Incidents: The company released its 2022 annual report and the first quarter report of 2023. It achieved revenue of 2.177 billion yuan in 2022, an increase of 5.96% over the previous year; the net profit of the mother was 138 million yuan, a decrease of 57.11% over the previous year; after deducting non-net profit of 59 million yuan, a decrease of 79.82% over the previous year. Q1 of 2023 achieved revenue of 425 million yuan, down 26.85% from the previous year, down 8.18% from the previous year; the net profit of the mother was -50 million yuan, down 170.04% from the previous year, up 26.49% from the previous month; after deducting non-net profit - 69 million yuan, down 211.12% from the previous year, up 3.79% from the previous year.

Orders were under pressure and waited for demand to pick up, and Q1 net profit improved month-on-month: In 2022, the company achieved steady revenue growth by strengthening the introduction of new products and continuously optimizing the customer structure. Affected by fluctuations in demand in the semiconductor industry, product gross margin declined. At the same time, there was an increase in expenses during the period due to factors such as an increase in the number of personnel and an increase in loans, which affected profit performance. The gross margin in '22 was 21.91%, down 10.35 pct year on year; net interest rate was 6.30%, down 9.38 pct year on year. The gross margin for Q23 was 8.39%, down 18.18 pct from the previous year and 3.30 pct from the previous year; the net interest rate was -13.60%, down 25.86 pct from the previous year, up 1.29 pct from the previous month. In terms of expenses, the Q1 sales, management, R&D, and financial expenses rates were 1.92%/11.81%/6.62%/5.99%, respectively, and the year-on-year changes were 0.84/6.88/1.65/1.23pct, respectively.

In Q1 of '23, the company's monthly revenue for January-March showed a month-on-month recovery trend, but demand in the terminal market has yet to recover, the company's overall orders are still weak, and Q1 revenue declined year on year. Affected by the Spring Festival holiday in January and the overall decline in orders, the overall capacity utilization rate declined year-on-year, but fixed asset depreciation, personnel and other expenses were rigid, putting pressure on the overall gross margin. Furthermore, the company's second-phase project progressed in an orderly manner, the number of personnel continued to expand, and personnel expenses and second-phase preparation costs increased, resulting in a 75.06% year-on-year increase in management expenses, which led to a loss in Q1 performance.

Increase the layout of advanced packaging fields and promote the expansion of production in the second phase of the project: the company focused on high-end advanced packaging business, completed the development of system-level hybrid packaging technology for inverted and wire-bonded chips, 5 nm wafer inversion technology, etc., and successfully achieved stable mass production. The company has mastered system-level packaging electromagnetic shielding (emishielding) technology and chip surface metal bumps (bumps) technology, and is actively developing wafer-level packaging technologies such as fan-in/fan-out, 2.5D/3D, high-density system-level packaging technology, and large-size FC-BGA packaging technology, etc., and has accumulated deep technical reserves for the sustainable development of the company's future performance. In addition, the company is actively promoting mass production and customer base introduction of Beverages industrialization projects to expand production capacity for advanced packaging such as FC. With the gradual implementation and commissioning of the second phase of the microelectronics high-end integrated circuit IC package test project, the company's production capacity scale will increase considerably, which is expected to break through the performance growth ceiling.

Actively developing automotive electronics and industrial regulations product lines, equity incentives demonstrate confidence in development: the company actively develops vehicle regulations and construction regulations product lines as a long-term strategic market to expand the application fields of the company's products. In 2022, the company completed mass production of PamIF, a high-density RF module for 5G communication, and completed the development of DiFEM and PAMID packaging processes; the development of double-sided module (HD DSSIP) packaging technology; and the development of high-definition image sensor packaging process for automotive electronics, and actively developed new product lines such as QFP for automotive electronics.

At present, the company has passed the vehicle regulation system certification and mass-produced for some customers. With the gradual enrichment and improvement of the company's product application fields, it is expected to create new growth points for the company's revenue. The company recently released a draft restricted stock incentive plan for 2023. It plans to award 440 million restricted shares (accounting for 1.08% of the total share capital) to 274 incentive recipients (9.18% of the total number of employees); the grant price is 12.66 yuan/share. This incentive plan sets assessment indicators, and the revenue growth rate for 23/24/25 is set to exceed 25%/50%/100% compared to '22. The company's current incentive plan is conducive to mobilizing employees' enthusiasm, binding the interests of the core team, and effectively preventing brain drain. The assessment goals are challenging, demonstrating confidence in the company's long-term development.

The first coverage gave an “increase in ownership” rating: the company's main business is integrated circuit packaging and test plan development, packaging processing and finished product testing services for various types of integrated circuit chips, and supporting services related to integrated circuit packaging and testing. The company's main products include high-density fine-pitch bump inverted products (FC products), system-level packaging products (SiP), flat pin-less package products (QFN/DFN), and microelectromechanical system sensors (MEMS). The company collaborated on various aspects such as the market and its own product line layout. While deepening existing business and increasing market share, the company continued to improve the company's product line layout and actively promoted the construction of production lines such as Banners, wafer-level packaging, and FC-BGA. With the gradual recovery of market demand and the steady progress of capacity construction projects, the company's revenue and net profit are expected to resume steady growth. The company's net profit for 2023-2025 is estimated to be 164 million yuan, 291 million yuan, and 423 million yuan respectively, EPS is 0.40, 0.71, and 1.04 yuan respectively, and PE is 92X, 52X, and 36X respectively.

Risk warning: risk of exchange rate fluctuations; downstream demand falls short of expectations; introduction of new products falls short of expectations; capacity expansion falls short of expectations.