23H1's performance is under phased pressure, mainly due to the slowdown in demand from terminals and downstream customers and the company's continued expansion of new products, leading to a significant increase in various expenses over the same period last year. Looking forward to the future, the company will continue to promote domestic replacement of high-end wafer-level and substrate-level test probes. Currently, related new products are being verified by customers. At the same time, the company is expanding the application of microelectromechanical (MEMS) related fine component products in consumer electronics, robots, automobiles, etc. Considering 23H1's phased losses, we adjusted the company's 2023/24/25 EPS forecast to 0.03/1.03/2.39 yuan (original forecast value 1.25/2.03/2.72 yuan). Referring to the valuation level of comparable companies, considering that the company's semiconductor chip test probe business has a lot of room for growth in high-end product lines and market development, we gave the company 65 times PE in 2024, adjusted the target price to 68 yuan (original value 95 yuan), and maintained the “buy” rating.

Net revenue and profit for the first half of 2023 came under phased pressure, and performance fell short of expectations. On August 30, 2023, the company announced its 2023 annual report. 23H1 achieved revenue of 98 million yuan (-41.51% year-on-year) and a loss of 17 million yuan (loss over the previous year). The company's performance fell short of market expectations. We believe it is mainly due to: 1) demand in the consumer electronics market is slowing down, the company's downstream customer inventory level has decreased their willingness to purchase, increased market competition has caused the company's on-hand orders to be at a low level, and product profits are also under great pressure; 2) 23H1's R&D expenses reached 37 million yuan, an increase of 62.49% over the previous year, and the company's focus on semiconductor test probes brought high R&D investment. According to the company's announcement, the MEMS process wafer test probe R&D and mass production project and the substrate-level test probe R&D and mass production project plan will invest 79 million yuan in R&D expenses.

High R&D investment consolidates technological advantages, and product line expansion opens up room for growth. Faced with adverse factors such as slowing market demand, the company is diligent in “internal work”, continuously increasing R&D investment in the fields of semiconductor chip test probes and MEMS fine components, and consolidating its technical advantages in fields such as fine metal manufacturing, fine mold design, and micro complex structure processing. According to the company's announcement, the company is carrying out project research and development in the fields of automobiles, robotics, consumer electronics, and aviation. The research projects include gearbox components and plastic gears in miniature transmission systems, shielding covers for stacked 3D packages, high-end periscope hollowed-out camera module motor housings, and circular aviation connectors. With industry-leading precision and complex structure processing capabilities, it is expected that the company will continue to expand its business on the high growth track and enrich the product matrix to open the ceiling for growth.

The semiconductor chip test probe business has great potential for development, and ongoing research projects continue to promote domestic substitution. According to VLSIResearch and Gimei Consulting data, the global semiconductor probe card production value reached 2,608 billion US dollars in 2022. The top five global probe card manufacturers all came from overseas, accounting for about 70% of the global market share, and there are huge opportunities for domestic replacement. The company is carrying out the construction of fixed capital investment projects in an orderly manner, actively carrying out R&D work in the fields of high-end test pins, MEMS process wafer test probes, ultra-high frequency probes and bases, and promoting domestic substitution in all aspects. According to the company's announcement, the company's MEMS process wafer test probes have received verification requests from some customers, and have mass production capabilities for the entire wire needle process. The minimum product size is 30um OD, and the shortest length is 5mm. The wire needle products have been verified by leading customers in the market, and their performance can meet the technical requirements of products of the same specifications in Japan and South Korea.

Risk factors: risk of technological updates and product upgrades; risk of high customer concentration; risk of new product development falling short of expectations; risk of falling short of expectations in capacity release; risk of trade disputes; risk of brain drain; risk of increased market competition; risk of loss of performance.

Profit prediction, valuation and rating: The company is a leading enterprise in the field of MEMS-related fine components and semiconductor chip testing probes in China. Indicators such as yield, manufacturing accuracy, and production capacity scale are among the highest in China. 23H1's performance was under phased pressure, mainly due to the slowdown in demand from terminals and downstream customers and the company's continued expansion of new products, which led to a significant increase in various expenses over the same period last year. Looking forward to the future, it is expected that the company will maintain high R&D investment to consolidate its technical advantages in the field of precision processing, and continue to promote domestic replacement of high-end wafer-level and substrate-level test probes. Currently, related products have reached the level of customer verification. At the same time, the company is expanding the application of microelectromechanical (MEMS) related fine component products in consumer electronics, robotics, automobiles, etc., which is expected to open the ceiling for MEMS business growth. Considering that the company continued to develop new products and that 23H1 experienced phased losses, we adjusted the company's 2023/24/25 EPS forecast to 0.03/1.05/2.24 yuan (the original forecast value was 1.25/2.03/2.72 yuan). Considering that the company's traditional main business in 2023 was affected by the external environment and phased pressure, we expect the new projects being developed by the company to gradually generate performance contributions in 2024, so it is reasonable to choose 2024 as a valuation reference. Referring to the current average valuation level of comparable companies (Fuchuang Precision, Minxin Co., Ltd.'s wind unanimously expected to be 45 times PE in 2024), given that the company's semiconductor chip test probe business has broad domestic replacement space, and the company has strong growth in high-end product lines and market development, we gave the company 65 times PE in 2024, adjusted the target price to 68 yuan (original target price 95 yuan), and maintained the “buy” rating.