Key points of investment
Revenue grew steadily, and non-recurring profit and loss affected profit performance. In 2023, the company achieved operating income of 3.151 billion yuan, +3.33% year over year, of which revenue in the system integration and materials sector was 2.38 billion yuan, accounting for 75.54%, and equipment business revenue of 760 million yuan, -3.69%, accounting for 24.27%. Mainly integrated circuit-related business orders maintained steady growth; net profit to mother of 377 million yuan, +33.58% year over year, mainly due to investment income from disposal of shares and revenue generated from fair value changes; net profit not attributable to mother was 102 million yuan, YoY- 64.25%, mainly due to an increase in interest expenses on new loans. At the same time, exchange losses have increased dramatically due to exchange rate fluctuations affected by foreign exchange. The wafer recycling and component cleaning business in Hefei is still in the climbing stage and has not yet achieved profit contributions, and the company still has to bear its operating costs, etc. 2024Q1 achieved operating income of 811 million yuan, +3.48% year over year; net profit to mother of 64 million yuan, +1.45% year over year; net profit after deducting non-return to mother of 63 million yuan, +8.64% year over year.
Profitability remains stable. The company's gross margin in 2023 was 33.81%, -1.55pct year on year, with gross profit margin of system integration and materials 36.25%, the gross profit margin of the equipment business was 26.08%, -6.23%; the net sales margin was 10.41%, +1.22pct year on year; the period expense ratio was 26.99%, +5.02pct year on year, of which the sales expense ratio was 3.28%, +0.56pct year on year, and the financial expenses ratio (including R&D) was 17.84%, year-on-year +1.37pct, and the financial expense ratio was 5.87%, +3.09pct year-on-year. The gross margin of the 2024Q1 company was 33.82%, -0.11pct; the net sales margin was 5.87%, -1.82pct; the period expense ratio was 26.25%, +0.23pct year on year, of which the sales expense ratio was 2.62%, +0.19pct year on year, the management expense ratio (including R&D) was 18.12%, -0.59pct year on year, and the financial expenses ratio was 5.5%, and the year-on-year +0.63pct.
Contract liabilities and inventories have increased, and new orders have grown rapidly. As of the end of Q1 2024, the company's contract liabilities were $542 million, +78.77% year on year, inventory was 2,975 million yuan, +43.86% year on year; 2024Q1's net cash flow from operating activities was -262 million yuan, or 226.72% year on year. The total number of new orders signed by the company in 2023 was 13.293 billion yuan, including long-term orders for electronic materials and special services of 8.661 billion yuan for 5-15 years, the company's estimated annual new order range of 55-60 billion yuan in 2024 (excluding long-term orders for 5-15 years), process equipment orders of 15-20 billion yuan, and 2024Q1 signed new orders of 1,377 million yuan, of which 513 million yuan was new for process equipment.
Semiconductor cleaning equipment fully benefits from import substitution, and the layout of consumables & services opens up room for growth. (1) Semiconductor cleaning equipment: It can meet all 28nm wet processes, and there are orders for all process machines. At more advanced process nodes, even some process orders have been obtained. (2) System integration: The company has become the largest supplier of high-purity process system support equipment in China. In 2023, the support equipment business volume is close to 40% of the total system integration business. (3) Wafer regeneration: The company set up a wafer regeneration, component cleaning and surface treatment production line in Hefei, and built the first complete anode treatment line in China. (4) Bulk gas: The company has built the first fully localized 12-inch wafer bulk gas supply plant in Jiading, Shanghai. It was successfully ventilated and operated steadily in early 2022, and the new business expansion process for bulk gas stations is progressing smoothly. (5) Components: The company has set up a semiconductor module and component manufacturing base in Haining to perform precision manufacturing of structural parts in etching equipment cavities for customers.
Profit forecast and investment rating: Considering the pace of order delivery, we lowered the company's 2024-2025 net profit forecast to 5.2 (original value 7.9) /6.6 billion yuan (original value 10.1) million yuan, respectively. The estimated net profit to mother in 2026 is 780 million yuan, and the current market value corresponds to dynamic PE 19, 15, and 13 times, respectively. Maintains a “buy” rating based on the company's high growth.
Risk warning: New product development falls short of expectations, order customer breakthroughs fall short of expectations, etc.