Incident: The company released its 2023 annual report and 2024 quarterly report. In 23, it achieved revenue of 1,505 billion yuan, a year-on-year increase of 22.68%, and achieved net profit of 173 million yuan, an increase of 40.76% over the previous year; in 24Q1, it achieved revenue of 273 million yuan, an increase of 2.08% year on year, and realized net profit of 35 million yuan, an increase of 5.44% year on year.

Increased production and sales enable growth. In '23, the company's fan filter units and filter products achieved revenue of 1,298 billion yuan, a year-on-year increase of 2.4%, gross profit margin of 28.13%, and a year-on-year decrease of 2.96pp; achieved output of 4.32 million units/piece, up 8.95% year on year, and sales volume of 4.05 million units/piece, up 14.3% year on year. In '23, the company's gross margin reached 27.25%, down 0.57pp year on year, net profit margin was 11.48%, up 1.38% year on year. The cost ratio for the period was 15.32%, down 0.29pp year on year.

Expand the stock replacement market and increase the proportion of consumables. In '23, the company's replacement consumables revenue accounted for about 30% of total revenue. There is room for further improvement and expansion in the future. As the share of replacement consumables revenue gradually increases, the company's business model is expected to shift to an industrial consumer goods model, and profit stability and cash flow repayment will gradually increase.

Overseas layout is accelerating. The company's overseas revenue in '23 was 170 million yuan, up 30.8% year on year, and gross margin reached 26.69%. In terms of foreign production capacity, as of October 2023, the company's production capacity in Malaysia was about 50 million yuan, and two new plants are expected to be put into production in the first quarter of 2024. After capacity expansion, the company's overseas production capacity will increase to 200 million yuan. Overseas performance is about to be released.

Domestic semiconductor cleanroom leader, specialized in new “little giants”. The company's main business focuses on semiconductor ultra-clean plants. It is a leading localized company for clean equipment (fan filter units) and consumables (filters) in the semiconductor field. Downstream customers cover leading semiconductor manufacturers at home and abroad. Currently, the company accounts for 30% of the domestic semiconductor clean room market share. Driven by factors such as rapid iteration of AI and chip technology, demand in the semiconductor market is expected to bottom up in 2024. The company will accelerate the deployment of the Southeast Asian market in the emerging semiconductor industry chain, and the dual layout at home and abroad will drive high revenue growth.

Profit forecast and investment advice: As a leading semiconductor cleanroom in China, the company has plenty of on-hand orders. It is currently in a period of rapid expansion of production capacity, and growth is high. We expect the company's 2024-2026 EPS to be 1.77/2.27/2.67 yuan, respectively, and the corresponding PE will be 18.25X/14.26X/12.12X, respectively. The target price will be 44.25 yuan for 2024, and the target price will be 44.25 yuan, which covers the “buy” rating for the first time.

Risk warning: risk of capacity construction falling short of expectations; risk of orders falling short of expectations; risk of fluctuations in upstream raw materials.