Description of the event

Recently, Precision Electronics published the 2023 Annual Report and the 2024 First Quarter Report.

In 2023, the company achieved revenue of 2,429 billion yuan, a year-on-year decrease of 11.03%; net profit of 150 million yuan, a year-on-year decrease of 44.79%; deducted non-net profit of 0.33 million yuan, a year-on-year decrease of 72.83%; gross margin of 48.95%, an increase of 4.56pct; a year-on-year net interest rate of 6.18%, a year-on-year decrease of 3.07pct; after deducting a non-net profit margin of 1.36%, a year-on-year decrease of 3.07pct. 2024Q1 achieved revenue of 418 million yuan, a year-on-year decrease of 30.50%; net profit to mother of -0.16 million yuan, a year-on-year decrease of 234.11%; net profit after deducting non-net profit of -0.24 billion yuan, a year-on-year decrease of 4316.56%; gross margin of 47.01%, a year-on-year increase of 1.66pct; net interest rate to mother -3.81%, a decrease of 5.78 pcts year on year; after deducting non-net interest rate of -5.74%, a year-on-year decrease of 5.91 pcts.

Incident comments

The semiconductor business is growing rapidly, and there are plenty of on-hand orders. By business, in 2023, the company showed that semiconductors and new energy achieved revenue of 1,748 million yuan, 395 million yuan, and 241 million yuan respectively, with year-on-year growth rates of -19.41%, 116.02%, and -29.74%, respectively; gross margins were 49.72%, 52.83%, and 35.55%, respectively, with year-on-year increases of 4.26pct, 1.69pct, and 4.18pct, respectively. The company showed that although the business declined due to industry factors, gross margin increased markedly under the active adjustment of the product structure and strengthened cost control. The company invested about 660 million yuan in R&D in 2023, an increase of 11.92% over the previous year (showing that R&D investment in the testing field was 302 million yuan, down 5.34% year on year; R&D investment in semiconductor testing field was 270 million yuan, up 27.06% year on year; R&D investment in the field of new energy was 87 million yuan, up 51.92% year on year).

Thanks to continuous investment in R&D, the semiconductor business has achieved rapid growth. As of the date of disclosure of the annual report, the company had obtained a total of about 3,536 billion yuan in on-hand orders, including about 1,248 billion yuan in on-hand orders in the display sector, about 1,602 billion yuan in on-hand orders in the semiconductor sector, and about 686 million yuan in on-hand orders in the new energy sector. According to 2024Q1, Semiconductors and New Energy achieved revenue of 268 million yuan, 130 million yuan, and 15 million yuan respectively, with year-on-year growth rates of -33.92%, 95.57%, and -87.43%, respectively. The semiconductor business has become an important driving force for the company's revenue growth.

Measurement and testing products have been developed smoothly, and core components have been independently laid out. At present, Shanghai's precision film thickness series products, OCD equipment, and electron beam equipment have received batch orders from many domestic customers; semiconductor silicon wafer stress measurement equipment has also received repeated orders from customers; brightfield optical defect detection equipment has completed delivery and acceptance of the first set, and more advanced process orders have been obtained; the remaining products with reserves such as graphic dark field defect detection equipment are currently in the process of R&D, certification and expansion. At the same time, in order to seize the strong demand for high-performance chips brought by the rapid development of data centers, supercomputing, AI and other industries, the company actively strategically lays out advanced packaging technology and deepens strategic cooperation and bonds with core customers through capital increase in Hubei Jiangcheng Laboratory Technology Service Co., Ltd. Most of the company's core components and required domestic software have been independently developed and produced. In the future, the company will continue to strengthen cooperation with domestic suppliers to further increase the share of domestic brands in the supply chain.

The cornerstone business is operating steadily, and there is plenty of space for new businesses. The flat panel display testing business gradually picked up moderately as the downstream market gradually picked up, and the situation began to be gradually repaired and changed. The semiconductor testing and new energy testing business is the company's second growth curve. It has basically formed a layout in all fields of the front and back. Some products have also received batch orders. With the improvement and upgrading of products and the verification and introduction of downstream customers, the semiconductor inspection business has deep potential for development. We expect the company's net profit for 2024-2026 to be 300 million yuan, 400 million yuan, and 490 million yuan respectively. The corresponding PE is 55x, 42x, and 34x, respectively, maintaining a “buy” rating.

Risk warning

1. There is uncertainty about the launch of new products;

2. There is uncertainty about the capital expenditure of the panel industry.