Announcement: Fuchuang Precision's revenue for the first three quarters was 1.39 billion yuan, +37.28% year-on-year, and net profit was 132 million yuan, -19.15% year-on-year. 23Q3 operating income was 561 million yuan, +35% year-on-year, net profit of 36 million yuan, -42% year-on-year; net profit after deducting non-return net profit of 12 million yuan, -76.29% year-on-year. The quarterly revenue was in line with expectations, and the net profit margin fell short of expectations.
The growth engine is shifting from overseas customers to the local market. In 2022, the revenue of the mainland region and regions outside the mainland was 835 million yuan/694 million yuan respectively, +156%/+38% over the same period last year. The mainland accounted for more than half of the revenue for the first time, reflecting the double boom in equipment and components and the trend of localization. Since the beginning of '23, the company's revenue growth rate has slowed due to declining spending in the overseas semiconductor industry.
The proportion of high-value complex module products has increased. Process parts revenue in 2022 was +128.68%, accounting for 26.69%. Various products were supplied in batches after being certified by core customers such as customer A and North China; module product revenue was +153.64%, and the total revenue share of module products and gas pipelines increased from 33.67% in 2020 to 40.62% in 2022. The product structure has changed since 2023. The revenue share of module products, which account for relatively high raw material costs and relatively low gross profit, has increased dramatically, and the revenue growth of component products has fallen short of expectations. The pace of production of machinery and equipment invested by the company in advance mismatches the pace of industry prosperity, and the scale effect has not yet been reflected.
Gross margin is affected by product structure, new plant commissioning, and net profit is under pressure in the short term. The gross sales margin in 2022 was 32.68%, +0.64pct year-on-year, mainly due to the increase in gross margin of process components and module products. Looking at the subregion, the gross margin of the mainland region/overseas region was 28.97%/36.02%, respectively, which was +3.35 pcts/+1.54 pcts over the same period last year. By product, the gross margin of process parts/structural components/module products/gas pipelines was 35.65%/32.73%/26.11%/35.84%, respectively. The gross margin for the first three quarters of 2023 was 27.09%, mainly due to a decrease in high-margin overseas demand and an increase in the share of low-margin modular products; the net profit margin was 9.53%, affected by the launch of new plants.
R&D investment+capacity expansion solidify long-term competitiveness, and set up a Singapore factory to lay out overseas production capacity. The technical competitiveness of the company's products continues to increase. In 2022, R&D expenditure was 122 million yuan, accounting for 7.89% of revenue, +64.22% over the same period last year. 23Q1-3 R&D expenditure was 149 million yuan, +89% year-on-year; factories such as Nantong and Beijing reached production capacity of 4 billion yuan per year, reserving talents, equipment and other resources in advance. The Singapore factory is being built in an orderly manner according to the plan, and is expected to begin production in '24.
Buybacks convey management's confidence in development. The October 20 repurchase announcement stated that it is intended to repurchase shares of 140 million yuan to 280 million yuan within the next 12 months. The repurchase price shall not exceed 120 yuan/share (inclusive), and it is intended to be used entirely for the company's equity incentives or employee stock ownership plans.
Lower the profit forecast and maintain the “increase in holdings” rating. Due to the decline in gross margin, the net profit forecast for 2023-2025 was lowered from 30/39/53 million yuan to 2.0/3.1/49 billion yuan. The current market value corresponds to 2023/24/25 PE82/52/33X. The median value of 2024PE for comparable semiconductor equipment companies is 59X, with room for increase of 13%, maintaining a shareholding increase rating.
Risk warning: The semiconductor boom cycle is declining, new product expansion falls short of expectations, and yield falls short of expectations.