Event: The company released its 2022 annual report and the first quarter report of 2023. The company achieved revenue of 288 million yuan for the full year of 2022, a decrease of 22.06%; realized net profit of 38 million yuan, a decrease of 63.11% over the previous year; realized non-net profit of 24 million yuan, a decrease of 73.53% over the previous year; the company achieved revenue of 43 million yuan in Q1 2023, a decrease of 52.48% over the previous year, a decrease of 24.56% over the previous year; achieved net profit of 0.7 billion yuan, down 137.06% from the previous year, down 137.06% from the previous year, down 137.06% from the previous year 10.27%; net profit after deducting non-return to the mother was -13 million yuan, down 172.48% year on year and 1.13% month on month.

Demand is awaiting recovery, and inventory impairment and cost increases affected profits in '22: the company's performance declined year-on-year in 2022. The main reasons were: (1) domestic and foreign terminal markets showed phased weakness in demand; (2) the company increased its investment in R&D, which led to an increase in R&D expenses. By product: In 2022, the company's semiconductor chip test probe revenue was 121 million yuan, a year-on-year decrease of 22.21%, revenue was 42.10%, gross profit margin was 45.52%; fine shield revenue was 117 million yuan, a year-on-year decrease of 25.07%, revenue accounted for 40.64%, gross profit margin 35.97%; precision structural parts revenue was 0.25 million yuan, a year-on-year decrease of 21.01 percent of revenue, a gross margin of 21.68%; revenue was 21.68%; revenue of microconnectors and components was 0.1 billion yuan, a year-on-year decrease of 9.87%. The revenue ratio was 3.36%, and the gross profit margin was 42.71%. The company's comprehensive gross margin in 2022 was 38.97%, down 4.70 pct from the previous year; the net interest rate was 13.22%, down 14.70 pct from the previous year. Both gross margin and net profit were under pressure. The main reasons were: (1) the decline in gross margin in the MEMS microcomponent business dragged down the company's overall gross profit margin, and (2) the company's inventory price loss and contract performance cost impairment losses and increased operating expenses affected the net interest rate. In terms of expenses, the company's sales, management, R&D, and financial expenses rates for the full year of 2022 were 4.86%/8.77%/18.66%/-1.36%, respectively. The year-on-year changes were +0.78/+4.72/+11.09/-1.37pct, respectively. The change in the company's R&D expenses is mainly due to the increase in R&D remuneration, equipment investment, and R&D equipment material consumption caused by the company's increase in R&D investment.

The number of chip test probes is in sight, laying out the field of high-end test probes: Benefiting from the development trend of ChatGPT artificial intelligence technology, the demand for AI chips will gradually increase. Benefiting from growing demand for AI chips, OEM orders for Nvidia's A100 and H100 series GPUs at TSMC grew rapidly. Nvidia is an important overseas customer of the company. The company mainly supplies high-end FT test probes and related components to Nvidia. Increased demand for Nvidia chips is expected to drive an increase in the company's test probe orders. The company continues to strengthen its technical strength in the fields of semiconductor chip test probes and MEMS fine components, and its technical advantages in the fields of fine metal manufacturing, fine mold design, and micro complex structure processing. The company attaches importance to the continuous upgrading of its product technology and performance, continuously accumulates outstanding talents in the extension of MEMS microcomponents and semiconductor test probes, and actively develops high-value-added fine products based on microscopic and micro-nano underlying manufacturing technology.

The company is actively expanding product categories such as MEMS wafer test probes, high-end substrate test probes, ultra-precision aviation connectors, etc.; vigorously expanding core markets such as electronics and semiconductors, building competitive barriers, and at the same time embarking on a global layout strategy to actively seek sustainable breakthrough development.

The MEMS industry is developing rapidly, and there is broad scope for localization alternatives: according to Yole's data, the market size is expected to reach 22.3 billion US dollars in 2027, and the compound growth rate of the market size in 2021-2027 is 9%, showing a steady upward trend year by year. In the future, with the development and maturity of emerging technologies such as the Internet of Things, artificial intelligence, and autonomous driving, new MEMS products, functions, and applications will continue to emerge, driving the scale of the MEMS industry to continue to grow. As global semiconductor production capacity continues to shift to mainland China, the package testing industry has become the most competitive link in China's integrated circuit industry chain, and its rapid development has strongly promoted the market demand for semiconductor test probes in China. Under the combined influence of factors such as urgent autonomous and controllable industrial demand, local wafer production line construction, and local equipment demand brought about by new 5G infrastructure, the pace of domestic substitution of semiconductors, especially integrated circuit equipment, in China has accelerated, and there is huge space. In 2021, the company issued a fixed increase announcement to raise 700 million yuan for the “MEMS Process Wafer Test Probe R&D and Mass Production Project”, “Substrate Level Test Probe R&D and Mass Production Project” and supplementary working capital. Through the implementation of the refinancing fund-raising project, the company will make full use of its R&D and innovation advantages to accelerate the improvement of the company's technical level and industrialization capabilities in the precision manufacturing industry and the semiconductor testing industry, thereby promoting the localization of the semiconductor testing industry, ensuring the safety of the industrial chain, and speeding up the process of domestic substitution and autonomy and control. With the development of AI and ChatGPT, the MEMS industry will usher in a new spring, which in turn will drive the growth of the company's MEMS performance.

First coverage, giving an “increase in holdings” rating: The company is mainly engaged in R&D, design, production and sales of micro precision electronic components and components. The main products are semiconductor chip test probe series products and microelectromechanical (MEMS) microelectronic components. The company is deeply involved in fields such as MEMS microcomponents and semiconductor chip test probes. Its main products cover downstream application scenarios such as MEMS acoustics, MEMS pressure sensors, MEMS optics and semiconductor test consumables. The company's various fine component products are widely used in high-tech terminal products such as chip sealing and testing, TWS headphones, smartphones, and hearing aids. As the company continues to develop in the MEMS field and demand in the downstream market picks up, the company's performance is expected to reach a higher level. The company's net profit for 2023-2025 is estimated to be 79 million yuan, 170 million yuan and 311 million yuan respectively, EPS is 0.88 yuan, 1.89 yuan, and 3.46 yuan respectively, and PE is 86X, 40X and 22X respectively.

Risk warning: the risk of macroeconomic fluctuations, the risk of downstream demand falling short of expectations, the risk of technology development and iterative upgrading, and increased market competition.