Tianzhun Technology is a leading machine vision equipment platform enterprise in China. It has built product lines for consumer electronics, semiconductors, PCBs, photovoltaics, and intelligent driving. Benefiting from strong demand in the photovoltaics, automobile manufacturing, intelligent driving, and PCB markets, the company's 23H1 net revenue and profit maintained steady growth. Looking forward to the future, we believe the company will maintain high R&D investment and continue to replace domestic production in the field of high-end semiconductor and PCB equipment.

Considering that the company's consumer electronics equipment will follow the iteration of terminal products and maintain a stable replacement frequency, all new product lines have already entered the order volume stage. We expect the company's net revenue and profit to maintain a relatively rapid growth rate in the future. We have given a PE valuation 42 times that of 2023, corresponding to a target price of 45 yuan, and a “buy” rating for the first time.

The company's 23H1 net revenue and profit maintained steady growth, and the performance was in line with expectations. On August 25, 2023, the company released its 2023 annual report. 23H1 achieved operating income of 513 million yuan (YoY +10.41%) and net profit of 104 million yuan (YoY +36.24%). Excluding share payment expenses, net profit was 20 million yuan, which is in line with market expectations. The company's net revenue and profit maintained steady growth mainly due to the company's product line expansion results. The share of revenue from the automobile manufacturing and photovoltaic semiconductor industries continued to increase. The 23H1 visual process equipment product business achieved revenue of 116 million yuan, an increase of 29.69% over the previous year; the intelligent driving solutions business achieved revenue of 38 million yuan, an increase of 94.65% over the previous year. With core platform capabilities in five major fields, we believe the company will continue to enrich its product lines on high-profile racetracks such as PCBs, photovoltaics, semiconductors, and intelligent driving, and maintain its rapid growth momentum.

Intelligent driving solutions have entered the passenger car field, and some projects have entered the mass production verification stage. Using AI edge computing controllers as a starting point, the company has expanded to automotive-grade autonomous driving domain controllers, mainly for front-mounted mass production of high-end autonomous passenger cars. According to the company's WeChat account and the 2023 semi-annual report, the company has now established a deep strategic partnership with leading AI chip companies to create industry-leading intelligent driving controller products and solutions. The TADC-D52 domain controller issued by the company has obtained the first Horizon Matrix5 standard hardware certification. It is capable of NOP/NOA leading high-level autonomous driving scenarios such as assisted driving and autonomous parking. It has served more than 10 customers. It has now been completed. For DV testing, the company expects mass production conditions to be in place within 2023.

Maintain high R&D investment and launch a series of new pan-semiconductor products. 2020-2023H1, the company's R&D expenses have remained above 100 million yuan. High R&D investment has helped the company launch a series of products with high technical capabilities in the semiconductor and PCB fields. In the semiconductor field, SiC Semiconductors, in which the company is a shareholder, has made significant progress. The TB1000, the first wide-band bright-field defect detection device for 12-inch wafers with 65-90nm technology nodes, was delivered to customers for trial use in August. TB1000 realizes the autonomy and control of key core components of precision optoelectronics, uses advanced signal processing algorithms, effectively improves the signal-to-noise ratio, significantly improves the defect detection sensitivity of equipment in key processes, and is expected to break the situation where foreign leaders dominate the semiconductor inspection/measurement market. In the PCB field, the company has launched a series of high-efficiency and high-precision equipment, including LDI, AOI, AVI, CO2 laser drilling equipment, etc.

Risk factors: the risk of a decline in gross margin due to the expansion of the company's product line; the risk that the company's new product line customer development falls short of expectations; the risk of the company's operating cash flow being negative; the risk of loss or leakage of technical talent; risk of impairment of goodwill; risk of macroeconomic fluctuations.

Profit prediction, valuation and rating: Tianzhun Technology is a leading machine vision equipment platform enterprise in China. It has built product lines for consumer electronics, semiconductors, PCBs, intelligent driving, and photovoltaics. Benefiting from strong demand in the photovoltaics, automobile manufacturing, intelligent driving, and PCB markets, the company's 23H1 net revenue and profit maintained steady growth.

23H1. The company has made major breakthroughs in the fields of intelligent driving, semiconductor inspection/measurement equipment, PCBs, etc., the automotive-grade autonomous driving domain controller has obtained a designated development point, wide-band bright-field defect detection equipment has been successfully shipped to customers, and the CO2 laser drilling equipment has been successfully iterated to further enrich the company's product matrix. Considering that the company's consumer electronics equipment will follow the iteration of terminal products and maintain a stable replacement frequency, all new product lines have already entered the order volume stage. It is expected that the company's net revenue and profit are expected to grow rapidly. We maintain the company's EPS forecast of 1.07/1.40/1.78 yuan for 2023-2025. Referring to the average valuation level of comparable companies (Ling Yunguang, Jizi Technology, Desai Seaway, China Science and Technology Chuangda, Precision Electronics, and Xie Ge Micropack 2023 Wind agree that the average PE value is about 44x), considering that the company has established good cooperative relationships with major downstream customers and has broad prospects for cooperation, the company has stable order sources in the 3C and photovoltaic fields, and continues to make breakthroughs in PCB, semiconductor, and intelligent driving businesses. We gave it a PE valuation of 42 times in 2023, corresponding to a target price of 45 yuan, and a “buy” rating for the first time.