Event: On February 26, Fortune Precision released its 2023 performance report. In 2023, the company achieved revenue of 2.07 billion yuan, a year-on-year increase of 34%; realized net profit of 160 million yuan, a year-on-year decrease of 36%; and realized deducted non-net profit of 79.98 million yuan, a year-on-year decrease of 55%. In 2023Q4, the company achieved revenue of 670 million yuan in a single quarter, up 27% year on year, up 20% month on month; Q4 achieved net profit from mother of 257.72 million yuan, down 69% year on year and down 29% month on month 23 Q3; realized net profit deducted from mother of 42.843 million yuan, down 21% year on year and 261% increase over 23Q3.
Comment: Revenue for 2023 is basically in line with expectations, and the profit side is under pressure in the short term. The company's revenue growth in 23 years was in line with expectations. On the one hand, thanks to the company's increased R&D and market development efforts for module products, module product revenue grew rapidly; on the other hand, the domestic semiconductor market demand increased, and the domestic sales revenue increased dramatically as a leading domestic semiconductor metal component company. The profit side is under pressure in the short term. On the one hand, due to rapid revenue growth in module products with low gross margin levels, the overall gross margin level declined; on the other hand, the company began putting into operation in 2023, the company's early investment of machinery and equipment was mismatched with the pace of production and industry sentiment, the utilization of production capacity in the new factory fell short of expectations, and the company's increased R&D investment led to increased costs, and the company's overall profitability was under great pressure in '23. We believe that with the recovery of the 24-year semiconductor cycle, the acceleration of localization of parts for equipment manufacturers, and the release of production capacity to form a large-scale effect, the company's profitability will be effectively improved.
The US is increasing restrictions on purchases of American equipment and components by Chinese fabs, and domestic substitution is about to accelerate. Semiconductor precision parts are one of the “stuck necks” of domestic equipment manufacturers. According to Reuters, the US is putting more pressure on Chinese fabs to restrict imports of materials and components for US chip manufacturing, and the localization of components for domestic equipment manufacturers will continue to accelerate. According to SEMI, global semiconductor equipment sales in 2022 were US$107.4 billion, and are expected to reach US$140 billion in 2030. Of these, precision components account for 50%-55% of the semiconductor equipment market share, which is vast.
Leading domestic semiconductor equipment precision components, with domestic replacement capabilities. The company is one of the few precision component manufacturers in the world that can be mass-produced and applied to 7nm process semiconductor equipment. The products cover core process equipment including etching and thin film deposition. The advanced product has been recognized by international A customers. The domestic market has covered leading semiconductor equipment manufacturers such as North China Chuang, China Micro, and Tuojing Technology, and has domestic replacement capabilities. The market space covered by the company's products was about US$24.1 billion in 2022. The company's global market share is less than 1%, and there is plenty of room for improvement.
Profit forecasting, valuation and ratings: As a leading metal precision parts company, the company's revenue continues to grow in the context of accelerated localization, but the profit side is under pressure in the short term due to factors such as changes in product structure and production capacity falling short of expectations in the new plant. We lowered our net profit forecast for 23-25 to 1.58 /3.43 billion yuan (-25%/-3%/-10% compared to the previous forecast). The current stock price corresponds to EPS of 0.76/1.64/2.10 yuan, respectively, and the corresponding PE is 75/35/27 times. Considering the upward trend in the semiconductor industry cycle in 24 years, the company's new factory properties can climb a slope, release scale effects to improve profitability, are optimistic about the company's future growth, and maintain an “gain” rating.
Risk warning: the risk of the company being replaced by other suppliers; the risk of international trade friction; the risk that the company's process development progress falls short of expectations.