to flexible AMOLED display panels, EDO plans to list in Hong Kong.
• Despite steady revenue growth over the past three years, production costs have consistently exceeded income, resulting in significant losses.

Chen Zhu

China's winning strategy across manufacturing sectors, from photovoltaics to new energy vehicles, follows the same path: government-led large-scale investments support companies through prolonged losses, with capacity building outpacing demand. The underlying logic is that once the market eventually catches up, profits will follow.

This model applies not only to emerging industries but also to traditional fields like display panels, which have continuously experienced technological iterations since the early LED and LCD eras. China has pursued this strategy to catch up with South Korea's market dominance, and has now nurtured global giants like BOE Technology Group (000725.SZ). This government-backed company endured nearly two decades of losses before achieving profitability.

Still in the early stages of development, Shanghai EDO Co., Ltd. (688538.SH) has landed on the Shanghai Stock Exchange and last week submitted a listing application to the Hong Kong market to seek new funding. After failing to obtain approval within six months, the application submitted in April of this year became invalid, necessitating a resubmission of materials.

Founded in 2012 and controlled by the Shanghai State-owned Assets Supervision and Administration Commission, the company was tasked with breaking through the then foreign-dominated emerging display technology field of AMOLED. More than a decade later, while EDO has successfully established itself in the AMOLED market and achieved initial goals, it remains deeply mired in profitability challenges compared to BOE, and has not provided investors with signals regarding when it might become profitable.

EDO's move to seek a secondary listing coincides with companies listed in Shanghai and Shenzhen catching up with the wave of connecting to global investors. The company has chosen China International Capital Corporation as its sponsor, indicating that if successful, the scale of this fundraising should be considerable.

As a state-owned enterprise in a strategic industry, its listing is almost certain to receive strong government support, as evidenced by the recent approval from the China Securities Regulatory Commission. Now, EDO needs to persuade Hong Kong investors who may demand a clearer path to profitability.

Before analyzing the company's operations and business, it is essential to understand the background of its core display technology. AMOLED (Active Matrix Organic Light Emitting Diode) is a mainstream OLED technology characterized by each pixel emitting light independently through organic compounds.

Compared to previous technologies like LCD and LED, AMOLED does not require a power-consuming backlight module, can present pure black images, offers higher contrast, and features significantly thinner screens, making it the preferred choice for smartphones and high-end devices. Currently, flexible AMOLED also supports manufacturers in creating curved and foldable screens, which traditional technologies cannot achieve.

Worsening Losses

Market data supports EDO's achievements in the AMOLED field, with independent research cited in the application documents showing that the company has made breakthroughs in the medium and large-sized tablet and laptop computer sectors, ranking third globally and first in China with a shipment share of 14.5% last year Currently, its clients include leading smartphone brands such as Honor and Transsion, as well as automotive companies. Financial data confirms business growth, with company revenue increasing from 2.5 billion yuan in 2020 to 4.96 billion yuan in 2024 (approximately 697 million USD). According to the disclosed application documents, although the growth rate slowed in the first half of this year, it still achieved a year-on-year increase of 12% to 2.67 billion yuan.

Business expansion inevitably requires substantial capital investment and R&D expenditure. EDO currently operates two production lines: the first 4.5-generation production line, which was put into operation in 2012, and the second 6-generation production line, which began construction in 2016. According to domestic media reports, such production lines are costly, with the estimated cost of a 6-generation AMOLED production line reaching 27.3 billion yuan.

Since the earliest year disclosed in the application documents, 2022, EDO's revenue costs have consistently exceeded actual income. This means that losses have already occurred before accounting for other expenses, reflecting the heavy depreciation costs arising from substantial capital expenditures. The financial report for the first half of this year shows a gross loss of 395 million yuan and a net loss of 840 million yuan.

The listing application documents cite third-party research indicating that the penetration rate of broadly defined AMOLED display products in the global display panel industry is expected to increase from 29.2% in 2024 to 35.8% in 2030.

Although EDO performs well in the medium and large size sectors, it ranks seventh in the smartphone market with only a 3.7% share of global shipments. This shortcoming is significant, as smartphones represent the segment with the greatest potential for increased AMOLED penetration.

EDO's failure to capture a considerable share of the smartphone screen market is primarily due to a lack of investment and capacity for flexible AMOLED, a technology that is currently very popular. Most leading smartphone brands, except for Apple, have already launched foldable screen models, although there are rumors that this iPhone manufacturer is experimenting with the technology.

EDO has long focused on rigid AMOLED applications for laptops and other large-size screens. To implement a catch-up strategy, it has adopted a "combination of rigidity and flexibility" strategy starting this year, producing two types of products based on customer demand. Domestic media reports indicate that its 6-generation production line is already capable of small-batch production of flexible AMOLED display panels for smartphones.

Shifting to flexible AMOLED seems to be a strategy to expand business and ultimately achieve profitability, as demand in this field is currently the strongest. Data from research firm Omdia shows that in the first quarter of this year, flexible AMOLED models accounted for 51% of smartphone shipments, reaching 151 million units, a year-on-year increase of 15%. This growth trend has continued for three years, with an annual growth rate hovering around 20%