After 20 years of sharpening a sword, Shenzhen Qingyi Optoelectronics, one of the largest mask manufacturers in China, was founded in 1997, engaged in the research, development, design, manufacture and sales of mask. It is one of the earliest and largest mask manufacturers of Chinese mainland. With more than 20 years of efforts, the company's products have completed the leap from low precision and small size to high progress and large size. In 2020, the company ranked fourth in the global flat panel display mask market with sales of 387 million yuan and a market share of 7.12%. At present, the company's customers include leading enterprises at home and abroad, such as BOE, Tianma, Huaxing Optoelectronics, Qunchuang Optoelectronics, Hanyu Caijing, Longteng Optoelectronics, Vishino and so on in the field of flat panel display; customers in the field of semiconductor chips include Semiconductor Manufacturing International Corporation, Intel Corp, Ecker, Gu Bang Technology, Changdian Technology, Shilan Micro and so on.

The production capacity of Hefei subsidiary has been released, and the growth of production and marketing scale has contributed to the rebound of net interest rate: the company's operating income reached 544 million yuan in 2021, an increase of 11.64% over the same period last year, while the net profit of its mother was 44.53 million yuan, down 41.63% from the same period last year. The company's profit margin declined greatly compared with the same period last year, mainly because the Hefei subsidiary is still in the capacity climbing stage, the overall production and marketing scale is relatively small, while fixed costs such as depreciation are relatively large, coupled with the company's R & D expenses, financial expenses and other year-on-year increases, resulting in a decline in net profit. According to the company's 2022 semi-annual report, the production capacity of 2022H1 Hefei subsidiary has been released, and the scale of production and marketing has increased rapidly, so the company's revenue has achieved a high growth and the net interest rate has rebounded. 22H1's operating income was 342 million yuan, an increase of 50.22% over the same period last year, and its net profit was 38.99 million yuan, an increase of 88.30% over the same period last year. 22H1's gross profit margin was 23.70%, down 6.03% from a year earlier, while net profit was 11.40%, up 2.30% from a year earlier.

The new product development of the panel leads the upstream mask version with high magnificence, and the production capacity release grabs the market share:

The prosperity of the global panel industry declined in the first half of this year, and panel manufacturers accelerated the development of new products in order to improve capacity utilization, leading to the rapid growth of upstream mask demand. The company's Hefei plant achieved mass production at the end of the second quarter, following the expansion of market demand, strengthening its supply capacity and seizing market share. 22H1's revenue in the field of flat panel display masks reached 255 million yuan, up 71 percent from the same period last year. Hefei Factory focuses on medium and high-end products such as high-precision mask plates for AMOLED/LTPS, some of which have a resolution of 1600 pixels per inch (ppi) and have been used in VR products. The company plans to introduce a new flat panel display mask lithography machine to further enhance the comprehensive production capacity of the Hefei plant. The increase in production capacity is expected to further reduce unit costs and improve the profit margins of the business.

The production and sales scale of semiconductor chip mask continues to grow, waiting for the epidemic to alleviate and increase production capacity: the company optimizes the product structure and increases the market share of market segments by increasing the production capacity of semiconductor chip mask and shortening the delivery cycle. The production and marketing scale of this business continues to grow. The operating income of 22H1 in the field of semiconductor chip mask reached 49.95 million yuan, an increase of 25.82% over the same period last year. At present, the newly introduced mask lithography machine for semiconductor chips in Shenzhen factory has been put in place. However, due to the impact of the epidemic, the delivery of supporting cleaning and testing equipment has been delayed. It is expected that the arrival of the relevant equipment will increase the company's production capacity in products such as IC Bumping and Mini LED chip masks. At the same time, a major supplier of semiconductor chip mask protection film was affected by the epidemic and stopped production, which had a negative impact on the domestic supply chain. The growth rate of semiconductor chip mask business is temporarily limited by production capacity, and it is expected that after the above short-term negative factors are alleviated, the company's production capacity will increase significantly and is expected to quickly increase its market share.

Continuously promote the technological progress in two major areas, customer testing and introduction are in progress: in the field of flat panel display, the company's G8.5 high-precision TFT mask and G6 medium-precision AMOLED/LTPS mask have been mass-produced; at the same time, the mass production of mask substrate gluing process and the supply of semi-permeable mask plate (HTM) products have been preliminarily realized. The customer introduction and follow-up production plans of G8.6 high-precision TFT mask and G6 high-precision AMOLED/LTPS mask are being promoted in an orderly manner, and the research and development of G6 ultra-high-precision AMOLED/LTPS mask and high-specification semi-permeable mask version (HTM) are being carried out at the same time. In the field of semiconductor chip masks, the company has achieved mass production of 6-inch and 8-inch masks of 250nm, is promoting the customer test certification of 180nm masks, and simultaneously carries out the process research and development of 130nm-65nm masks and the mask process development planning required by 28nm.

Investment suggestion: we expect the company's operating income in 2022 to 2024 to be 865 million yuan, 1.144 billion yuan and 1.433 billion yuan respectively, the net profit returned to the parent is 93 million yuan, 133 million yuan and 185 million yuan respectively, and the EPS is 0.35,0.50,0.69 yuan respectively, corresponding to 56.7,39.6 and 28.5 times of PE respectively.

Risk tips: upstream material prices are unstable; downstream customer shipments are not as expected; production expansion progress is not as expected; mask price is unstable; epidemic prevention and control is not as expected.