Incidents: In 2023, H1 achieved revenue of 689 million yuan, a year-on-year decrease of 3.85%; realized net profit of 122 million yuan, a year-on-year decrease of 32.39%; achieved net profit of 102 million yuan deducted from non-net profit, a year-on-year decrease of 40.79%. In 2023, Q2 achieved revenue of 380 million yuan, a year-on-year increase of 4.26%, and a year-on-year increase of 23.29%; achieved net profit of 92 million yuan, a year-on-year decrease of 11.47%, and a year-on-year increase of 199.25%; achieved non-net profit of 75 million yuan, a year-on-year decrease of 23.41%, and a year-on-year increase of 176.93%.

Weak demand in Q1 dragged down H1's performance, and Q2's profitability increased sharply month-on-month: H1 in 2023, affected by weak consumer demand in terminal application markets such as smartphones and HDTVs, the overall prosperity of the semiconductor industry declined, and the company's overall performance declined sharply. In 2023, H1's gross margin was 31.22%, year-on-year, -11.56pcts; net interest rate was 17.74%, year-on-year -7.49pcts. In terms of expenses, H1's sales, management, R&D and financial expenses rates in 2023 were 0.68%/6.21%/7.03%/-0.42%, respectively. The year-on-year changes were +0.03/+0.78/-0.07/-1.95pcts, respectively. Among them, the H1 financial expense ratio and absolute value declined year-on-year, mainly due to increased interest income and exchange rate fluctuations affecting changes in exchange profit and loss. In Q2 2023, the company's gross profit margin was 33.44%, -9.87 pcts year on year, +4.95 pcts; the company's net interest rate was 24.09%, year on year -4.28 pcts, +14.17 pcts. According to the company's interim report, according to DIGITIMES Research statistics, global smartphone shipments in the first quarter of 2023 were 264 million units, down 13.2% year on year. Shipments in the second quarter of 2023 were 257 million units, a year-on-year decrease of 6.4%, and the decline narrowed month-on-month. Furthermore, thanks to pre-stocking by domestic brands for the 618 e-commerce festival, global TV shipments in Q2 2023 showed a marked increase. In the future, as consumer electronics demand gradually recovers, the company is expected to further restore profitability.

The technology and yield are leading in the industry, and the IPO fund-raising increases the 12-inch wafer packaging and testing layout: The company is mainly engaged in advanced packaging and testing of integrated circuits. Currently, it mainly focuses on the field of display driver chip packaging and testing, and the non-display chip packaging and testing field represented by power management chips and RF front-end chips. In the field of display driver chips, the company has strong technical capabilities in major process processes such as bump manufacturing, wafer testing, glass crystallized packaging, flexible screen crystallized packaging, and thin-film crystallized packaging. The company has mastered core technologies such as “high-reliability manufacturing of fine-pitch gold bumps”, “high-precision high-density internal pin bonding”, and “125mm large-format crystal-coated packaging”. It has advanced packaging technology such as double-sided copper structure and multi-chip integration. It currently has the most advanced 28nm process display driver chip encapsulation and production capacity in the industry. The main technical indicators are at the leading level in the industry. In the field of non-display chip packaging and testing, the company has successively developed various bump manufacturing techniques such as copper-nickel-gold bumps, copper-column bumps, and tin bumps, as well as post-stage DPS packaging technology, which can achieve large-scale mass production of full-process fan-in wafer-level chip size packaging (FAN-in WLCSP), and is widely used in products such as power management chips, RF front-end chips, and advanced packaging of next-generation semiconductor materials such as gallium arsenide and gallium nitride. Benefiting from strong technical reserves and manufacturing capabilities in the field of advanced integrated circuit packaging testing, the company's main process yield has remained stable at over 99.95%, which is at the leading level in the industry. In April 2023, the company was officially listed on the Science and Technology Innovation Board of the Shanghai Stock Exchange. The IPO raised 2,233 million yuan for projects such as the “Advanced Packaging Test and Production Base Project” and the “Advanced Packaging Test and Production Base Phase II Packaging and Testing R&D Center Project” to enhance the company's production capacity for 12-inch wafer bump manufacturing, testing, and thin-film laminated packaging, expand the company's production capacity for 12-inch wafer bump manufacturing and advanced packaging, cater to the major trend of shifting display driver chips to 12-inch wafers, and ease the company's production capacity bottlenecks. Seal The leading position in the field of testing and related intelligent manufacturing technology lays a solid foundation for the company's future business development and expansion.

The market space for the integrated circuit industry is vast, and domestic substitution has great potential: the company's prospectus indicates that in the future, with the rapid growth of emerging markets and applications such as cloud computing, big data, metaverse, and wearable devices, the integrated circuit market size is expected to continue to maintain a high level of growth. CCID predicts that the global integrated circuit market sales will reach 715.3 billion US dollars in 2025, and CAGR of more than 10% from 2022 to 2025; in addition, with the continuous increase in the localization rate and the increase in terminal market demand, mainland China by 2025 Integrated circuit sales will reach 1909,888 billion yuan, an increase of 82.62% over 2021. According to the company's prospectus, China's customs data shows that mainland China imported 635.5 billion integrated circuits in 2021, with a total import volume of 2,793.482 billion yuan, an increase of 15.42% over the previous year; according to data from the National Bureau of Statistics, mainland China's integrated circuit production in 2021 was 359.4 billion units, an increase of 37.49% over the previous year. Compared to the import volume of integrated circuits, the integrated circuit supply chain in mainland China is still small. It can be predicted from this that as the domestic substitution process in China's integrated circuit industry continues to accelerate, integrated circuit enterprises in mainland China will usher in more development opportunities.

Covered for the first time, with an “increase in holdings” rating: The company is mainly engaged in advanced packaging and testing of integrated circuits. It mainly focuses on the field of display driver chip packaging and testing and testing and non-display chips represented by power management chips and RF front-end chips. The company currently has the most advanced 28nm process display driver chip package measurement production capacity in the industry. The main technical indicators and major process yields are at the leading level in the industry. We are optimistic about the localization trend of the integrated circuit industry and the company's technical advantages in the field of chip packaging and testing; in the future, with the recovery of consumer electronics demand, the semiconductor industry's prosperity will continue to rise, and the company's profitability is expected to improve quarter by quarter. The company's net profit for 2023-2025 is estimated to be 241 million yuan, 358 million yuan, and 462 million yuan respectively, EPS is 0.20 yuan, 0.30 yuan, and 0.39 yuan respectively, and PE is 60X, 41X, and 31X respectively.

Risk warning: Increased risk of competition; risk of high customer concentration; risk of exchange rate fluctuations; risk of non-display business expansion falling short of expectations.