Incident: Zhicun Technology released its 2022 annual report: the company achieved annual revenue of 3,050 million yuan, an increase of 46.32% over the previous year; Guimu's net profit was 282 million yuan, an increase of 0.24% over the previous year; after deduction, Guimu's net profit was 285 million yuan, an increase of 76.03% over the previous year.

The amount of new orders placed continued to grow rapidly, and non-current accounts dragged down profit growth: the number of orders received by the company remained high, with new orders of 598 million yuan per quarter in the fourth quarter; the total number of new orders added for the whole year was 4,219 billion yuan, an increase of 30.62% over the previous year. Of these, orders for semiconductor process equipment were added 1,800 million yuan, an increase of 60.71% over the previous year. The company's government subsidies, investment income, and real estate income all declined markedly in 2022. Non-current account profit and loss were -0.3 billion yuan. Compared with 120 million yuan in 2021, there was a marked decrease compared to 120 million yuan in 2021, which is the main reason for the slowdown in profit growth.

Increase R&D investment and focus on high-end cleaning equipment: the company spent 193 million yuan on R&D in 2022, an increase of 33.37% over the previous year. The company has delivered 4 sets of 14 nm cleaning equipment and continues to develop 14-7 nm related technology. After Japan restricted the export of various cleaning equipment, fabs are expected to increase their support for domestically produced equipment, and the introduction and verification of the company's related products is also expected to accelerate.

Fixed increase financing and increase production capacity in the three regions: On December 10, 2022, the company issued an announcement to increase production capacity by 1.8 billion yuan, of which 1.26 billion yuan will be used to build production and R&D bases in Shanghai, Qidong, and Beijing. After completion of the project, it can be used for the development and mass production of wet process modules, monolithic cavities, and high-purity valves required for furnace tubes, gluing imaging equipment, photovoltaic velvet cleaning equipment, and 14nm high-end equipment to enhance the company's supply capacity and technical level.

Investment advice: Considering the impact of various factors such as the semiconductor downturn cycle, the company's current order size, R&D progress, etc., we expect the company's revenue for 2023-25 to be 41.01/50.39/6.231 billion yuan, and the net profit returned to the mother is 531/698/865 million yuan respectively, and the corresponding PE is 26.50/20.16/16.27 times, giving an “increase in holdings” rating.

Risk warning: The downturn in the semiconductor market is compounded by overseas supply risks, domestic demand for semiconductor equipment is slowing down; high-end product development progress falls short of expectations; industry competition is intensifying.