Description of the event
Recently, Beifang Huachuang released its report for the third quarter of 2023. 2023Q3 achieved revenue of 6.162 billion yuan, an increase of 34.88% over the previous year; realized net profit of 1,085 billion yuan, an increase of 16.48% over the previous year; and achieved net profit of 1,031 billion yuan, an increase of 24.05% over the previous year.
In the first three quarters of 2023, the company achieved revenue of 14.588 billion yuan, an increase of 45.70% over the previous year; realized net profit of 2,884 billion yuan, an increase of 71.06% over the previous year; and realized net profit of 2,640 billion yuan, an increase of 78.82% over the previous year.
Incident comments
Changes in revenue structure affected gross margin performance, and contract liabilities and inventory increased on a month-on-month basis. Due to changes in the revenue structure, the share of high-margin businesses declined in the current quarter. The company's 2023Q3 gross margin was 36.37%, a decrease of 4.8 pct over the previous year, a decrease of 7.0 pct over the previous year. As of 2023Q3, the company's contract debt was 9.38 billion yuan, up 9.3% month on month, up 44.1% year on year; inventory was 17.33 billion yuan, up 3.6% month on month and 49.7% year on year, reflecting the company's full on-hand orders. We believe that the company's annual performance is expected to remain at a high growth rate.
The advantages of platform-based companies are evident, and new products continue to expand. At the product level, the company covers various fields such as etching, film, vertical furnaces, epitaxial, cleaning, horizontal furnaces, etc. Whether it is logic or storage, many domestic fab manufacturers maintain close cooperative relationships with the company. Since 2023, the company has successively launched new products such as a 12-inch edge etching machine and a 12-inch glue remover. At the same time, various benchmark products have successively reached sales milestones (cumulative sales of 12-inch deep silicon etching machines have reached 100 cavities, and a total of 500 12-inch vertical furnaces have been manufactured). Due to the incremental contribution of new products and repeated orders for mature products, the company currently has sufficient orders, and the increase in new orders in 2023 is obvious. At this stage, major downstream fabs are expected to open tenders in 2023Q4, and the company is expected to fully benefit from the trend of increasing localization, thus ensuring that 2024 performance can still achieve a high level of growth.
The company's semiconductor business has broad scope for domestic substitution, while businesses such as photovoltaics and new energy are developing steadily. As a leading state-owned semiconductor equipment company in China, Beifang Huachuang has significant leading advantages at both the technical and product levels, and related equipment has been introduced in batches by downstream first-tier manufacturers. In the context of the establishment of a domestic replacement trend for semiconductor equipment, the company's revenue scale and profitability are expected to improve over the long term. We expect the company's revenue for 2023-2025 to be 19.06 billion yuan, 24.82 billion yuan, and 30.74 billion yuan respectively, and net profit of 3.89 billion yuan, 4.83 billion yuan, and 6.03 billion yuan respectively. Corresponding to current stock price/earnings ratio levels of 33.8x, 27.2x, and 21.8x, respectively, maintaining the “buy” rating.
Risk warning
1. There is uncertainty about the pace of expansion of production in downstream fab plants;
2. There is uncertainty about the pace of R&D.