Key points of investment

There was a steady increase in performance in 2023, and 2024Q1 declined due to the order structure: in 2023, the company achieved operating revenue of 1.72 billion yuan, +24% year over year, of which the photolithography process revenue was 1.07 billion yuan, +41%, accounting for 62%; single-chip wet processing equipment revenue was 60 million yuan, +9%, accounting for 35%; net profit of 250 million yuan, +25% year over year; net profit of non-return mother was 190 million yuan, +36% year over year. 2024Q1's operating income was 240 million yuan, -15% YoY, net profit of 0.2 billion yuan YoY, and net profit not attributable to mother was 0.1 billion yuan, or -85% YoY. On the one hand, it was mainly affected by the pace of customer orders. The company signed more new orders in the second half of 2023 than in the first half of the year, so the revenue confirmed by the 2024Q1 inspection declined. On the other hand, the number of employees in the company increased and share payment fees increased.

Gross margin increased markedly in 2023, and localization of parts accelerated: in 2023, the company's gross margin was 42.5%, +4.1pct year on year, of which the gross margin of the lithography process was 38.9%, +4.2pct year on year, and the gross margin of single-chip wet process equipment was 46.3%, +7.2pct year on year, net interest rate was 14.6%, +0.1 pct year on year. The cost rate for the period was 30.8%, +1.8 pct year on year, of which the sales expense ratio (including R&D) was 22.1 pct %, +0.9pct year on year, financial expense ratio was 0.4%, +0.1pct year over year. 2024Q1 gross margin was 40.3%, year-on-year - 5pct, net margin was 6.4%, year-on-year - 16.5pct.

New orders remained flat year over year, and inventory & contract liabilities increased slightly month-on-month: as of the end of 2024Q1, the company's contract debt was 410 million yuan, -20% year-on-month, +10% month-on-month, inventory was 1.78 billion yuan, +23%, and +9% month-on-month; the company's annual new orders in 2023 were basically the same as in 2022, and the company's on-hand orders as of the end of 2023 were about 2.2 billion yuan (tax included).

In the domestic replacement of front-end gluing, cleaning equipment and advanced post-packaging equipment further open up room for growth: (1) Frontier Glazing: As the only domestic manufacturer that can provide mass-produced front-end gluing projectors, the company has now completed full coverage of 28nm and above process nodes in the Qiandao wafer processing process. The company's off-line, i-Line, and KrF machines have all been sold in batches. In 2023, the company's ArF immersion high-capacity gluing and imaging equipment also made good progress in maturity and standardization. By the end of 2023, the company's submersible machines had received orders from 5 important domestic customers. (2) Qiandao cleaning equipment: In 2023, the company's next-generation high-capacity physical cleaning machine was sent to important domestic storage customers for verification. The machine's next-generation high-capacity architecture can meet the higher production capacity requirements of storage customers. It is expected to open up new incremental market space in the storage field in the future. Furthermore, the company's new strategic product, Qiandao Chemical Cleaning Machine, has received verification orders from important domestic customers. (3) Advanced back-end packaging equipment: The company's gluing and single-chip wet processing equipment for advanced packaging has been used as mainstream models in batches for many years in large domestic and international first-tier factories such as TSMC, Shenghe Jingwei, Changdian Technology, Huatian Technology, Tongfu Microelectronics, and Zhuhai Tiancheng, etc., and has launched new products such as temporary bonding, unbonding, and frame cleaning.

Profit forecast and investment rating: Considering the pace of equipment delivery, we lowered the company's net profit to mother in 2024-2025 to 3.3 (original value 4.0) /4.3 billion yuan (original value 580 million yuan), respectively. The estimated net profit to mother in 2026 is 550 million yuan, and the current market value corresponds to dynamic PE 41/32/25 times, respectively. Maintains an “gain” rating based on the company's growth in the field of forward tracking and cleaning.

Risk warning: Investment in the semiconductor industry is declining, new product development & industrialization falls short of expectations, etc.