The company is a leading 3C automation equipment manufacturer in China, deeply tied to customer A's industrial chain and extended to the semiconductor and new energy fields. In the future, the company is expected to continue to deeply participate in and benefit from customer A's innovation in mobile phones, MR, and headphone terminals, broaden product categories, and further open up room for growth. Furthermore, the company is also laying out the semiconductor field to connect with silicon and wafer end customers, which is expected to benefit from the expansion of domestic silicon chip production and the entry of wafer end customers in the future. We gave the company a target stock price of 70 yuan, covered it for the first time, and gave it a “buy” rating.

Company Overview: A leading domestic 3C automation equipment manufacturer with an epitaxial layout in the semiconductor and new energy fields. The company was founded in 2001, starting with 3C automation equipment, and obtained the qualification as a qualified supplier for customer A in 2011. With the release of customer A's watches, headphones and other products, the company's overall revenue increased from 110 million yuan in 2013 to 2.93 billion yuan in 2022. CAGR = 44%, and the net profit of the mother increased from 23 million yuan to 307 million yuan, CAGR = 33%. Looking ahead, we believe that the company's core development idea is to expand categories based on the original major 3C customers, while also actively expanding equipment into the semiconductor and new energy fields. (1) Client A: The company has been cooperating deeply with customer A for more than ten years, and the supply of products has expanded from watch equipment to mobile phones and headphone devices. It is already the leading supplier of 3C automation equipment for customer A. Following customer A's innovation in mobile phones, MR, and headphone terminals, the company is also hopeful that the company will participate deeply and broaden the product range. (2) In terms of semiconductors and new energy: The company's early acquisition of OPTIMA, the world's leading wafer testing equipment supplier, entered the semiconductor field, and the acquisition of domestic Wuxi Changding, Kunshan Pingcheng, and Lingou Technology entered the automotive components/lithium battery intelligent equipment field, which is expected to become the company's second growth curve in the future.

Consumer electronics business: Periscope module equipment contributed core growth in 2023, with subsequent focus on MR innovations and new headphone products. The consumer electronics sector's revenue in 2022 was about 2.4 billion yuan, +30% year on year. Business revenue mainly came from assembly/testing equipment for customer A's headphones, equipment related to mobile phone assembly, and equipment such as watch air tightness testing. Looking ahead to 2023, we expect client A's new model to integrate periscope module functionality for the first time, and as costs decrease, customer A may delegate this technology from the highest-end Ultra model to the Pro/Pro Max model.

From the perspective of production lines, according to our estimates, customer A may add about 20/25 periscope module production lines in 2023/2024, respectively, to drive equipment demand. At the same time, the company also supplies equipment related to customer A's MR production line. We expect the unit production line equipment to be worth nearly 100 million yuan. In the future, with the expansion of the MR production line, the company is also expected to benefit as the main equipment supplier. We expect the company's consumer electronics business revenue to be 34/4.6 billion yuan in 2023-2024, respectively.

Semiconductor business: The acquisition of OPTIMA's epitaxial layout semiconductor testing equipment opens up room for growth. Semiconductor volume testing equipment continues to grow rapidly. According to QY Research's forecast data, the global/mainland China market size will reach US$9.21/311 billion in 2022, corresponding to the 2016-2022 CAGR of 12%/30%, respectively. Looking at the competitive pattern, overseas companies are in a low monopoly position. Semi data shows that the global market share of CR5 exceeds 80%. However, as semiconductor silicon wafer production capacity continues to shift to the mainland, domestic silicon wafer manufacturers continue to expand production and demand for autonomy and control, domestic equipment manufacturers are expected to continue to benefit, and there is huge room for domestic substitution. In 2018-19, Saiteng acquired Wuxi Dingchang and OPTIMA into the semiconductor testing equipment field, covering silicon fragments, wafer processing sections and sealing and testing sections. Through OPTIMA, leading overseas semiconductor customers such as SUMCO, SK Siltron, and Samsung were covered, and domestic customers were accelerated on this basis. It has now covered semiconductor silicon chip companies in mainland China such as Isway, Zhonghuan, Jinruihong, Shanghai Silicon, and Zhongxin Wafer. At present, the company continues to expand the range of semiconductor weight testing equipment, extending the layout of wafer laser equipment, sorters, chamfering profilers, wafer packaging machines, etc. In the future, it will develop the company's core competitive advantage in the semiconductor field by expanding production capacity, developing customers, and strengthening research and development. We expect the company's semiconductor business revenue to be 6/10 billion yuan in 2023-2024, respectively.

Risk factors: Risk of worsening market competition pattern; risk of high customer concentration; risk of the company's consumer electronics terminal shipments falling short of expectations; risk of semiconductor and new energy business development falling short of expectations; risk of exchange rate fluctuations.

Profit forecasting, valuation and rating: The company is a leading 3C automation equipment manufacturer in China. It has been deeply involved in the consumer electronics industry for more than 20 years, deeply tied to customer A and its industrial chain, and extends the semiconductor and new energy fields. We are optimistic that the company will deeply participate in and benefit from customer A's innovation in mobile phones, MR, and headphone terminals, continue to expand product categories, and further open up room for growth. We expect the company to achieve revenue of 42/596.9 billion yuan in 2023-2025, net profit of 4,46/646/753 million yuan respectively, and corresponding EPS forecasts of 2.34/3.39/3.95 yuan respectively. Combining the two methods of PE valuation and PEG valuation, and considering the company's consumer electronics perisive module, the additional amount of MR contribution, and the extended layout of the semiconductor and new energy fields, we gave the company a target stock price of 70 yuan, covering it for the first time, and giving it a “buy” rating.