Continue to launch full-process tools for specific downstream segments. According to the company's 2023 annual report, the company is mainly engaged in EDA tool software development, sales and related services for integrated circuit design, manufacturing and packaging.
The company's original products include software such as analog circuit design full-process EDA tool systems, digital circuit design EDA tools, flat panel display circuit design full-process EDA tool systems, wafer manufacturing EDA tools, and advanced package design EDA tools. In the first half of 2023, the company launched new software such as a full-process EDA tool system for storage circuit design and an EDA tool system for the entire RF circuit design process. In addition to the above software, the company also provides technical development services in related fields. The company's products and services are mainly used in the field of integrated circuit design, manufacturing and packaging.
Domestic EDA has the largest market share, demonstrating the company's product strength. As of June 30, 2023, the company had approximately 600 domestic and international customers. According to the company's 2023 mid-year report, citing data from the CCID think tank, in 2020, the total sales volume of local companies in the EDA sector in the domestic market was 760 million yuan, and the company's market share remained above 50%. In 2022, the company achieved sales revenue of 798 million yuan, a year-on-year increase of 37.76%, ranking first among local EDA companies. With its core technical strength and leading position in the industry, the company has undertaken many major national research projects, including “Advanced EDA Tool Platform Development” and “EDA Tool System Development and Application” projects in the national “Core Electronic Devices, High-End General-Purpose Chips and Basic Software Products” major technology projects, as well as the Ministry of Science and Technology's key projects “Ultra Low Voltage High Precision Timing Analysis Technology” and “EDA Innovative Technology Research” projects.
Leading the industry for products in many downstream fields. The company's analog circuit design full-process EDA tool system is one of the world's leading full-process EDA solutions for analog circuit design; the full-process EDA tool system for storage circuit design is the leading full-process EDA tool system for storage circuit design in China; the full-process EDA tool system for flat panel display circuit design is the world's leading commercial full-process design system, and many technologies have reached the leading international level, filling the domestic EDA professional software for tablet design Gaps; some tools in digital circuit and wafer manufacturing also have unique technical advantages, and some tools have reached the leading international level; advanced packaging design key solutions fill the gaps in domestic EDA tools in this field.
Equity incentives have been introduced, and revenue targets are high. On November 6, 2023, according to the “2023 Restricted Stock Incentive Plan (Draft)” disclosed by the company, the company plans to grant Class II restricted shares not exceeding 2% of the total share capital at a price of 51.22 yuan, and the total number of incentive recipients is 408 people. The performance assessment period is 2024-2026. Future revenue growth rate and gross profit growth rate are assessed based on 2022 financial data: 2024-2026 revenue growth rate trigger values are 37%, 55%, and 72%, respectively; growth rate targets are 64%, 101%, and 139%, respectively. The trigger value and target value of the gross profit growth rate are in line with the revenue growth rate.
One of the important goals of future development is to complete the product and complete the product line. According to the company's “Investor Relations Activity Record Form” of May 11, 2023, EDA tools are used in all aspects of the industrial chain such as integrated circuit design, manufacturing and packaging testing. According to rough statistics, there are about 60 types of EDA core tools used in integrated circuits, involving a long tool chain. The company has now commercialized more than 30 products, covering more than half of the mainstream EDA tools. The future development plan is to make up for shortcomings and complete the construction of a full-process tool system. We are mainly working in three directions: 1. Complete products and complete the product line; 2. Continuously improve support for advanced processes. Some of the company's analog tools support 5nm, and all existing digital tools support 7nm processes, so we need to further deepen the integration with advanced processes; 3. Make breakthroughs and continuously promote product optimization and upgrading.
Profit forecasting and investment advice. We believe that in recent years, the company has been forging ahead, continuously launching full-process tools for different downstream processes, and the performance of existing tools is constantly improving. It occupies the largest share in the domestic EDA market. Based on the entire simulation process, it gradually complements the manufacturing EDA and digital EDA tool product lines, and customer cooperation and marketing are smooth. The company's overall gross margin remained stable. The company's gross margin was 90% in 2022. As the revenue structure changes, we assume that the gross margin for 2023-2025 will be 88%, 88%, and 87%, respectively: assuming that the gross margin of EDA software sales remains 100%; and the gross margin for technology development services and other businesses is relatively stable. In terms of revenue growth, referring to the company's various business growth rates in 2022, due to the downturn in the consumer electronics industry, downstream customer expenses slowed down. Assuming that the company's EDA software sales revenue growth rate was 28% in 2023 and recovered in 2024-2025, respectively, 30% and 32%, respectively. The year-on-year growth rate of the company's technology development services in 2023-2025 was 30%, 38%, and 42%; the year-on-year growth rate of other businesses was 50%, 45%, and 40% year-on-year. According to the company's 2023 equity incentive plan, it will have an impact on the company's costs. According to the company's estimates, the total expenses to be amortized are 476 million yuan, which correspond to amortization of 18 million yuan, 218 million yuan and 150 million yuan respectively in 2023-2025.
We forecast that the company's revenue for 2023-2025 will be 1,030/13.55/ 1,811 billion yuan, respectively, net profit to mother of 2.06/1.02 billion yuan, corresponding EPS of 0.38/0.19/0.58 yuan, and corresponding SPS of 1.90/2.50/3.33 yuan respectively.
We believe that compared to comparable companies, Huada Jiutian (1) has the largest domestic EDA market share; (2) has strong product strength; (3) has rich customer resources and deep cooperation with leading design companies; (4) has a relatively perfect industrial ecology and good cooperative relationships with leading fabs; (5) has obvious shareholder advantages; and (6) has sufficient talents. Taken together, it has strong technical advantages and a moat. Referring to comparable companies, based on the current industry stage and the company's growth rate and barriers, the 2024 PS50 was given, with a target price of 124.82 yuan for 6 months, maintaining the “superior to the market” rating.
Risk warning: The company's business progress falls short of expectations, industry policy risks.