In 2023, operating income increased 65.4% year over year, and net profit to mother turned a loss into a profit. The company released its 2023 annual report, with revenue of 130 billion yuan (YoY 65.39%), net profit due to mother of 104 million yuan (reversal of loss from the previous year - 73 million yuan), net profit of 8153,500 yuan (loss over the previous year - 228 million yuan); of these, 4Q23 revenue of 390 million yuan (YoY 69.20%, QoQ -23.86%), net profit to mother of 91 million yuan (reverse loss from -75 million yuan in the same period of the previous year, QoQ 130.13%), net profit not returned to mother Profit of 58 million yuan (compared to the same period last year - 137 million yuan, QoQ 384.85%). 2023 gross profit margin 29.22% (YoY-1.96pct), of which 4Q23 gross margin 30.50% (YoY -1.70pct, QoQ 4.36pct).

Both domestic and foreign subsidiaries achieved growth in MEMS revenue, and the gross margin of wafer manufacturing recovered. The main MEMS business achieved revenue of 856 million yuan (YoY 20.72%) in 2023, with a comprehensive gross profit margin of 35.99% (YoY 3.35pct); of these, MEMS wafer manufacturing achieved revenue of 499 million yuan (YoY 31.85%) and a gross profit margin of 34.07% (YoY15.89pct), mainly due to the shift of some high-margin MEMS wafers from the process development stage to the wafer manufacturing stage. The cost structure is becoming more stable, and the scale effect will be further released in the future; MEMS process development achieved revenue of 3.57 billion yuan (YoY 31.85%) 100 million yuan (YoY 7.98%), gross profit margin 38.67% (YoY -10.52pct), mainly due to high uncertainty about the customer product structure and the progress and cost of process technology solutions over different periods.

The capacity guarantee capacity of the Swedish production line has been strengthened, and the Beijing production line has entered a phase of climbing capacity. Sweden's FAB1 & FAB2 continues to increase the overall production capacity of the existing production line through the purchase of key equipment and the acquisition of a semiconductor industrial park; while continuing to climb the first phase of large-scale production capacity (10,000 pieces/month), Beijing FAB3 continues to build the second phase of large-scale production capacity (20,000 pieces/month) to achieve a gradual expansion of production capacity. While ensuring the pre-introduction of the process development business, Sweden's FAB1 & FAB2 and Beijing FAB3 are actively promoting customers to introduce products into the wafer manufacturing stage at the current stage to gradually adapt to the next stage of large-scale mass production.

The semiconductor equipment sales business was added, and revenue of 344 million yuan was achieved. Due to the complex international political and economic environment in recent years, the company has increased strategic procurement of several batches of semiconductor equipment from overseas. While meeting the medium- and long-term needs of the Group's production lines itself, it has added semiconductor equipment sales business in line with the needs of other domestic semiconductor manufacturers, thus contributing a certain amount of revenue and profit to the company.

Investment advice: Adjust profit expectations and maintain a “buy” rating. Considering the company's leading position in Sweden and the large-scale production advantage of the Beijing production line, we believe that the company's MEMS production capacity continues to expand, capacity utilization is expected to increase, and there is plenty of room for improvement in gross margin; in addition, considering the company's new semiconductor equipment sales business, and combined with the pace of the company's production expansion and the actual decline in production capacity in Beijing, we adjusted the company's performance expectations. We expect revenue of 2024-2026 to 15.71/20.81/2,543 billion yuan (previous value of 18.93/2,609 billion yuan), net profit to mother 2.55/ 3.62/533 million yuan (previous value 2.74 billion 408 million yuan). The corresponding PB of the current stock price is 2.73/2.56/2.34, respectively, maintaining the “buy” rating.

Risk warning: Production capacity release falls short of expectations; customer verification falls short of expectations; downstream demand falls short of expectations.