1Q24 results were slightly lower than our expectations

The company announced 1Q24 results: The company achieved revenue of 1,605 billion yuan, a year-on-year increase of 31.23%, and net profit to mother of 249 million yuan, a year-on-year decrease of 9.53%, slightly lower than our expectations, mainly due to profit and loss from changes in fair value and increased R&D expenses.

Development trends

Revenue from etching equipment grew rapidly year on year, and issued goods and contract liabilities increased dramatically: the company achieved revenue of 1,605 billion yuan, up 31.23% year on year, of which etching equipment revenue was 1,335 billion yuan, up 64.05% year on year, and MOCVD equipment revenue was 38 million yuan, down 77.28% year on year, mainly affected by fluctuations in the terminal market; by the end of 1Q24, the balance of goods issued by the company was 1,923 billion yuan, up 1,055 million yuan from the initial balance of 868 million yuan, and contract liabilities were 1,169 million yuan This is an increase of 397 million yuan compared to the end of 2023. We believe the company has sufficient orders in hand.

Gross margin declined slightly month-on-month, and net profit without return to mother increased steadily year on year: the company's 1Q24 gross margin was 44.6%, down 1.2ppt from month to month, net profit to mother was 249 million yuan, down 9.53% year on year. The main reason was that 1Q24 had fair value changes profit and loss of -46 million yuan and a reduction in government subsidies due to falling stock prices in the secondary market. At the same time, the company increased R&D investment. 1Q24's R&D expenses were 214 million yuan, up 63% year on year, and the company's non-return net profit was 263 million yuan, up 15.4% year on year. Maintain steady growth.

Film equipment has been introduced into the market one after another, and the product line has been further expanded: the company's tungsten series thin film deposition products can cover tungsten process applications for storage devices, have completed verification of CVD/HAR/ALD tungsten equipment by many logic and storage customers, and have obtained customer orders. At the same time, the company's various CVD and ALD equipment are being planned. We believe that the future expansion of thin film equipment is expected to further enhance the company's overall competitiveness.

Profit forecasting and valuation

We keep the company's profit forecast unchanged. We expect the company to achieve operating income of 8.949/12.085 billion yuan in 2024/2025 and net profit to mother of 17.98/2,787 billion yuan. The current stock price corresponds to 46.8/30.2xp/E in 2024/2025. We have kept our target price of 173 yuan unchanged, corresponding to the company's 2024/2025 59.7/38.4xp/E. There is still 27.4% room to rise from the current stock price, maintaining the industry rating.

risks

Fab capital expenses have declined, new product development verification falls short of expectations, and component supply risks.