Incident: The company released its 2023 annual report and the first quarter report of 2024. In 2023, the company achieved revenue of 360 million yuan, an increase of 11.20% year on year; realized net profit of 0.3 million yuan, an increase of 40.25% year on year; realized deducted non-net profit of 27 million yuan, an increase of 88.60% year on year. In 2024, Q1 achieved revenue of 82 million yuan, a year-on-year increase of 14.22% and a decrease of 26.98%; realized net profit to mother of 08 billion yuan, an increase of 112.28% year-on-year and a year-on-month decrease of 46.82%; and realized deducted non-net profit of 0.04 billion yuan, an increase of 5.51% year-on-year and a decrease of 60.97% month-on-month.

Product structure optimization and gross profit increase, profitability is expected to continue to increase: in 2023, the company's core products continued to grow, with sales revenue of electroplating solution and supporting reagents +21.80%, and sales revenue of photoresists and supporting reagents +18.70%, driving the company's year-on-year revenue growth; thanks to product structure optimization and adjustment, the revenue share of high-margin products such as electroplating solutions and supporting reagents increased year-on-year. In 2023, the company's gross margin was 27.18%, +3.85pcts year on year; net margin was 9.07%, +1.88pcts year on year. The company's gross margin in Q1 in '24 was 26.53%, +0.60 pcts year on year, +2.06pcts month on month; net margin was 9.17%, +4.23 pcts year on year, -3.43 pcts month on month.

In terms of expenses, the company's sales, management, R&D, and financial expenses rates for the full year of 2023 were 5.59%/5.67%/9.08%/-0.78%, respectively, with year-on-year changes of +0.05/-0.09/+1.76/-0.07pcts, respectively. The company's R&D expenses in 2023 were 32.6879 million yuan, +37.98% year-on-year, mainly due to the company further strengthening R&D team building, increasing R&D investment, and increasing R&D personnel remuneration and R&D consumables.

The core business is growing well, and the localization of key materials for semiconductor manufacturing continues to be promoted: the company has gradually achieved breakthroughs in advanced packaging and 28nm and 14nm advanced wafer processes. In 2023, the company's sales revenue of electroplating solutions and supporting reagents was 179 million yuan, +21.80% over the same period last year, showing a good growth trend. By field: 1) In the field of advanced packaging, the company's copper plating solution for advanced packaging (high-purity copper sulfate) has been officially supplied by Huatian Technology; the electroplated silver additive for advanced packaging has been certified by Changdian Technology and is yet to be certified by end customers; the electroplating copper additive for advanced packaging has completed testing and certification, and is currently undergoing batch stability verification. 2) In the field of wafers, the company's Damascus copper interconnection process copper plating additive products have entered the sample trial production and product certification stage; ultra-high purity cobalt sulfate with the 14nm advanced process has completed sample production, and client testing is progressing smoothly; the cleaning solution for the copper process of wafer manufacturing has completed customer testing and certification, and small-batch delivery has been achieved. In addition, in 2023, the company's sales revenue of photoresists and supporting reagents was 69 million yuan, +18.70% year over year; of these, photoresist sales revenue was 12.34 million yuan, +38.65% year over year. In terms of photoresists and supporting reagents, the company has successfully achieved large-scale supply of products such as adhesion promoters, developers, removers, etching solutions, etc. to downstream packaging manufacturers. At the same time, the company has actively carried out photoresist research and development, using photoresist for advanced packaging negative photoresists, photoresists for OLED array manufacturing, and PSPI for wafers as breakthroughs, covering application fields such as wafer manufacturing, advanced packaging and display panels, and gradually breaking foreign monopolies and moving towards advanced processes Extend. Currently, the company has developed its own g/i line negative photoresists for advanced packaging and i-line positive photoresists for wafer manufacturing have all been supplied in batches.

Technological breakthroughs enhance product competitiveness and make steady progress with high-quality domestic customers: the company's 2023 annual report shows that in 2022, the overall localization rate of wet chemicals used in integrated circuits in China reached 38%, the localization rate in the g/i line photoresist field was less than 20%, the overall localization rate of KrF photoresists was less than 2%, and the overall localization rate of Arf/ArFi photoresists was less than 1%. The company has achieved technological breakthroughs in the fields of electroplating solutions and supporting reagents, photoresists and supporting reagents in the fields of advanced packaging, wafer manufacturing and OLED array manufacturing. Technological breakthroughs and large-scale supply of the company's related products will help enhance China's competitiveness in the field of key semiconductor materials. According to data from the China Electronic Materials Industry Association, in 2020-2022, the company's market share of electroplating solutions and supporting reagents for integrated circuit packaging (including advanced integrated circuit packaging and traditional packaging) exceeded 20% (based on sales volume), ranking the top two in China. In addition, the company has established stable cooperative relationships with the top three domestic sealing and testing manufacturers of Changdian Technology, Tongfu Microelectronics, and Huatian Technology, and has supplied electroplating solutions, supporting reagents, and photoresist supporting reagents in batches. Some photoresist and electroplating additive products for advanced packaging have passed their certification. The company has established stable cooperative relationships with mainstream packaging and testing manufacturers. The company's excellent technical capabilities and trusting relationships with customers are conducive to promoting collaboration between the company and downstream customers to promote the localization process of key semiconductor materials.

First coverage, giving a “gain” rating: The company started with electroplating products with traditional semiconductor packaging and gradually mastered a full range of electronic chemicals for pin surface treatment, including electroplating solutions and pre- and post-plating treatment chemicals. After years of hard work, the company gradually replaced foreign material companies as the main domestic supplier in the field of traditional packaging and electroplating chemicals, and gradually expanded into advanced packaging, wafer manufacturing and display panels, forming two major business segments: electroplating solutions and supporting reagents, photoresists and supporting reagents. The products are widely used in integrated circuits, new electronic components and display panels. According to data from the China Electronic Materials Industry Association, looking at the comprehensive field of front-end wafer manufacturing and back-end packaging, the overall market size of wet chemicals for integrated circuits in China reached 5.69 billion yuan in 2022, an increase of 9.21% over the previous year; it is expected to grow to 7.13 billion yuan in 2025. Furthermore, according to data from the China Electronic Materials Industry Association, China's integrated circuit g/i line photoresist market size is expected to grow to 1,009 billion yuan in 2025, of which the g/i line photoresist market for integrated circuit packaging will grow to 595 million yuan. The company has achieved technological breakthroughs in the fields of electroplating solutions, supporting reagents, photoresists and supporting reagents in the fields of advanced packaging, wafer manufacturing and OLED array manufacturing. With the gradual recovery of the semiconductor industry, the company's two core sector products are expected to continue to be released, and the company's performance is expected to further improve. The company's net profit for 2024-2026 is estimated to be 51 million yuan, 74 million yuan, 102 million yuan, EPS 0.57 yuan, 0.84 yuan, and 1.15 yuan respectively, and PE is 61X, 42X, and 30X, respectively.

Risk warning: New product introduction falls short of expectations, market demand falls short of expectations, risk of fluctuations in raw material prices, risk of market competition.