Hengxuan Technology (688608) Institutional Research and Investor Q&A Selections (202103)

The company made an introduction on the company's operating status and progress.

Main questions and answers:

1. Recent market rumors indicate that AirPods has lowered its sales forecast for 2021. Does this mean that the growth of TWS headphones has reached its ceiling? What is the company’s growth rate and outlook for TWS headphones? With the continuous improvement and improvement of the supply chain of Android brand earphones, the quality of terminal earphones has been greatly improved, and user experience and acceptance have jumped. According to a Counterpoint Research report, TWS headset shipments have maintained continued growth, with a compound annual growth rate expected to be as high as 80 from 2019 to 2022. At present, the penetration rate of TWS headphones among Android brands is low, which is much lower than the penetration rate of AirPods relative to the Apple mobile phone market. As an emerging market, TWS earphones, especially Android brands, are still in the early and middle stages of rapid growth, which provides good support for the company's continued development.

2. What is the company’s customer coverage?

The company’s depth and breadth of brand customers are its important competitive advantages and business barriers. The company's products cover all types of brand customers. At present, the company's customers are mainly divided into three categories, namely mobile phone brands, professional audio manufacturers and Internet companies. The TWS earphones of mobile phone brand manufacturers are integrated with their smartphone ecology and are easy to use. Therefore, mobile phone manufacturers are currently the most important participants in TWS earphones and drive innovation in TWS earphones. According to the third quarter of 2020 data released by Counterpoint Research, the top three manufacturers of TWS headset shipments are all mobile phone brands. The company's chips have been widely used in Bluetooth headset products of mainstream Android mobile phone brands, with high coverage.

In addition to mainstream mobile phone brands, the company's products also have a high share among professional audio manufacturers. For example, Harman, JBL, and Skullcandy all use the company's chips in their main products. In addition, Anker and Tzumi, which are closely followed by market share, as well as AKG, Edifier, and Wanmo are also the company's terminal brand customers. In addition to mobile phone brands and professional audio manufacturers, the company has different forms of product cooperation with Internet giants such as Alibaba and Baidu: Alibaba’s smart speaker Tmall Genie uses the company’s WiFi/Bluetooth dual-mode SoC chip and will be mass-produced and shipped in 2020 . Baidu's Xiaodu headphones with translation function launched in 2020 use the company's chips; in summary, from the breadth and depth of brand coverage, the company has obvious advantages and has become a major supplier in the field of smart audio SoC chips.

3. Will the company’s market share among brand customers further increase? Does the product reach the mid- to low-end range of brand manufacturers?

There is still room for improvement in the market share of the company's products in the Android brand customer market. Judging from the breadth of its product line, the company's products focus on mid- to high-end products. With the development of the TWS headset market, brand customers will also launch mid-to-low-end TWS headset products in the future. The brand market also has continued demand for cost-effective mid-to-low-end TWS Bluetooth headsets. The company will launch competitive solutions through technological innovation. , participating in the competition in the low-end headphone market among brand customers.

4. In addition to headphones, what is the progress in the application of the company's chips in smart speakers? What are the advantages compared to other manufacturers’ smart speaker chip products?

The company’s RTOS operating system-based WiFi/Bluetooth dual-mode AIoTSoC chip for smart speaker applications has been mass-produced and shipped, and is used in Alibaba’s “Tmall Elf” smart WiFi speakers. It is expected that the company's WiFi/Bluetooth dual-mode AIoTSoC chip used in smart WIFI speakers will be mass-produced by new customers this year, and related sales revenue will also increase. In addition to being used in smart WiFi speakers, the company's WiFi/Bluetooth dual-mode AIoT SoC chip can also be widely used in smart home and other fields as an intelligent voice module in the future. The company's chip solution has strong market competitiveness.

5. What is the main direction for the future upgrade of TWS headset products? Power consumption and delay are further reduced: Due to the size of the earphones and the limited battery capacity, it is necessary to ensure a longer music playback time while also achieving more functions and stronger intelligent computing power. Therefore, the need for earphones The power consumption of the chip puts forward higher requirements. At the same time, improving connection response speed, audio transmission rate and low latency is one of the main technical directions for various manufacturers.

The active noise reduction/call noise reduction function will be further upgraded: active noise reduction not only competes with chip performance and algorithms, but also competes with acoustic design. Therefore, chip manufacturers and OEM/ODM manufacturers are required to highly cooperate to achieve better The noise reduction effect takes a long time from verification to mass production, and has high industry barriers. Currently, the noise reduction functions of mainstream products on the market still have room for improvement.

Intelligent voice technology still needs further evolution: At present, intelligent applications on headsets are still in their infancy, and there are still many demands for intelligent applications in terminal products that await technological breakthroughs and realizations. In addition, voice AI technology itself is also in the process of continuous evolution. With the development of the technology itself, voice AI applied to headphones also requires iterative evolution of chip hardware.

Sensors open up new ways of interaction: With the popularity and increase of various types of sensors built into headphones, consumers will be able to provide consumers with richer functions such as health detection, sports data reporting, and hearing aids.

Bluetooth TWS technology continues to evolve: many functions that meet the real needs of end users will continue to be introduced. These functions require the continuous evolution of Bluetooth TWS technology, such as the one-to-N technology of Bluetooth TWS, etc., that is, current users When a Bluetooth headset is connected to a mobile phone, if it needs to switch to a computer connection, it must be disconnected and reconnected. With One-to-N technology, seamless connection can be achieved, improving the user experience.

6. After the company has raised funds, what is its direction in terms of recruitment and research and development? The rapid development of the smart audio market has put forward higher requirements for the speed of chip iteration and upgrade. Companies need to efficiently complete the iteration of existing products and the research and development of new products in a short period of time. Technical research is difficult and the research and development tasks are heavy. In addition, the company's future R&D layout will become increasingly broad and its business scope will continue to expand. The company urgently needs to increase the introduction of external talents to enrich its high-end talent reserve and further improve its R&D capabilities. At present, the company's core team is stable, and the R&D team is also continuing to expand. The company maintains a high recruitment intensity in both social recruitment and school recruitment to support the company's continued and rapid business growth needs.

In terms of research and development, the company is engaged in integrated circuit chip design and is a technology-driven enterprise. It needs to invest a lot of research and development expenses for technology upgrades and product iterations. As the company's sales scale and R&D expenses increase in the same direction, R&D intensity will remain at a certain level.

7. The company’s newly announced equity incentive plan covers 50% of its employees. How were you considered?

In terms of equity incentives, the company has had three incentive plans before this incentive plan. The equity incentives announced this time cover nearly 50% of employees. The company’s overall equity incentives have covered about 85% of employees. Gradually Achieve full shareholding. This equity incentive arrangement will help attract and retain outstanding talents and enhance the company's long-term competitiveness.

Attached: Activity Information Form

(This manuscript was completed by the writing robot "Kuaishou Xiaoe" of Securities Times e Company.)