Incident: The company released its 2022 annual report.

A number of main businesses are in a downward cycle. The revenue side of 2022 was under short-term pressure. The company achieved revenue of 14.961 billion yuan in 2022, -8.40% year on year; of these, Q4 was 4.399 billion yuan, -0.07% year on year, which is basically in line with our expectations. By business: 1) Consumer electronics equipment:

Revenue achieved in 2022 was 2,050 billion yuan, a year-on-year decrease of 30.13%, mainly due to low demand in the consumer electronics industry and a marked decrease in equipment investment; 2) PCB equipment: Achieved revenue of 2,786 billion yuan in 2022, down 31.72% from the previous year. Mainly, the slump in demand in the consumer electronics industry directly led to a sharp slowdown in the growth rate of the PCB industry and reduced the willingness of enterprises to spend capital. 3) (Wide) Semiconductor equipment: Achieved revenue of 2,094 billion yuan in 2022, an increase of 7.70% over the previous year. Among them, LED market growth slowed and semiconductor applications made rapid breakthroughs; 4) General industrial laser equipment: achieved revenue of 5.268 billion yuan in 2022, which was basically the same as the previous year. Affected by macroeconomics, the medium and low power market declined markedly. Benefiting from strong market demand for new energy vehicles, the company's high-power laser welding equipment achieved revenue of 560 million yuan in 2022, a record high; 5) New energy equipment: In 2022, lithium battery equipment and photovoltaic equipment achieved revenue of 2,536 million yuan and 228 million yuan respectively, up 27.94% and 69.81% year-on-year respectively, effectively hedging the decline in traditional business. Looking ahead to 2023, driven by the beginning of a recovery in the manufacturing industry and the recovery of the consumer electronics boom, many of the company's main businesses are expected to enter a new upward cycle, compounded by the continued release of new energy equipment and semiconductor equipment, and the company's revenue side is expected to return to a rapid growth channel.

The gross margin of laser equipment declined and investment in R&D increased, and the profit level declined to a certain extent. In 2022, the company achieved net profit of 1,210 million yuan, or -39.35% year on year. Of this, Q4 was 196 million yuan, -60.29% year on year. The net sales margin in 2022 was 8.57%, -4.17pct year on year, and the profit level declined markedly. 1) On the gross profit side: The gross margin of sales in 2022 was 35.22%, -2.33pct compared to -2.33pct. Among them, the gross margins of PCB intelligent manufacturing equipment and other intelligent manufacturing equipment were 37.33% and 34.74% respectively, +0.98 pct and -3.21pct, respectively. 2) Expense side: The cost rate for the 2022 period was 26.64%, +2.07pct compared to +2.07pct. Among them, the sales, management, R&D and financial expenses rates were +0.71 pct, +0.84pct, +2.21pct, and -1.69pct, respectively. The decline in the financial expense ratio was mainly due to fluctuations in the US dollar exchange rate, and R&D efforts increased markedly, which was the main reason for the increase in the cost rate during the period. 3) In 2022, the company's asset impairment losses and credit impairment losses reached 209 million yuan and 145 million yuan respectively, +177% and +48%, respectively, compared with the same period last year, further suppressing profit levels.

New and old businesses have plenty of room for growth. The company has medium- to long-term growth logic1) Consumer electronics equipment: The company focuses on the innovative needs of major customers, continuously updates products and processes, and has obtained major market share in projects such as mobile phone surface treatment, mobile phone metal material welding, and air tightness testing. It is expected that 2023 will begin to benefit from a recovery in the consumer electronics industry. 2) PCB equipment:

The company has a stable position as a global leader and continues to develop high-end PCB markets such as HDI, IC package substrates, and flexible and rigid composite boards, which is also expected to benefit from a recovery in the economy. 3) New energy equipment: Lithium battery equipment has deepened cooperation with mainstream customers such as Ningde Times, China Innovation Aviation, and Yiwei Lithium Energy, and its market share has steadily increased. In the field of photovoltaic equipment, the company's PECVD, diffusion furnaces, annealing furnaces and other equipment has won batch orders from leading industry customers and has gradually developed equipment R&D and manufacturing capabilities for the entire TOPCON industry chain. HJT has deployed PECVD, PVD and other equipment products. The perovskite field has independently developed perovskite laser engraving equipment, achieved mass production and sales, and maintained leading production and sales with leading customers in the GCL Optoelectronics industry Partnerships. 4) Pan-semiconductor equipment: In the field of panels, a huge number of orders for micro-LED transfer equipment have been obtained, and market verification has been well received. In the field of integrated circuits, the performance of the company's advanced processing equipment products such as silicon invisible cutting equipment, front-end laser slotting machines, and wafer-level marking has been continuously improved, and it has entered the supply chain of leading companies in the packaging and testing industry and has received orders for repurchase of machines. Furthermore, the company laid out third-generation semiconductor technology ahead of schedule and successfully developed silicon carbide laser slicing equipment. 5) General industrial laser equipment: The company's core components are highly manufactured, the market demand for high-power laser welding equipment is strong, and it has the potential to continuously increase market share. The traditional laser cutting and marking business is expected to benefit from the recovery of the manufacturing industry.

Profit forecast and investment rating: Considering the recovery process of the company's downstream business sentiment, we carefully adjusted the company's 2023-2024 net profit forecasts of 1,486 billion yuan and 2,058 billion yuan respectively (original values of 1,999 million yuan and 2,659 million yuan), and estimated the net profit of Fumo in 2025 to be 2,677 billion yuan. The current stock price corresponds to dynamic PE 21, 15 and 12 times, respectively. Maintain a “buy” rating based on the company's potential to continue to expand.

Risk warning: Investment in manufacturing fell short of expectations, industry competition intensified, and new business development fell short of expectations.