The company focuses on integrated overall solutions for high-end clean room systems. The company has been deeply involved in the cleanroom industry for 30 years. It is an industry-leading enterprise. It has completed more than 500 high-end cleanroom system integration projects, rich project experience and high-quality customer resources. The company's revenue scale has grown rapidly in recent years. In 2023Q1-3, the company achieved a year-on-year increase of 28.21% in revenue of 2,533 billion yuan, and net profit to mother of 150 million yuan, a decrease of 20.73%. The 2018-2022 operating income CAGR reached 18.58%, and the net profit CAGR to mother reached 13.63%. By sector, the company's business covers national key industries such as semiconductors, new displays, and life sciences. The company's revenue scale in the semiconductor sector increased dramatically in 2023, and 2023H1 achieved revenue of 978 million yuan close to 1,198 billion yuan for the full year of 2022; accounting for 67.9% (43.55% in '22). By business type, the company is deeply involved in the cleanroom system integration business. Due to the company's rich project experience, secondary distribution with high gross margin achieved rapid growth. 2023H1 revenue was 135 million yuan, and the CAGR reached 31.88% in 2018-2022.

The downstream cleanroom industry is mostly an emerging industry, and the rapid development of the industry is driving demand for clean rooms. According to statistics from Zhiyan Consulting, the global clean room market reached US$106.34 billion in 2022. Among them, China's clean room engineering market size is 214.317 billion yuan in 2022, the CAGR will reach 13.88% in 2018-2022, and China's clean room market is expected to exceed 350 billion yuan in 2026. Looking at downstream industries, clean rooms have broad development space in the future, and demand is expected to grow dramatically: 1) Semiconductors: In the context of US regulation, demand for autonomous and controllable domestic semiconductors has increased greatly, and the current semiconductor production capacity is gradually shifting to Southeast Asia, and the acceleration of fixed asset investment in the industry is expected to boost demand for clean rooms; 2) New displays: industrial upgrading is accelerating, and the development of Mini LED and laser displays at this stage is driving industry iteration. Mini LED's 2019-2022 CAGR reached 105%, showing relatively rapid growth potential; 3) Photovoltaics: Industry development is currently The two routes of TopCon and HJT are dominant. The new technology is currently in the early stages of large-scale commercialization, and the technology iteration process can drive demand in the cleanroom industry; 4) Pharmaceutical manufacturing: biomedical CAGR reached 18.76% in 2017-2022, and the CAGR of pharmaceutical devices reached 19.74% in 2011-2021, all showing a relatively rapid growth rate. There is a rigid demand for clean rooms in the biomedical and pharmaceutical device manufacturing process, which is expected to support the future pharmaceutical clean room market space.

The middle and high-end cleanroom industry pattern is concentrated. The company is leading and aggressive in the technology industry, and has a good foundation of cooperation with downstream core customers. The capital cost of cleanroom-related projects is high. In the case of integrated circuits, clean rooms account for 10% to 20% of their expenses. In addition, it usually requires a short construction period and a low fault tolerance rate, so the requirements for engineering qualifications, technology, and professionals are high, and there are empirical barriers. A few powerful enterprises have reached the top of the pyramid, such as Baicheng Co., Ltd., Shenghui Integration, and Yaxiang Integration, etc., and the overall industry pattern is concentrated. Baicheng Co., Ltd. has formed a strong core competitiveness with its own qualifications and technology accumulation: 1) The company has complete relevant business qualifications and sufficient technical reserves. Currently, the company has implemented a clean room project level of IsoClass 2.5, which has reached industry-leading standards; 2) Fund-raising projects have increased prefabricated modular production and digitalization, and the company is at the forefront of the industry in this field. Using BIM technology to factory prefabricate clean room components is expected to shorten the construction cycle by 50-70%, reduce labor costs by 10-15%, and further optimize the company's competitiveness and manpower efficiency; 3) The company has reached long-term cooperation with leading downstream companies, such as BOE, Samsung, Tianma Microelectronics, and Huaxing Optoelectronics, which have cooperated with the company for 20/13/9/7, and have a good foundation of cooperation.

Investment advice: We expect the company's net profit to be 229/3.02/381 million yuan in 2023-2025, with a year-on-year change of -8.68%/31.98%/25.88%, EPS 0.44/0.58/0.73 yuan/share, respectively. The closing price as of December 25, 2023 corresponds to PE 29.49/22.34/17.75 times, respectively, covering the first time and giving a “gain” rating.

Risk warning: Order release falls short of expectations, downstream industry sentiment falls short of expectations, risk of macroeconomic environment fluctuations.