Incident: The company released its 2022 annual report and the first quarter report of 2023 on April 27. The company achieved revenue of 568 million yuan in 2022, an increase of 3.48% over the previous year; the net profit of the mother was 67 million yuan, a decrease of 23.16% over the previous year; after deducting non-net profit of 52 million yuan, a decrease of 35.77% over the previous year. In Q1 of 2023, the company achieved revenue of 98 million yuan, a decrease of 28.40% over the previous year and a decrease of 53.68% from the previous month; Guimu's net profit was 0.05 million yuan, a decrease of 79.79% over the previous year, a decrease of 85.36% from the previous year; after deducting non-net profit of 0.2 million yuan, a decrease of 90.56% from the previous year, a decrease of 91.14% from the previous year.

Equipment inspection fell short of expectations and affected Q1 revenue, and R&D investment continued to increase: in 2022, affected by various factors such as the macro environment and economic environment, overall downstream demand in the industry slowed, and the company's revenue growth slowed. By business, sales revenue of precision laser processing equipment was 426 million yuan, an increase of 5.60% over the previous year; foreign sales of lasers achieved revenue of 41 million yuan, a year-on-year decrease of 27.81%. The company's comprehensive gross margin in 2022 was 49.71%, down 1.03pct from the previous year; the net interest rate was 11.86%, down 4.11pct from the previous year.

The company's comprehensive gross margin in Q1 2023 was 51.35%, up 0.35 pct year on year and 1.22 pct month on month; net interest rate was 4.90%, down 12.45 pct year on year and 10.60 pct month on month. The company's revenue in Q1 of 2023 fell 28.40% year on year, and net profit declined due to a sharp increase in R&D investment; Q1 orders picked up, but equipment inspection fell short of expectations, leading to a decrease in operating income. In terms of expenses, the company's sales, management, R&D, and financial expenses rates in Q23 were 19.81%/11.35%/22.42%/-1.33%, respectively. The year-on-year changes were 5.17/3.96/10.19/-1.73pct, respectively.

Multiple business tracks went hand in hand to actively lay out the new energy sector: in 2022, the company's main business continued to expand, and multiple business tracks went hand in hand, so that the company's total operating revenue grew even as fluctuations in the external environment intensified. Among them, the company has gradually shifted from 3C consumer electronics applications to automotive electronics applications, and has received orders for new product lines from mainstream car manufacturers and leading manufacturers in the automotive supply chain; the new product line fiber series (AFL fiber femtosecond laser) has achieved a sales breakthrough; Micro LED laser peeling and laser repair equipment has been delivered to customers and achieved revenue; silicon carbide ingot laser slicing technology has completed process development, testing and verification, and has obtained batch orders from leading customers; Micro LED laser giant core transfer equipment and laser electric removal blue film equipment have all taken the lead customer orders. In 2022, the company began to deploy in the new energy sector and achieved sales revenue of 497.345 million yuan, mainly from laser plate making equipment for printed screen panels and perovskite thin-film solar cell production equipment.

Benefiting from high demand for new energy vehicles and photovoltaics, the market space for silicon carbide applications is broad: CASA Research converts the domestic silicon carbide automotive market into wafers. It is estimated that the domestic demand for 6-inch silicon carbide wafers in 2022 will be close to 250,000 wafers, and demand is expected to grow to nearly 1 million pieces by 2026.

As an important application terminal for silicon carbide, the market size of new energy vehicles is growing rapidly. Along with the further decline in silicon carbide prices, it is expected to drive sales growth of the company's silicon carbide laser processing equipment. As the voltage level of the DC terminal of photovoltaic power plants increases, high-voltage silicon carbide power elements have become the preferred material for inverters; for residential microinverters, ammoniated power devices can build smaller, lighter, and more reliable inverters while improving overall conversion efficiency. CASA Research predicts that in 2022, silicon carbide and gallium nitride power devices will be about 280 million yuan in the photovoltaic market. With accelerated penetration, according to the penetration rate of around 15%-23% in 2026, it is estimated that China's silicon carbide and gallium nitride power device market will be close to 700 million yuan in 2026, with an average annual growth rate of about 25.5% in the next few years. The company is deeply involved in fine laser microprocessing applications and has wafer cutting equipment for first, second and third generation semiconductor materials, such as LED wafers, silicon, silicon carbide, gallium nitride wafers, etc. In 2022, the company officially launched silicon carbide ingot laser slicing technology. Its process development and test verification have been completed. As the new installed capacity of photovoltaics around the world continues to rise, there is broad market space for silicon carbide applications.

The first coverage gave an “increase in holdings” rating: the company's main business is R&D, production and sales of precision laser processing equipment for high-end industrial applications and its core device, lasers. The company focuses on the field of laser fine microprocessing. With advanced laser technology, high-precision motion control technology and deep laser fine microprocessing technology accumulation, the company focuses on application fields such as pansemiconductors, new electronics and new energy, and provides laser processing solutions for various ultra-thin, ultra-hard, brittle, flexible and various composite materials. As the company continues to promote various business tracks such as semiconductors, automotive electronics, and new energy, it is expected that the company's sales scale and market share will be further increased. The company's net profit for 2023-2025 is estimated to be 107 million yuan, 155 million yuan and 206 million yuan respectively; EPS is 1.04 yuan, 1.50 yuan, and 1.99 yuan respectively; PE is 37X, 26X, and 19X respectively.

Risk warning: risk of changes in downstream demand, risk of fluctuations in raw material prices, risk of technological innovation, risk of market competition.