Royole Bailout?
We have mentioned the Chinese company Royole (pvt) a number of times over the past few years, in particular relating to folding displays, where the company was the first to release a development kit for a foldable device, beating out CE giants like Samsung Electronics (005930.KS) and LG Electronics (066570.KS). That said, the company has not done as well as early expectations might have predicted and in our 4/422 note, we described some of the problems Royole was facing, including rumors that the company had been failing to pay worker wages starting last December. Some of the wage arrears were paid in January, with the promise the rest would be paid after the New Year festival, which did not happen, however we have now heard that after some employees were told to ‘take a long vacation’ (three months), it seems that some workers have been paid missing wages.
The company’s only comment was that ‘funds would be received in batches’, with those employees that resigned without arbitration getting the first batch and those with arbitration having to wait for the 2nd batch. The source of the funds however was not made clear, other than the remittance itself came from Qingdou Rouyu Technology, a company established in August of last year (wholly owned by Royole), rather than the typical Hua Xia Bank (600015,CH). It was noted that in March of this year Royole pledged a number of patents to Qingdao Urban Investment Engineering Construction Development (Group) Co., Ltd. and Qingdao Urban Investment Industrial Investment (Group) Co., both of which are controlled by Qingdao SASAC (State-owned Asset Supervision & Administration Commission of the State Council), whose obligation is to ‘perform the responsibilities mandated by the Central Committee of the Chinese Communist Party’, so one might imply that Royole is being bailed out by the government.
What seems to be a difficult time for Royole is made worse by the late 2020 announcement by the company that it was planning to build a $2.4b flexible OLED fab in Qingdao, which remained on the “List of Key Projects” by the Qingdao Municipal Government earlier this year, which is likely a massive financial burden, if it is still under construction. Details on the fab’s status are sparse, although the original theory was that Royole’s ULT-NSSP (Ultra-low Temperature Non-Silicon Semiconductor Process) would allow the company (and potentially other Chinese OLED producers) to produce foldable OLED panels without paying royalties to foreign entities. This was likely the impetus for the original project, but Royole’s lack of traction relative to their earlier products (they produced only 48,600 units in 2020 at their existing Gen 6 OLED fab) has made it difficult for the company to exist independently, as the company’s failed attempts to list in the US and China seem to indicate.
How much capital the local governments are willing to fund going forward is an open question and while Royole has raised ~$1.1b in 7 rounds over the last nine years (the last was in 2018 with a $5b valuation), we expect they will have to give up considerably more IP and ownership if they are to remain in business going forward. As a private company we expect to see little financial or ownership information forthcoming, with much of what we know about the company coming from previous IPO filings, but we suspect local government organizations will wind up being the majority owners of the company if it survives.
The company’s only comment was that ‘funds would be received in batches’, with those employees that resigned without arbitration getting the first batch and those with arbitration having to wait for the 2nd batch. The source of the funds however was not made clear, other than the remittance itself came from Qingdou Rouyu Technology, a company established in August of last year (wholly owned by Royole), rather than the typical Hua Xia Bank (600015,CH). It was noted that in March of this year Royole pledged a number of patents to Qingdao Urban Investment Engineering Construction Development (Group) Co., Ltd. and Qingdao Urban Investment Industrial Investment (Group) Co., both of which are controlled by Qingdao SASAC (State-owned Asset Supervision & Administration Commission of the State Council), whose obligation is to ‘perform the responsibilities mandated by the Central Committee of the Chinese Communist Party’, so one might imply that Royole is being bailed out by the government.
What seems to be a difficult time for Royole is made worse by the late 2020 announcement by the company that it was planning to build a $2.4b flexible OLED fab in Qingdao, which remained on the “List of Key Projects” by the Qingdao Municipal Government earlier this year, which is likely a massive financial burden, if it is still under construction. Details on the fab’s status are sparse, although the original theory was that Royole’s ULT-NSSP (Ultra-low Temperature Non-Silicon Semiconductor Process) would allow the company (and potentially other Chinese OLED producers) to produce foldable OLED panels without paying royalties to foreign entities. This was likely the impetus for the original project, but Royole’s lack of traction relative to their earlier products (they produced only 48,600 units in 2020 at their existing Gen 6 OLED fab) has made it difficult for the company to exist independently, as the company’s failed attempts to list in the US and China seem to indicate.
How much capital the local governments are willing to fund going forward is an open question and while Royole has raised ~$1.1b in 7 rounds over the last nine years (the last was in 2018 with a $5b valuation), we expect they will have to give up considerably more IP and ownership if they are to remain in business going forward. As a private company we expect to see little financial or ownership information forthcoming, with much of what we know about the company coming from previous IPO filings, but we suspect local government organizations will wind up being the majority owners of the company if it survives.
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