Core views

The slowdown in downstream semiconductor demand in 2023 affected the company's orders, leading to a significant decline in the company's revenue. Among them, overseas sales fell 40.58% year on year. At the same time, changes in product structure (a decline in downstream demand for semiconductors with high gross margins) led to a decline in overall gross margin. Combined, the cost ratio increased in the context of declining revenue, and the company's performance declined significantly. The year-on-year decline in 2024Q1's revenue narrowed compared to the same period last year, and profitability improved. Looking forward to the full year, the implementation of the 2024 IPO and convertible bond production capacity to release growth space, and I am optimistic about the company's transformation into an integrated assembly supplier.

occurrences

In 2023, the company achieved operating income of 461 million yuan, a year-on-year decrease of 25.57%; net profit to mother was 88 million yuan, a year-on-year decrease of 41.35%; net profit after deducting non-return to mother was 81 million yuan, a year-on-year decrease of 46.26%.

2024Q1 achieved operating income of 114 million yuan, a year-on-year decrease of 2.55%; net profit to mother was 0.24 million yuan, up 3.28% year on year; net profit after deducting non-return to mother was 0.23 million yuan, up 23.56% year on year.

Brief review

The slowdown in downstream semiconductor demand led to a large decline in revenue. Short-term pressure on the company's performance, downstream demand for semiconductors slowed, and overseas sales revenue declined sharply. In 2023, the company achieved revenue of 461 million yuan, a year-on-year decrease of 25.57%. The slowdown in downstream semiconductor demand in 2023 affected the company's orders, leading to a decline in the company's revenue. In terms of revenue by business, in 2023, the company's precision metal structural parts revenue was 454 million yuan, down 25.74% year on year, accounting for about 98.39% of revenue, which was the company's main source of revenue; semiconductor equipment maintenance revenue was 5.967 million yuan, down 6.10% year on year; other business revenue was 1.4791 million yuan, down 34.22% year on year. By region, the company's domestic revenue in 2023 was 231 million yuan, down 0.61% year on year; overseas revenue was 230 million yuan, down 40.58% year on year.

In terms of profitability, changes in the revenue structure led to a decline in gross margin. The company's gross margin in 2023 was 32.88%, 4.80pct year on year, of which the gross profit margin for precision metal structural parts was 32.51%, and -4.93pct year on year. The company's high-margin semiconductor orders declined, and the remaining production capacity space was mainly used to meet customer needs in new energy and other fields with relatively low gross margins, so the gross margin of the main business declined significantly.

On the cost side, the overall cost rate increased markedly against the backdrop of declining revenue. The company's expenses rate for the 2023 period reached 10.55%, +4.77pct. Among them, sales, management, R&D, and finance expenses were 2.52%, 6.41%, 4.82%, and -3.20%, respectively, +0.67pct, -0.19pct, +1.43pct, and +2.86pct, respectively. The company continued to promote lean production and cost reduction and efficiency, and the sales and management expense ratio changed little. In 2023, the company's R&D expenses were 0.2 billion yuan, up 5.70% year on year; financial expenses were -15 million yuan. In 2022, it was -038 million yuan, and the financial expense ratio changed greatly. We believe that the issuance of convertible bonds during the year led to an increase in interest expenses and a narrowing of exchange earnings.

When it comes down to the profit side, the company's net profit to mother and net profit after deducting non-return to mother were 88 million yuan and 81 million yuan respectively in 2023, down 41.35% and 46.26% from the previous year, respectively. The corresponding net interest rate and net interest rate not attributable to mother were 19.11% and 17.58%, respectively, -5.14pct and -6.77pct year-on-year, respectively. Against the backdrop of weak demand for semiconductors, the company's revenue scale declined significantly. Under changes in revenue structure, the gross margin of the main products, precision metal structural parts, dropped significantly. The cost ratio increased during the superposition period, and the company's overall performance declined significantly.

The 2024Q1 revenue decline narrowed from month to month, and profitability improved. In 2024Q1, the company achieved revenue of 114 million yuan, a year-on-year decrease of 2.55%. Net profit attributable to mother and net profit not attributable to mother were 0.24 million yuan and $0.23 million respectively, up 3.28% and 23.56% year-on-year respectively. The growth rate of net profit not attributable to mother was much faster than revenue growth, and profitability continued to increase. The gross margin of 2024Q1 was 34.12%, +2.12pct year on year, and the cost ratio for the period was 9.79%, down 0.69pct year on year. Among them, sales, management, R&D, and finance expenses were 2.07%, 6.29%, 4.03%, and -2.59%, respectively, +0.40pct, +1.37pct, +0.82pct, and -3.29pc year-on-year, respectively. The year-on-year decline in 2024Q1 revenue narrowed markedly. Expense ratios improved year-on-year during the period, and there was an improvement on the performance side. The net interest rate for 2024Q1 and net interest rates deducted from non-mother were 20.65% and 20.27% respectively, +1.17pct and +4.28pct, respectively.

The launch of the 2024 IPO and convertible bond production capacity freed up room for growth, and the company's active transformation to an integrated assembly supplier. The release of production capacity for subsequent IPOs and convertible bond raising projects is expected to open up new growth space for the company. In 2024, the new construction plant and IPO expansion project and R&D center of the company's refinancing project will be completed and put into operation one after another. ① Suzhou precision metal structural parts expansion project: IPO fund-raising project, with a total investment of 317 million yuan, with additional production capacity of 250 rail transit structural parts, 3,900 sets of semiconductor equipment structural parts, 71,800 power equipment structural parts, 44,000 mechanical equipment structural parts, and 27,000 medical equipment structural parts; ② New intelligent production of precision metal components in the field of semiconductor equipment and other fields in Suzhou:

The convertible bond raising project, with a total investment of 380 million yuan, added about 23,000 sets/pieces of precision metal components in semiconductor equipment and other fields, including 70,000 sets/piece for large structural parts and 16,000 sets/piece for small structural parts and 30 sets of integrated assemblies.

In addition, the company is actively improving integrated assembly capabilities and transforming into a supplier of important equipment components/subsystems. The company has accumulated some experience in assembly technology and assembly production management. With the new plant being put into use, the company also has the necessary site and environment to carry out integrated assembly business in batches. It is expected to become a qualified supplier of important components or subsystems for semiconductor equipment and medical device manufacturers in the future, gradually making the company's leap from the supply of precision metal structural parts to the assembly business.

Investment advice

The company's 2024-2026 revenue is expected to be 5.18, 6.13, and 715 million yuan, respectively, up 12.32%, 18.48%, and 16.49% year-on-year, and 2024-2026 net profit to mother will be 0.93, 1.17, and 143 million yuan, respectively, up 6.01%, 24.91%, and 22.79% year-on-year respectively. Corresponding to 2024-2026 PE valuations are 32.90x, 26.34x, and 21.45x, respectively, maintaining a “buy” rating.

Risk analysis

1) Downstream production expansion falls short of expectations: If downstream investment or desire to expand production decreases due to factors such as declining industry cycles or geopolitics, it will adversely affect the company's business development and operating performance.

2) New product development and capacity expansion fall short of expectations: If new product development and capacity expansion of new projects fall short of expectations, it will adversely affect the continuous improvement of its future business performance.

3) Technological innovation risk: If the company cannot maintain new product development or the investment in subsequent R&D is insufficient, the company will face the risk of declining market competitiveness.

4) Risk of continued supply chain tension: If the company continues to be affected by tight supply chains, it will adversely affect the company's production capacity and revenue.