Incident: The company released its 2023 annual report and the first quarter report of 2024. In 2023, the company achieved revenue of 582 million yuan, an increase of 2.35%; realized net profit of 39 million yuan, a year-on-year decrease of 42.06%; and realized deduction of non-net profit of 25 million yuan, a year-on-year decrease of 51.13%. In 2024, Q1 achieved revenue of 116 million yuan, a year-on-year increase of 18.20% and a decrease of 54.45%; realized net profit to mother of -0.07 billion yuan, a year-on-year decrease of 251.57% and a year-on-month decrease of 115.70%; deducted non-net profit of -0.1 billion yuan, a year-on-year decrease of 540.11% and a year-on-month decrease of 124.24%.

Business development contributed to revenue growth. Expenses during the period affected Q1 net profit performance: In 2023, the company's net profit declined year-on-year, mainly due to: 1) the company further strengthened R&D investment in new products and technologies, and R&D expenses increased by 21.65% year on year; 2) Affected by product restructuring in sales revenue, sales revenue from high-margin semiconductor-related laser processing equipment declined, leading to a decline in the company's overall gross margin, affecting the company's net profit level. In Q1 '24, the company continued to increase its business development efforts. Orders were delivered and accepted one after another, and revenue increased 18.20% year over year; however, in order to support the expansion of new products and businesses, the number of employees increased, and related expenses increased, which affected the net profit level. In 2023, the company's gross margin was 46.61%, -3.10pcts year on year; net margin was 6.71%, -5.15pcts year on year. The company's gross margin in Q1 in '24 was 49.30%, -2.05pcts year on year, +3.35pcts month on month; net margin was -6.28%, -11.18 pcts year on year, -24.50pcts month on month. In terms of expenses, the company's sales, management, R&D, and financial expenses in Q1 '24 were 21.70%/11.54%/25.09%/-2.36%, the year-on-year changes were +1.89/+0.18/+2.67/-1.02pcts, respectively, and the month-on-month changes were +7.33/+4.07/+13.69/ -1.49pcts, respectively.

Product structure optimization has increased the gross profit level, and abundant orders in hand are expected to drive revenue growth: in 2023, the company's new products will enter the market one after another and receive batch orders from customers, and the company's new orders are growing at a significant year-on-year rate.

By product: 1) Sales revenue of precision laser processing equipment was 419 million yuan, -1.78% year-on-year, accounting for 71.94% of revenue. According to the downstream application direction, semiconductor-related laser processing equipment achieved sales revenue of 129 million yuan, -14.21%; new electronic laser processing equipment achieved sales revenue of 159 million yuan, +23.22% year on year; panel display laser processing equipment achieved sales revenue of 60 million yuan, -12.42% year on year, and the new energy sector achieved sales revenue of 71 million yuan, +42.70% year over year. 2) Foreign sales of lasers achieved revenue of 48.5059 million yuan, +17.69%; of these, sales revenue for nanosecond lasers was -22.38%; sales revenue for lasers such as picosecond, femtosecond, and adjustable pulse width was +66.33% YoY, increasing the revenue and gross margin level of the laser business. According to institutional research, benefiting from the company's continued high R&D investment and new product layout, as of February '24, the company had sufficient orders in hand. With the steady delivery of the company's on-hand orders for various new products in the semiconductor and new energy fields, it is expected to drive the company's overall revenue to continue to grow.

Develop efforts in the semiconductor+new energy sector, and be optimistic about the release of new products: In 2023, the company will focus on technological innovation in the semiconductor field, new energy field, and lasers. A variety of products have received orders from customers and are gradually being released. By product: 1) The company's Micro LED laser mass transfer equipment received its first customer order in 2022, and new customer orders were successfully implemented in 2023; 2) On the basis of laser grooving (low-k) and wafer marking, the company focused on developing laser fine microprocessing equipment such as glass through-hole (TGV), module drilling (TMV), and laser unbonding. Currently, related new products have been ordered and shipped; 3) The company's self-developed laser cell blue film removal equipment in 2022 has passed customer testing and verification and obtained the first order from the head customer. Orders were gradually increased in 2023; 4) In 2023, the company launched a full-stage production equipment for second-generation perovskite thin-film solar cells, and obtained the first batch of orders from leading customers GW Line and some new customer orders.

Lowering profit forecasts and maintaining the “gain” rating: In 2023, the company's new products and customized equipment acceptance cycle was long, and the company's revenue growth rate slowed; the company continued to increase investment in R&D, and expenses increased during the period; the revenue structure of the company's precision laser processing equipment changed, resulting in a year-on-year decline in gross margin in '23. Considering that the company continues to increase its business development efforts, expenses will increase during the period, and the impact of the pace of new product acceptance, we have lowered the company's performance expectations. The company's net profit for 2024-2026 is estimated to be 65 million yuan, 89 million yuan, and 116 million yuan respectively, EPS 0.62 yuan, 0.86 yuan, and 1.12 yuan respectively, and PE is 41X, 30X, and 23X respectively.

Risk warning: New product introduction falls short of expectations, capacity construction falls short of expectations, market competition risk, technological innovation risk.