Event: The company released its second-quarter results, with revenue of 55.66 million, an increase of 29% over the previous month and a decrease of 29% over the previous year. The company lost 9.78 million in a single quarter, a slight increase from the loss of 7.16 million in the first quarter.
Expecting a recovery in orders, major customers are very flexible: the company's largest customer is Nvidia. Since the second half of 2022, its gaming graphics card business has entered an inventory adjustment period, and the company's probe orders and shipments have declined significantly. Currently, Nvidia's results for August indicate that its gaming graphics card business has grown both quarterly and year-over-year. Gaming graphics cards are gradually moving out of the inventory adjustment cycle, and there is still huge room for GPU upgrades in the market in the future. Meanwhile, as AI applications drive GPU demand in data centers, shipments of Nvidia related products will continue to grow at a high rate. According to our supply chain research, Nvidia's A100/H100 shipments are expected to reach 1.2 to 1.3 million units in 2023, doubling from 500,000 to 600,000 units in 2022, while shipments will further increase significantly to close to 4 million units in 2024. On the other hand, at present, the company's share in Nvidia's FT probe procurement is relatively low, and there is plenty of room for improvement. Benefiting from the dual drive of increased demand for Nvidia and an increase in market share, we believe that the company's revenue elasticity comes from Nvidia, a major customer.
There is broad scope for domestic substitution of high-end probes: The US continues to increase restrictions on advanced domestic chip companies. Due to supply chain security considerations, the demand for localized high-end FT probes is still urgent, and the company is expected to fully benefit from the domestic substitution trend. Currently, in the field of high-end probes, the country mainly relies on overseas manufacturers such as Leeno Technology. With its benchmark customer Nvidia, the product “reduces dimensions” and is expected to quickly break through domestic customers and gain market share.
The MEMS parts business bottomed out and rose: Due to weak demand, increased costs, and declining capacity utilization, the company's MEMS parts business revenue and gross profit were under pressure. However, we believe that demand for consumer electronics is gradually recovering. At the same time, the Apple industry chain began pulling goods in the third quarter. Coupled with pressure sensors and optical sensor components entering a period of expansion, we expect the company's MEMS parts business gross revenue to return to an upward channel.
Valuation and advice: Since the company currently does not have a directly comparable company with A-shares, we suggest a valuation similar to that of a semiconductor component company. We expect the company's net profit for 2023/2024/2025 to be 0.2/15/260 million yuan, respectively (the probe business has been lowered). We believe the company will benefit from the explosive growth of AI and domestic demand for computing chips, and there is still room for fundamentals to exceed expectations. 45x 2024PE (average forward price-earnings ratio, slightly lower than the previous 53x 2024PE) was given a corresponding target price of 76 yuan, maintaining the “superior to market” rating.
Risks: 1) New product promotion falls short of expectations; 2) Competition intensifies; 3) Production capacity release falls short of expectations.