Incident: On April 25, Zhongke Flying Survey released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 890 million yuan, +75% year over year; achieved net profit of 140 million yuan, +1095% year over year; realized non-net profit deducted from mother to mother of 3.69 million yuan, turning a loss into a profit year over year. Among them, 2023Q4 achieved revenue of 300 million yuan in a single quarter, +21% year over year; net profit to mother of 61 million yuan, +78% year over year; net profit after deducting non-return to mother of 13 million yuan, +537% year over year. 24Q1 achieved operating income of 236 million yuan, +46% year over year; net profit to mother of 34 million yuan, +9% year on year; net profit after deducting non-return to mother of 08 billion yuan, turning a year-on-year loss into a profit.

Comment: Revenue increased in 2023, and the scale effect led to a significant increase in profitability. The company's revenue has grown rapidly in 23 years. On the one hand, it has benefited from the continuous increase in the competitiveness of the company's product market and the company's increasingly rich product categories, supporting rapid growth in performance; on the other hand, the domestic semiconductor testing and measurement equipment market is developing rapidly, and downstream customer equipment localization needs are urgent. As the company's product brand recognition increases, customer coverage has expanded rapidly, and order volume has continued to grow. Since the company is currently advancing multiple R&D projects at the same time, the R&D expense ratio remained high in '23 (25.6%). Benefiting from the expansion of the company's revenue volume, the scale effect gradually became prominent, and net profit without return to mother turned a loss into a profit year-on-year in 2023. We believe that as products under development are launched and sent to clients for verification, multiple categories of products are gradually released, and the company's optimal management of ongoing projects and management expenses, the company's overall cost ratio is expected to continue to decline and enhance the company's profitability.

By product, in 2023, the company's testing equipment revenue was 654 million yuan, up 70.2% year on year, gross margin was 57.2%, up 4.5 pct year on year; measurement equipment revenue was 222 million yuan, up 88.6% year on year, and gross margin was 38.8%, +3.0 pct year on year. As the company's sales revenue increases, the upward trend in gross margin is expected to continue.

The company's customer expansion/mass sales in all categories are progressing smoothly. The company's equipment has been mass-produced and used by leading domestic customers. The technical indicators fully meet the process needs of domestic mainstream customers, and the market share of the company's various series products has been growing steadily and rapidly, including 1) non-graphic wafer defect detection equipment: by the end of 2023, the cumulative production and delivery of nearly 300 units, covering more than 100 customer production lines; 2) Graphic wafer defect detection equipment: by the end of 2023, the cumulative production and delivery of more than 200 units, covering more than 50 customer production lines; 3) 3D profile measurement equipment: by the end of 2023, the cumulative production and delivery of nearly 150 units, covering nearly 150 units 50 customer production lines; 4) Film thickness measuring equipment (dielectric film, metal film): widely used and sold in batches, and orders are growing steadily; 5) Overlay accuracy measurement equipment: Mass sales have been achieved, and orders are growing rapidly.

Profit forecast, valuation and rating: Considering that the new depreciation and amortization of the company's fund-raising projects may put pressure on the profit side of the company, we lowered the 24-25 net profit forecast and added the 26-year profit forecast. The company's net profit for 24-26 is 1.98 (18% reduction) /3.11 (16% reduction) /420 million yuan, respectively. The company's product revenue is growing rapidly, and profitability is expected to continue to improve, maintaining the “gain” rating.

Risk warning: New product verification progress falls short of expectations, downstream customer demand is slowing down, and there is a risk of share price fluctuations for sub-IPOs.