Incident: The company released its 2023 performance forecast on January 9. It is expected to achieve net profit of 150-180 million yuan in 2023, a year-on-year decrease of 33.78%-44.82%; it is expected to deduct non-net profit of 0.25-55 million yuan, a year-on-year decrease of 54.53%-79.33%. On a quarterly basis, in Q4 2023, the company expects to achieve net profit of 163-193 million yuan, an increase of 26.86%-50.26% over the previous year, and a sharp reversal of losses from month to month; it is expected to deduct non-net profit of 1.06 to 136 million yuan, an increase of 187.53%-268.83% over the previous year, significantly reversing losses from month to month.

Weak demand indicates that the business is under pressure, and investment in semiconductor business R&D continues to be high: the company's performance is expected to decline year-on-year in 2023, mainly due to 1) the persistence of adverse factors such as the global economic downturn and weak demand in the consumer electronics market, and the slow recovery in terminal consumer demand indicates that the industry has not yet broken out of the cyclical bottom; 2) the company's semiconductor business is in a period of high investment and is not yet profitable. High R&D investment has had a certain impact on the company's net profit. R&D expenses in Q3 in '23 were 154 million yuan, up 10.29% year on year. Q1-Q3 spent 438 million yuan on R&D, up 16.24% year on year.

It shows that the industry is recovering steadily, and semiconductor business orders continue to rise: In Q4 2023, the display industry recovery situation continued to improve, and market demand gradually recovered. The company vigorously promoted the expansion of new businesses related to OLED, micro-OLED, etc., continuously improved product delivery capabilities, and increased profitability. Q4 showed a significant month-on-month increase in the display business. In the semiconductor sector, the company's R&D investment has entered a harvest period, and orders are growing rapidly. According to the company's report for the third quarter of 2023, Q3's semiconductor sector had on-hand orders of about 1,489 million yuan, and Q1-Q3 achieved revenue of 209 million yuan in the semiconductor sector, an increase of 86.1% over the previous year; in addition, the company's film thickness, OCD and electron beam defect review equipment has received orders for advanced processes, and some products have entered the mass production stage. Compared with Q3, Q4's delivery capacity has increased significantly compared to Q3, and revenue has improved significantly.

The new energy and AI markets are booming, and the new energy+semiconductor business momentum is strong: Benefiting from the continuous release of high-quality new energy models and the continuous improvement of infrastructure such as charging and switching, demand in the global NEV market continues to grow rapidly. According to Canalys, global NEV sales are expected to increase 29% in 2023, reaching 13.7 million units, with a penetration rate of 17%; Canalys expects the global NEV market to grow 27% to 17.5 million units in 2024. In the field of new energy, the company is strengthening cooperation with China Airlines in lithium battery equipment and is actively expanding cooperative relationships with well-known battery manufacturers at home and abroad. Furthermore, under the high demands of data centers, machine learning, and big data analysis for computing power and data processing, the AI circuit is booming. With the advancement of semiconductor technology, IDC expects more and more AI functions to be integrated into personal devices starting in 2024. AI smartphones, AI PCs, and AI wearable devices will gradually become a pioneering market. It is expected that more innovative applications will emerge after AI is introduced into personal devices, which is expected to greatly stimulate demand for semiconductors. The semiconductor industry is expected to usher in a new wave of growth as global demand for artificial intelligence and high-performance computing rises rapidly, and demand for smartphones, personal computers, servers, automobiles, etc. stabilizes. IDC expects the semiconductor sales market to return to a growth trend in 2024, with a 20% year-on-year increase.

Lower profit forecasts and maintain the “gain” rating: As domestic fab production expands, the semiconductor equipment localization process accelerates, and the new energy market continues to grow, the company is expected to broaden growth boundaries and further open up profit margins with emerging businesses such as semiconductor quantity testing business and new energy testing business. Considering that the company's semiconductor business is still in a high investment stage, the profit forecast was lowered. It is estimated that the company's net profit for 2023-2025 will be 165 million yuan, 310 million yuan, and 435 million yuan, respectively, and EPS will be 0.59 yuan, 1.11 yuan, and 1.56 yuan respectively. The corresponding PE is 146X, 78X, and 55X, respectively.

Risk warning: risk of customer concentration, increased risk of market competition, risk of falling short of expectations in fund-raising projects, risk of technology research and development.