Software and hardware continue to be iterated, and commercialization can be expected to accelerate

In 2023, we achieved revenue of 478 million yuan (yoy +34.31%), net profit of 129 million yuan (yoy +5.25%), deducting non-net profit of 110 million yuan (yoy +7.04%). The company's 24-26E EPS is expected to be 1.01, 1.53, and 2.29 yuan respectively (previous value 24-25E 1.53 and 2.28 yuan). Taking into account the pace or delay in commercializing the company's software products, the 24-25 profit forecast was lowered. Considering that the software release node may be delayed to 25 years, we base our valuation on 25-year results. Using the segmented valuation method, the software business can compare the company's average 25E 12.9x PS. Considering that the 24-25 software business revenue CAGR was 145%, which is 34% higher than the average value of comparable companies, the software business is given 25E 18.1x PS; the testing machine business can compare the company's average 25E 15.9x PE, giving 25E 15.9x PE. In summary, the company was given a 25-year target market value of 12.84 billion yuan, corresponding to a target price of 64.19 yuan (previous value of 100.24 yuan), which is a “purchase”.

24Q1 revenue +100.65% year-on-year. The full year's non-net profit deduction is expected to return to 2024 Q1 revenue of 44 million yuan (yoy +100.65%), net profit to mother of 22.8985 million yuan (yoy -667.92%), and deducted non-net profit of 254.147 million yuan (yoy -15.2457%). The 24Q1 company's revenue growth rate is relatively fast. It is expected that the revenue growth rate for the current period was relatively rapid, mainly due to delays in revenue recognition for some downstream customers in 2023, and the low base for the same period. The 24Q1 company's deducted non-net profit declined, mainly due to the increase in the number of R&D and other personnel, the number of R&D personnel also increased by 67.74% in 2023. Due to cost rigidity, single-quarter profits are under pressure. It is expected that the deducted non-net profit will rectify throughout the year.

Revenue from WAT test equipment is rising, and the pace of commercialization is expected to accelerate

In 2023, the company's testing equipment and accessories/software development and licensing/testing services and other businesses achieved revenue of 384 million yuan, 93 million yuan and 350,000 yuan respectively, +57.58%, -16.63%, and +475.16% compared with the same period last year.

Among them, the test equipment and accessories business grew rapidly year on year, mainly due to the continuous expansion of production capacity in domestic fabs, driving demand for WAT test equipment; revenue from software development and licensing business declined year on year, mainly due to a delay in revenue confirmation from downstream customers. We believe that after more than ten years of development, the company's product line has covered test chip EDA tools, WAT electrical test equipment, data analysis and management system DATAEXP, etc., gradually building competitive barriers throughout the process, and the pace of commercialization is expected to accelerate further.

Software and hardware collaboration is expected to drive high revenue growth

According to the company's official website, on July 2, 2023, the company launched the T4000 series next-generation general-purpose high-performance semiconductor parameter testing equipment, which is mainly used for yield testing in 8-inch and below wafer production lines. Based on the T4000 series, the company has also expanded equipment from WAT testing to fields such as WLR and SPICE, and the scope of business continues to expand. Furthermore, according to the company's 2023 semi-annual report, the company expanded new products such as CMP EXPLORER, DE-FDC, and DE-ADC in the first half of the year, and software product iteration is still accelerating. We believe that with the continuous refinement of software and hardware capabilities, the company is expected to use software and hardware synergy to increase its market share and drive high revenue growth in 24 years.

Risk warning: Downstream prosperity falls short of expectations; market competition intensifies.