24Q1 revenue/return to mother +111.1%/+37.8%, maintaining the 24Q1 “purchase” rating company achieved revenue of 1.14 billion yuan, +111.1% year over year, and achieved net profit attributable to mother/net profit of 0.56 billion yuan or +37.8%/+33.0% year over year. Net profit to mother basically met our expectations (50 million yuan). We maintained the company's 24-26 net profit forecast of 2.83/3.71/448 million yuan. Compared with the company's 24-year Wind, PE was 18x. Considering the company's extensive coverage of leading domestic semiconductor customers, it is expected to fully benefit from accelerated localization, and has good asset quality and cash flow performance. We gave the company 25xPE in 24, adjusted the target price to 13.53 yuan (previous value of 12.98 yuan), and maintained a “buy” rating.

Rapid revenue growth led to a decline in the expense ratio during the period, and the impact of impairment is expected to gradually reduce the 24Q1 company's comprehensive gross margin of 9.6%, -5.34pct year on year, mainly due to increased market competition. The 24q1 company's expense ratio was -2.52 pct to 2.62% year on year, with sales/management/R&D/finance expenses rates of 0.69%/2.33%/0.35%/-0.75%, respectively, and -0.35/-1.38/-0.19/ -0.60 pct respectively. Mainly, the company's revenue scale grew faster than the cost growth rate, which had an intensive effect. Except for financial expenses, which declined due to the availability of capital raised during the initial listing and interest income from deposits, all other expenses increased. The total impairment expenses in 24Q1 were 3.61 million yuan, and in 23Q1, the impairment surged back 3.1 million yuan. The main reason was that revenue grew rapidly and the short-term unsettled amount of projects under construction was large, resulting in contract assets of +404 billion yuan year on year, and impairment charges increased year on year. Under the combined influence, the company's net profit margin for 24Q1 was 4.86%, -2.6 pct year on year.

Major projects continue to be implemented, and short-term operating cash outflows have increased

The company's balance ratio at the end of 24Q1 was 41.9%, -7.37pct year-on-year, and -3.49pct month-on-month. The net cash flow from operating activities in 24Q1 was $537 million, an increase of 269 million over the previous year, mainly due to the continuous execution of the company's large-scale projects, procurement of raw materials, subcontract payments, and higher prepayment payments to suppliers, resulting in a large increase in cash for purchasing goods and receiving labor payments. The Q1 receipt and payment ratios were 72.4%/119.6%, respectively, compared to -38.5/-45.5 pct. At the end of 24Q1, bills receivable and accounts/contract assets/prepayable/notes payable and accounts/contract liabilities were $4.2/20.6/1.1/1.88/1.88/-1.88/+0.56/-2.14/ -0.21 billion yuan respectively at the end of 23.

High growth in new orders in '23, with sufficient on-hand orders

The amount of new contracts signed in '23 was 4.95 billion, +48.2% year-on-year, and orders in hand at the end of the year were 2.87 billion yuan, +57.9% year-on-year.

This round of continuous investment in domestic semiconductor substitution and new OLED production line investment in the panel industry are boosting the downstream boom. In the context of a long-term manufacturing power, investment in high-tech industries is expected to maintain rapid growth, driving the continuous expansion of the clean room industry. As a leading domestic clean room system service provider, the company is expected to fully benefit.

Risk warning: The capital expenditure of the domestic semiconductor industry fell short of expectations; the gross margin of the semiconductor clean room engineering business declined more than expected; the company's new orders or conversions fell short of expectations.