Core views

The company's revenue grew steadily in 2023. Among them, the revenue of semiconductor cleaning equipment and semiconductor electroplating equipment increased significantly. Product structure improvements led to a marked increase in gross margin. The company continued to increase investment in management, R&D, etc., and the overall profit margin remained relatively stable, and the performance grew steadily. The company has mastered a number of core technologies in the fields of cleaning equipment and copper interconnect electroplating equipment. The products have global competitiveness, and are optimistic about the company's multi-product line layout strategy. The market share of major products is expected to continue to increase in 2024, and we look forward to progress in R&D and verification of new products such as Track and PECVD.

occurrences

In 2023, the company achieved operating income of 3,888 billion yuan, a year-on-year increase of 35.34%; net profit to mother was 911 million yuan, an increase of 36.21%; net profit after deducting net income of 868 million yuan, an increase of 25.77% year-on-year.

2024Q1 achieved operating income of 921 million yuan, a year-on-year increase of 49.63%; net profit to mother of 80 million yuan, a year-on-year decrease of 38.76%; and net profit after deduction of 84 million yuan, a year-on-year decrease of 22.36%.

Brief review

Significant increase in revenue and steady increase in profitability

In 2023, the company achieved revenue of 3.888 billion yuan, an increase of 35.34% over the previous year. Benefiting from the expansion of downstream demand and the competitive advantage of its own products, the company's sales orders and production capacity continued to grow, and revenue further increased. By product, the revenue of semiconductor cleaning equipment and semiconductor electroplating equipment increased significantly in 2023. Among them, semiconductor cleaning equipment revenue was 2,614 billion yuan, up 25.79% year on year, accounting for 70.38% of revenue; other semiconductor equipment (electroplating, vertical furnace tubes, stress-free copper casting, etc.) revenue was 940 million yuan, up 81.57% year on year, accounting for 25.31% of revenue; advanced packaging wet process equipment revenue was 160 million yuan, up 0.09% year on year, accounting for 4.31% of revenue.

In terms of profitability, the company achieved a gross profit margin of 51.99% in 2023, compared with +3.09pct. It benefited from a significant increase in gross margin of other semiconductor equipment and advanced packaging wet processing equipment, compounded by improvements in the company's product structure, and steady growth in profitability. By product, the gross profit margin of semiconductor cleaning equipment was 48.62%, +0.34pct; the gross margin of other semiconductor equipment (electroplating, vertical furnace tubes, stress-free copper casting, etc.) was 59.50%, +7.43pct; and the gross profit margin of advanced packaging wet process equipment was 42.14%, +10.48pct year on year.

On the cost side, the company's expenses rate for the 2023 period reached 28.74%, +5.62 pct. Among them, sales, management, R&D, and finance expenses were 8.43%, 5.14%, 15.82%, and -0.65%, respectively, -0.57 pct, +1.44 pct, +2.61 pct, and +2.14 pct, respectively. The expansion of the company's business scale brought about an increase in management demand, an increase in management and employee remuneration, and an increase in audit intermediary service costs and long-term asset depreciation and amortization. In 2023, the company's management expenses reached 200 million yuan, an increase of 88.17% over the previous year; the company continued to promote product research and development. In 2023, the company's R&D expenses reached 615 million yuan, an increase of 62.04% over the previous year.

When it comes down to the profit side, in 2023, the company achieved net profit to mother and net profit of 911 million yuan and 868 million yuan respectively, up 36.21% and 25.77% year-on-year respectively. The corresponding net interest rate to mother and net interest rate after deduction were 23.42% and 22.31%, respectively, +0.15 pct and -1.70 pct, respectively.

The increase in revenue scale led to a steady increase in the company's performance. Against the backdrop of improved gross margin, the company continued to increase investment in management, R&D, etc., and the overall profit margin remained relatively stable.

Inventories and accounts receivable continue to grow, and on-hand orders are expected to be sufficient. Benefiting from the increasing demand for equipment in the domestic semiconductor industry, sales orders continued to grow. At the same time, new products were recognized by customers, and the order volume grew steadily. At the end of 2023, the company's inventory reached 3.389 billion yuan, up 29.58% year on year; contract debt reached 596 million yuan, up 23.42% year on year, reflecting the company's sufficient on-hand orders and strong support for subsequent performance.

