Event: On April 30, Zhengfan Technology released the 2023 Annual Report and the 2024 First Quarter Report. In 2023, the company achieved revenue of 3.835 billion yuan, an increase of 41.78%; net profit to mother was 401 million yuan, an increase of 55.15% year on year; net profit after deducting non-return to mother was 340 million yuan, an increase of 58.47% year on year. In the first quarter of 2024, the company achieved revenue of 589 million yuan, an increase of 43.31% year on year; net profit to mother was 0.25 million yuan, up 123.36% year on year; net profit after deducting non-return to mother was 16 million yuan, up 122.29% year on year.

Driven by integrated circuits and photovoltaic business, the company is full of orders. The company's revenue grew rapidly in 2023, including electronic process equipment revenue of 2,900 million yuan, up 52.76% year on year; biopharmaceutical equipment revenue of 290 million yuan, down 15.68% year on year; gas and advanced materials revenue of 419 million yuan, up 72.95% year on year; and MRO business revenue of 220 million yuan, up 3.75% year on year. Looking at downstream applications, integrated circuit business revenue was 1,475 billion yuan, up 37.02% year on year; solar photovoltaic business revenue was 1,442 billion yuan, up 82.43% year on year; pan-semiconductor business revenue was 261 million yuan, up 0.36% year on year; biomedical revenue was 302 million yuan, down 19.76% year on year; and other business revenue was 355 million yuan, up 76.49% year on year. Integrated circuits and photovoltaics are important sources driving the company's rapid revenue growth. In terms of orders, the company signed 6.6 billion yuan of new orders in 2023, an increase of 60% over the previous year; in the first quarter of 2024, the company signed 1.8 billion yuan of new orders, an increase of 22% over the previous year, of which orders from the semiconductor industry accounted for 46%. The rapid growth in new orders will lay the foundation for the company's subsequent growth.

Horizontal expansion, and the process equipment subsystem business grew rapidly. One of the characteristics of the pan-semiconductor process equipment industry is that equipment brands themselves develop and manufacture core modules, while general modules/subsystems are generally manufactured by professional third parties.

Fluid systems are one of the important subsystems of pan-semiconductor process equipment. Hongge Semiconductor, a subsidiary of the company, filled the gap in the localization of GAS BOX, and new orders were rapidly released, and revenue increased 104% year-on-year in 2023.

The OPEX business was quickly deployed, and the gas business was built at an accelerated pace. According to the company's 23rd annual report, the company's Capex business and Opex business have both achieved rapid growth. Among them, the Opex business mainly refers to the core materials business including gases, wet chemicals, advanced materials, etc., and the MRO service business. The company's ultra-high purity hydrogen phosphide production expansion project was completed and put into use in December 2023. At the same time, the construction of bulk gas production capacity was accelerated. The Weifang high-purity bulk gas production base and the Hefei high-purity hydrogen and canned special gas project will compete to land within 2024.

Investment advice. With the continuous expansion of downstream semiconductor and photovoltaic production and the accelerated development of the company's gas business, we expect the company to achieve revenue of 5,517/65.70/7.639 billion yuan in 24-26 years, achieving net profit of 597/7.76/941 million yuan, and maintaining a “buy” rating of 17/13/11 times PE with a market value corresponding to May 8, respectively.

Risk warning: Downstream demand falls short of expectations; industry competition increases risk; company's new business development falls short of expected risk, etc.