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 1,717 million yuan, +23.98% year over year; net profit to mother was 255 million yuan, +25.21% year over year; deducted non-net profit of 187 million yuan, +36.37% year over year. The company's Q1 revenue in 2024 was 244 million yuan, -15.27% YoY, -52.16%; net profit to mother was 0.16 million yuan, -75.73% YoY, -47.33% month-on-month; after deducting non-net profit of 209 million yuan, -84.90% YoY, +59.41% YoY.

The 23-year performance achieved growth, and multiple factors affected 24Q1's profit performance: In 2023, the company continued to invest in R&D, the product layout was gradually improved, overall competitiveness continued to increase, customer recognition of the company's products continued to increase, and performance grew. In 2023, the company's gross margin was 42.53%, +4.13pcts; the net margin was 14.57%, +0.12pct year on year. The gross margin of all products of the company increased, and the overall gross margin level increased. In terms of expenses, the company's sales/management/R&D/finance expenses rates in 2023 were 8.27%/10.06%/11.52%/0.39%, respectively. The year-on-year changes were +0.77/+0.36/+0.53/+0.10pcts, respectively. The main reasons for the increase in sales and R&D expenses were the expansion of the company's scale and the increase in employee remuneration, materials, etc.; the company's continuous R&D investment, employee remuneration, and R&D materials. In Q1 '24, the company's revenue declined year-on-year due to factors such as changes in the stock order structure and extended production delivery and acceptance cycles. In Q1 '24, the main reason for the year-on-year decline in the company's profit side was: 1) The year-on-year increase in employee compensation expenses. 2) Stock payment fees increased year over year. 3) Software VAT refunds received decreased year over year.

Seize industrial development opportunities and lay out front and back equipment in multiple dimensions: After years of R&D, verification and mass production applications, the company has successfully launched a full range of products including offline, i-Line, KrF, ArF immersion, etc., completed full coverage of 28nm and above process nodes, and has successfully connected dozens of lithographs on clients. In the past two years, with the improvement of the company's product maturity and competitiveness, customer recognition has continued to increase, and the number of downstream customers has also increased rapidly. In the field of Qiandao cleaning, the company's physical cleaning machines have become the main production model for major domestic logic and power customers. The latest iteration of high-capacity machines is storing client verification, which is expected to open up incremental market space. Furthermore, the company officially released a new strategic product, Qiandao chemical cleaning machine. Compared with the Qiandao physical cleaning field, the Qiandao chemical cleaning field has higher technical content and larger market space. Qiandao chemical cleaning equipment is expected to become the company's second growth curve. In the field of advanced packaging and small size, the company has maintained a leading position in the industry for many years. The company's core customers include leading global packaging factories such as TSMC and domestic compound leaders such as San'an Integrated. Furthermore, in the face of historic opportunities for the development of the domestic Chiplet industry, the company is actively developing and industrializing new products related to 2.5D/3D advanced packaging around the needs of leading customers, and is developing new products such as temporary bonding, unbonding, and frame cleaning. The company also formally established a wholly-owned subsidiary focusing on Chiplet equipment in '24. It will continue to develop more new high-end packaging products in the future and continue to enrich the company's product layout in the field of advanced packaging.

Demand for back-end equipment is recovering, and new orders are doing well: SEMI data shows that the global semiconductor equipment market is expected to recover and grow to US$105.31 billion in 2024. SEMI mentioned that China will lead the expansion of the semiconductor industry, and it is expected that China will increase its share of global semiconductor production capacity and increase production capacity by 13% year over year in 2024. To this end, the company is actively engaging with major domestic customers to speed up iterative machine optimization and order introduction speed, enhance customer stickiness, and continuously improve the level of market share. The company's new orders in 2023 remained basically flat year over year. Among them, Qiandao Track maintained a relatively rapid growth rate; Qiandao cleaning equipment orders were relatively steady, physical cleaning continued to maintain its leading position in the industry, and new chemical cleaning machine products achieved orderly breakthroughs in key customers and are expected to become a new performance growth point for the company; demand for advanced packaging and small-size equipment affected by downstream market sentiment is yet to recover. In the first quarter of 2024, the company signed new orders well, and Qiandao Track received batch repetitive orders from important customers; the boom in the advanced packaging industry recovered, compounding the continuous expansion of domestic 2.5D advanced packaging, and the signing performance was good; Qiandao physical cleaning and compounds continued to consolidate its leading position in the industry, and the order volume fluctuated slightly due to the pace of production expansion by major customers. In the second quarter of 2024, the company signed new orders in good condition, and the production, delivery and inspection plans of all aircraft were in line with the company's expectations.

Lowering profit forecasts and maintaining the “buy” rating: The company is a leading domestic gluing equipment market, actively exploring the cleaning equipment market to build long-term growth space, while continuing to increase customer expansion efforts. Demand for equipment in the advanced packaging field is expected to recover later, and Qiandao chemical cleaning equipment is expected to become an additional point of performance. The profit forecast was lowered considering the expansion progress of downstream fabs and packaging plants and the customer introduction of chemical cleaning equipment in the company's future requires a certain period of time. The company's net profit for 2024-2026 is estimated to be 3.21/4.15/558 million yuan, the corresponding EPS is 2.32/3.00/4.04 yuan, and the corresponding PE is 41/32/24 times.

Risk warning: Risk of unstable supplier supply; product promotion falls short of expectations; downstream customer production expansion falls short of expectations; market competition increases risk.