Incident: The company released the 2023 annual report and the 2024 first quarter report. The company's revenue for the full year of 2023 was 488 million yuan, +34.31% year over year; net profit to mother was 129 million yuan, +5.30% year over year; deducted non-net profit of 110 million yuan, +7.09% year over year. The company's Q1 revenue in 2024 was 44 million yuan, +100.65% year on month, -80.19% month on month; net profit due to mother - 023 million yuan, year-on-year loss, month-on-month loss; after deducting non-net profit - 0.25 million yuan, year-on-year loss increased by 2415.57%, which turned loss month-on-month.

The hardware business helped increase revenue, and high R&D investment dragged down profit performance: In 2023, the company's sales revenue for test equipment and accessories and testing services grew rapidly, leading to growth in the company's performance, but the profit growth rate was significantly weaker than the revenue growth rate. In 2023, the company's gross margin was 60.30%, -7.47pcts; the net margin was 27.16%, -7.25pcts yoy. The decline in profitability is mainly due to changes in the company's revenue structure, a decrease in the share of high-margin products, and an increase in R&D expenses. In terms of expenses, the company's sales, management, R&D, and financial expenses in '23 were 8.12%/8.02%/43.38%/-15.56%, respectively, with year-on-year changes of -0.22/+0.72/+8.64/-4.52pcts, respectively. The main reason for the increase in R&D expenses was that the company continued to increase R&D investment in order to continuously improve the yield of integrated circuits and guarantee the advanced nature of products and technology. In Q1 '24, the company's revenue doubled; however, since the first quarter was a regular low season and the company continued to increase investment in R&D, the increase in cost expenditure far outweighed the increase in revenue, so profit side performance was poor.

The forward-looking layout saves a first-mover advantage and is expected to benefit from the wave of domestic substitution: In recent years, under the strategic goal of increasing chip self-sufficiency, the expansion of the fab factory production line has driven market demand for EDA software and WAT test equipment to improve yield. Based on the core team's deep understanding of the integrated circuit industry, the company was involved in R&D in the field of improving yield and formed a complete product and service coverage. The company's EDA products and test equipment were recognized by downstream customers. The company's WAT testing machine, after ten years of research and development, the company launched fourth-generation wafer-level electrical testing equipment that can support advanced processes and mature process manufacturing, and is a domestic WAT tester supplier that was one of the earliest domestic suppliers in the country to enter mass production lines. It has formed a certain first-mover advantage over other domestic companies in the industry. Among them, in 2023, the company's sales volume of WAT test equipment was 79 units, an increase of 54.90% year-on-year. As the domestic integrated circuit industry continues to develop in the future, the company is expected to seize the opportunity of a wave of domestic substitution and grow simultaneously with China's integrated circuit manufacturing industry. Furthermore, after years of hard work, the company's products and services have been recognized by domestic and foreign first-tier manufacturers, and the company has also formed a high-quality customer base composed of leading companies in the industry. The company's customer group includes internationally renowned IDM manufacturers such as Samsung Electronics and SK Hynix, leading domestic Foundry manufacturers, and Fabless manufacturers.

“EDA+ Big Data+Test Equipment” goes hand in hand, and innovation drives chip yield improvement: In order to help introduce domestic equipment and consumables in domestic fabs and improve the yield and yield of high-end chips, the company adheres to the development concept of technological innovation and continues to increase investment in R&D to further enhance the technical barriers and core competitiveness of the company's products. 1) In terms of EDA, the development agency develops automotive-grade EDA, graphic matching and other tools to further improve the DFM and DFT tool sets. At the same time, we actively follow developments in industry segmentation, integrate mergers and acquisitions in a timely manner, and accelerate the company's EDA ecosystem layout. 2) In terms of big data analysis systems, we actively apply advanced artificial intelligence technology such as machine learning to products, continuously iterate offline big data analysis systems and continue to develop online big data analysis systems such as DE-FDC, the statistical process control analysis system DE-SPC, etc.; 3) In terms of electrical equipment, we continuously expand application scenarios and product categories of wafer-level electrical testing equipment, and work with partners to reduce equipment costs and enhance product performance and technical competitiveness. The company firmly believes that in the future, all three business segments have the foundation and ability to achieve rapid development to support the continuous improvement of the company's performance.

Lowering profit forecasts and maintaining the “gain” rating: After several years of technology accumulation and strategic layout of software and hardware products, the company has gradually formed a business model combining EDA software, semiconductor big data platforms, and electrical testing equipment. We are optimistic about the development space of the integrated circuit manufacturing industry and the trend of domestic substitution. The company is expected to seize the opportunities of the domestic substitution wave and open up room for performance growth with a business layout model combining software and hardware. Considering that the company continues to increase investment in R&D, putting some pressure on the profit side, the profit forecast was lowered. The company's net profit for 2024-2026 is estimated to be 220 million yuan, 300 million yuan, and 438 million yuan respectively, EPS was 1.01, 1.50 yuan, 2.19 yuan, and PE was 50X, 34X, and 23X respectively.

Risk warning: The downstream market falls short of expectations; industry sentiment falls short of expectations; capacity expansion falls short of expectations; technology research and development falls short of expectations.