2024Q1's revenue remained high. The 2024Q1 revenue was greatly affected by the product structure and cost side. The company's revenue in 2024Q1 reached 921 million yuan, a sharp increase of 49.63% over the previous year. Net profit to mother and net profit after deducting non-return to mother were 80 million yuan and 84 million yuan respectively, down 38.76% and 22.36% from the previous year, respectively, and the performance declined significantly. 2024Q1 gross margin was 46.32%, -8.29pct year on year, and the cost ratio for the period was 36.22%, +2.71pct year on year. Among them, sales, management, R&D, and finance expenses were 10.31%, 8.42%, 18.21%, and -0.73%, respectively, and +0.71 pct, +2.66 pct, +2.36 pct, and -3.02 pct, respectively. 2024Q1 2024Q1 net interest rate to mother and net interest rate without return to mother were 8.70% and 9.15%, respectively, -12.56pct and -8.49pct year-on-year, respectively. The company's performance side declined significantly, mainly due to ① short-term differences in the 2024Q1 product structure leading to a decline in overall gross margin; ② continued high R&D investment, and a significant increase in R&D expenses; ③ implementation of medium- to long-term incentives to stabilize core employees, and a significant increase in share payment expenses; ④ losses due to changes in the fair value of financial assets held in transactional financial assets increased sharply year-on-year.

The company has mastered many cleaning equipment and core technologies for copper interconnect electroplating equipment. New products such as Track and PECVD have progressed smoothly in cleaning technology. Based on independent innovation, the company has successfully developed the world's first SAPS, TEBO mega-sonic cleaning technology and Tahoe single-chip trough combined cleaning technology, which can be applied to the field of wafer cleaning at 45nm and below technology nodes, which can effectively solve the problems of organic contamination and particle cleaning after etching, and drastically reduce the amount of chemical reagents used such as concentrated sulfuric acid to help customers reduce production costs while meeting energy saving and emission reduction requirements. Currently, the company's semiconductor cleaning equipment is mainly used in cleaning processes in the field of 12-inch wafer manufacturing, and it has the ability to compete with similar products from international giants in terms of the applicable size of semiconductor cleaning equipment.

In terms of copper interconnect electroplating technology, the company's equipment technology level has also reached international leadership, which is expected to break the monopoly position of international giants in the Chinese market. Currently, the complete equipment has entered mass production verification, and has partially achieved mass production line production, leading the localization of electroplating equipment and establishing the company's leading position in the domestic 12-inch copper interconnect electroplating equipment market.

In addition, the company's new PECVD and Track devices are expected to open up more market space to cover. Among them, the Ultra pMaxTM plasma enhanced chemical vapor deposition (PECVD) device is about to deliver its first PECVD device to an integrated circuit customer in China. This device and Ultra Lith, a forward glue-coated imaging device released in 2023, two new product lines will double the size of the company's global serviceable market.

Investment advice

The company is expected to achieve net profit of 1,192, 15.59, and 1,899 billion yuan respectively in 2024-2026, up 30.92%, 30.78%, and 21.83% year-on-year respectively. Corresponding PE is 28.61x, 21.88x, and 17.96x, respectively, maintaining a “buy” rating.

Risk analysis

(1) Downstream production expansion falls short of expectations: The company's customers include well-known domestic and foreign manufacturers. If downstream investment and desire to expand production decrease, it will affect the company's product sales.

(2) Increased trade frictions: Increased trade frictions between China and the US may adversely affect the company's overseas customer expansion.

(3) New product development falls short of expectations: If new product development falls short of expectations, it will have a negative impact on subsequent revenue.

(4) Market competition continues to intensify: The company's competitors are internationally renowned semiconductor equipment manufacturers and emerging domestic semiconductor equipment companies. If the company is unable to effectively cope with the competitive environment in the market, it will face adverse effects such as a decline in its position in the industry.