Event Overview: Company Releases 2023 Annual Report and 2024 First Quarter Report [23]

Operating income was 2,429 billion yuan, a decrease of 11%; net profit to mother was 150 million yuan, a decrease of 45%; deducted non-net profit of 0.3 billion yuan, a decrease of 73%; gross margin was 48.95%, a decrease of 4.6 pcts.

[23Q4]

Revenue was 800 million yuan, down 3% from the same period and 104%; net profit to mother was 160 million yuan, up 27% from the same period, and was positive from month to month. 23Q3 was -0.

2.5 billion yuan; net profit not attributable to mother was 110 million yuan, an increase of 209% over the same period, and was positive month-on-month. 23Q3 was -36 million yuan. The gross margin was 55.65%, an increase of 11.1 pcts and an increase of 7.1 pcts.

[24Q1]

Revenue was 420 million yuan, down 31% from the same period, down 53%, and net profit to mother was -0.16 million, turning loss year on year. 23Q1 was $0.12 billion, turning negative, 23Q4 was 163 million; deducted non-net profit was -024 million, which turned negative year on year; 23Q1 was 0.005.6 million, which turned negative month-on-month, and 23q4 was 114 million yuan. The gross margin was 47.01%, up 1.7 pcts year on year and down 8.6 pcts month over month.

The downturn in the economy shows pressure, and the gross profit of high-end upgrades has increased

'23 shows that the industry has not yet reached the bottom of the cycle. The company showed that the testing business was affected by the boom, with revenue falling 19% to 1.75 billion yuan in '23; the downturn continued until 24Q1. The quarter showed testing revenue of 270 million yuan, a decrease of 34%. The high share of revenue indicates a decline in business revenue, which directly dragged down the company's net profit. In addition, compounded by the increase in the company's R&D expenses, the company's net profit declined even more than the revenue growth rate. At the same time, the company has carried out high-end upgrades in the two major fields of displays and semiconductors, and the gross margin level continues to rise: 1) Display. The company optimized the product structure and market position of display testing equipment, and its gross margin increased by 4.26pcts to 49.72% in '23 compared to '22. 2) Semiconductors. The semiconductor business's gross margin for 23 years was 52.83%, and the revenue volume of semiconductor volume/testing equipment for 23 years boosted the overall gross profit margin. The overall gross margin of the 24Q1 company increased by 1.66 pcts year on year, continuing the high-end trend of 23 years.

Semiconductors: a new track for measuring volume+advanced packaging

1) New volume/testing orders indicate strong growth. The company's quantification/testing business entered a state of volume in '23, and the semiconductor business revenue increased 116% to 390 million yuan. In terms of orders, current semiconductor orders were 891 million yuan at the end of '22, and semiconductor orders were 1,602 million yuan at the end of '23. Combined with confirmed sales of 390 million yuan in '23, it can be estimated that new semiconductor orders were 1.1 billion yuan. The company's future semiconductor growth momentum is strong. 2) Advanced packaging. The company increased capital in Hubei Jiangcheng Laboratory to grasp the demand for advanced AI packaging, which is expected to open up new potential space. According to the official website of Jiangcheng Laboratory, Jiangcheng Pilot was established in September '21 to provide CDMO (chip development/design/manufacturing) services to meet the needs of key chips such as high-speed communication, AI, data centers, and sensors. It has four characteristic processes: 3D integration, silicon light, special sensing, and new storage, which is expected to fully benefit from the AI packaging wave.

The display has increased XR testing, and the route to the sea for new energy sources is unobstructed

1) Display. The display business is expected to benefit from two trends in the future: on the one hand, the downstream market has gradually picked up since 23Q4, showing that new orders have begun to grow steadily; on the other hand, the company set up precision testing Shenzhen to integrate the AR/VR business, becoming the number one domestic provider of inspection solutions to enter the micro-OLED cell segment. 2) New energy. On the one hand, the company has strengthened in-depth cooperation with major customers in the field of lithium battery equipment, and on the other hand, actively developed cooperative relationships with well-known domestic and foreign battery manufacturers. At present, substantial progress has been achieved, and overseas customer expansion has achieved remarkable results.

Investment advice

In view of the company's indication that the inspection business was affected more than expected by the boom, we updated Precision Measurement Electronics' revenue for 2024-2026 to 29.

0.0/37.5/4.69 billion yuan (the original forecast was 2024-25 revenue was 4.49/5.55 billion yuan), adjusted the company's 2024-26 net profit forecast to 3.0/3.6/4.6 (the original forecast was net profit to mother of 49/61 million yuan), and the corresponding PE was 53/44/34X. As a leading domestic pan-semiconductor testing equipment leader, the semiconductor business has entered the expansion period, and the advanced packaging business is expected to open up new growth space and maintain a “buy” rating.

Risk warning

The company's production capacity expansion falls short of expectations, downstream demand falls short of expectations, and the risk of increased industry competition.

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