Key points of investment

On January 24, 2024, the company issued the “Notice of Advance Increase in Annual Results 2023".

The total amount of new orders added by 2023H2 exceeds 10 billion yuan, and net profit due to mother for the whole year is expected to increase by more than 50% year-on-year. On January 11, 2024, Pure Technology issued the “Notice Concerning the Status of New Orders in 2023", which revealed that in 2023, the company's industry developed steadily, the business maintained steady growth, and the company's strategic layout to provide customers with products and services throughout the life cycle has gradually taken shape and achieved remarkable business results. The total number of new orders added by the company in 2023 was $13.293 billion, including long-term orders of $8.661 billion for 5 to 15 years for electronic materials and special services. As of June 30, 2023, the total number of new orders added by the company was 3.266 billion yuan, an increase of 38.28% over the previous year; 73.65% of the new orders were for the semiconductor industry, and the rest were for the pan-semiconductor and biomedical industry; as of June 30, 2023, active orders were 5.323 billion yuan. According to the company's “2023 Annual Results Advance Notice”, net profit due to mother is expected to be between 424 million yuan and 480 million yuan in 2023. Compared with the same period last year, it will increase between 142 million yuan and 198 million yuan, an increase of 50.12% to 69.95% over the previous year. It is estimated that net profit not attributable to mother will be between 190 million yuan and 245 million yuan in 2023, a year-on-year decrease of 14.17% -33.44%.

In 2023, the company's main business developed steadily. The main reason for this change in performance was the impact of non-recurring profit and loss.

The company's non-recurring profit and loss changes in the current period were mainly affected by the transfer of part of the shares of the participating company Guizhou Weidun Jingling Electronic Materials Co., Ltd., resulting in investment income of about 125 million yuan and other fair value changes.

Raise capital for single-chip wet process module/core component research and development, North Industrial Base/Qidong Base Phase II project.

The company raised no more than RMB 1,793 billion in capital for this distribution to specific targets. After deducting the issuance fee, the funds raised will be used for: single-chip wet process modules, core component R&D and industrialization projects; pure wet cleaning equipment and high-purity process equipment North Industrial Base projects; the Qidong Semiconductor Equipment Industrialization Base Phase II project; and supplementary working capital or debt repayment. (1) Research and development of single-chip wet process modules/core components, North Industrial Base/Qidong Base Phase II project: Based on the company's existing technical accumulation in R&D and production of 28nm semiconductor wet process equipment, the project will develop and industrialize high-grade single-chip wet process modules, single-chip cavities, and corrosion-resistant, high-precision core components for 14nm and below process nodes. It helps meet the needs of advanced process nodes at 14nm and below, enhances wet process module development capabilities under high depth-to-width ratio conditions, and realizes the manufacturing application of logic chips and high-density memory chips at 14nm and below for complete products. It is conducive to improving the company's core semiconductor component research and development level, laying the R&D foundation for independent production; it is conducive to further speeding up the domestic substitution process and consolidating the company's leading position in the domestic semiconductor wet process equipment and key components industry. (2) To the Northern Industrial Base Project for Pure Wet Cleaning Equipment and High Purity Process Equipment: The project will be based on the company's existing mature semiconductor wet process equipment and process technology accumulation of system integration and support equipment, and based on the semiconductor industry agglomeration and advanced technological advantages of the Beijing Economic and Technological Development Zone (Yizhuang), to establish a northern production and R&D base for wet equipment, system integration and support equipment and core components in Yizhuang, Beijing. After the project is delivered, the company expects to achieve an annual production capacity of 30 sets of system integration and support equipment, 15 semiconductor wet processing equipment, and 2,610 sets of semiconductor components. (3) Qidong Semiconductor Equipment Industrialization Base Phase II Project: The project is mainly used to develop and mass-produce products such as integrated circuit equipment such as furnace tubes and gluing, pan-semiconductor process equipment such as photovoltaic velvet cleaning equipment, and equipment supporting core components. After completion and completion of the project, it will form a production scale with an annual output of 50 sets of integrated circuit equipment such as furnace tubes, glued imaging, etc., 120 sets of photovoltaic process equipment, 10 sets of panel process equipment, more than 3,000 sets of system integration and process equipment, and more than 30,000 sets of supporting components.

Investment advice: In 2023, the global semiconductor market fell into a slump, demand in the terminal market was weak, and downstream demand fell short of expectations. We adjusted the company's original performance forecast. The operating income from 2023 to 2025 was adjusted from 42.71/50.88/5.884 billion yuan to 35.55/42.34/4.973 billion yuan, with growth rates of 16.6%/19.1%/17.5% respectively; net profit to mother was adjusted from 5.23/6.76/889 million yuan to 435/511/650 million yuan, with growth rates of 54.0%/17.4%/27.3% respectively; corresponding PE was 22.22/ 18.9/14.9 times Considering that ZHIWEI Technology, a subsidiary of the company, is one of the main suppliers of wet process equipment in China. Currently, wet processing equipment has full coverage at 28 nm nodes, and there are orders for all process machines. At more advanced process nodes, ZHIWEI has also obtained some process orders. Maintain the buy-A recommendation.

Risk warning: Demand for downstream terminals falls short of expectations; the process of building a new fab falls short of expectations; the company's R&D progress falls short of expectations; competition in the same industry at home and abroad intensifies, causing the risk of brain loss.