Performance in the first half of '23 was under pressure due to fluctuations in demand. The company released its 2023 mid-year report. In the first half of the year, it achieved operating income of 1,342 million yuan, YoY -14.22%; realized gross profit margin of 27.27%, YOY-20.26 pct; achieved net profit of 174 million yuan, YoY -65.49%; realized net profit of 50 million yuan, YoY -89.00% after deducting non-attributable net profit. Since the second half of 2022, the relationship between supply and demand in the industry has changed, terminal demand has been weak, and the semiconductor industry has been sluggish. The company's main business, represented by semiconductor silicon wafers, has been greatly affected by fluctuations in the industry cycle, and its performance in the first half of the year has been under pressure.

The semiconductor silicon wafer and semiconductor power device business showed a month-on-month recovery, and the compound semiconductor RF chip business grew significantly year-on-year. The company achieved revenue of 710 million yuan and QoQ +12.30% in a single quarter in 23Q2. By business, the semiconductor silicon wafer business 23Q2 revenue increased 13.97% month-on-month; the semiconductor power device business 23Q2 revenue increased 8.37% month-on-month; both main businesses showed a certain recovery trend. The compound semiconductor RF chip business has benefited from breakthroughs in product technology. The verification progress has basically covered mainstream mobile phone chip design customers in China. Ongoing orders and revenue for the first half of the year increased sharply year-on-year, the negative gross margin situation narrowed, and losses decreased.

The product structure continues to be optimized, and there is sufficient momentum for future growth. The company's 6-inch and 8-inch silicon wafers continue to maintain an advantageous position in the market. The 12-inch semiconductor silicon wafer technology has covered technical node logic circuits and storage circuits above 14nm, as well as image sensor devices and power devices for technical nodes required by customers. The production capacity of 12-inch silicon wafers at the Quzhou base continues to rise, and the company is expected to continue to expand the sales scale of semiconductor silicon wafers in the future; the production and sales volume of the company's photovoltaic bypass diode control chips and automotive-grade power chip devices has increased dramatically. Newly developed FRD products have grown even more clearly, IGBTs have entered the small-batch shipping stage, and power devices. New space for device business.

Profit forecasts and investment recommendations. The company is expected to achieve EPS of 0.73 yuan/share in 23. Referring to comparable company valuations, the company will be given 65 times PE in 2023, corresponding to a reasonable value of 47.44 yuan/share, and maintain a “buy” rating.

Risk warning. Business climate cycles fluctuate; market competition intensifies; technology iterations.