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 2,429 billion yuan, -11.03%; net profit to mother was 150 million yuan, -44.79% year over year; after deducting non-net profit of 0.3 million yuan, -72.83% year over year. The company's Q1 revenue in 2024 was 418 million yuan, -30.50% YoY, -52.74%; net profit to mother was -0.16 billion yuan, a year-on-year loss, a month-on-month loss; after deducting non-net profit of -0.24 billion yuan, a year-on-year loss, and a month-on-month loss.

Demand for terminals is recovering slowly, and it is expected that the semiconductor sector will recover performance: in 2023, adverse factors such as weak demand in the consumer electronics market will continue, terminal consumer demand will recover slowly, and the company's performance will decline.

The company's gross margin in 2023 was 48.95%, +4.56 pcts year on year; the net profit margin was 3.68%, -3.94 pcts year on year. The main reason for the decline in net profit margin was that the increase in gross margin was insufficient to offset the headwinds brought about by the decline in revenue. In terms of expenses, the company's sales, management, R&D, and financial expenses rates in '23 were 9.43%/12.28%/26.37%/2.11%, respectively. The year-on-year changes were +1.20/+2.68/+5.35/+1.02pcts, respectively. The main reason for the increase in R&D expenses is that the company's new business in the semiconductor and new energy fields is still in a high R&D investment period. In Q1 '24, the company's revenue declined due to a decrease in new orders signed by the company in 2023; the company's gross margin was 47.01%, +1.66pcts year over year. The main reason for the year-on-year increase in gross margin was the company abandoning some lower gross margin products. It is expected that the company will help restore the company's performance through adjustments to the product structure.

The downstream market is recovering moderately, showing steady growth in new orders in the field: In 23 years, the company continued to seize structural market development opportunities and optimize the product structure. In the field of intelligent and precision optical instruments, the company's main products are color analyzers, single-point spectrometers, spectral confocal meters, imaging scintillation frequency meters, imaging brightness and colorimeters, etc., which have broken foreign monopolies, achieved R&D and product breakthroughs one after another, and received repeated batch orders from domestic and foreign core customers. At this stage, it has achieved large-scale sales, and will provide important support for the rapid development of the display field in the future. The company continues to make efforts in new display-related testing and debugging equipment products, and has made breakthrough progress in comprehensive and in-depth layout of testing equipment for headsets such as AR/VR/MR; it has achieved breakthrough progress in the micro-OLED testing field, becoming the number one domestic provider of inspection solutions to enter the micro-OLEDCell segment, and has also reached cooperation and partial delivery with top global customers on the micro-OLED module inspection side; at the same time, it has cooperated with top global customers to develop Pancake AOI optical systems and The algorithm was successfully imported. In the AR field, leading customers have reached customized development cooperation for core optical instruments, and breakthroughs have been achieved in supporting inspection requirements such as optical modules and Eyepiece, further enhancing the company's leading position in technology in the field of headphone inspection equipment. Since the fourth quarter of 2023, with the gradual moderate recovery of the downstream market, the company's business situation in the display sector has gradually begun to be repaired and improved, and new orders have been growing steadily. As of April 23, 2024, the company had on-hand orders in the display sector of about 1,248 billion yuan.

The AI wave has boosted downstream demand, and the semiconductor business is growing rapidly: In order to seize the historical opportunities of the rapid development of the data center, supercomputing, and AI industries, the company's layout in the semiconductor industry has expanded from advanced measurement equipment to the semiconductor manufacturing and packaging industry chain, greatly boosting the growth of the company's semiconductor business. The company is one of the leading companies in the field of semiconductor inspection equipment in China. It has basically formed a layout in all fields of semiconductor testing. The company's subsidiary, Wuhan Jinghong, mainly focuses on the field of automatic test equipment (ATE) (the main products are memory chip test equipment). The burn-in (burn-in) product line has achieved batch repeat orders for domestic first-line customers, and products related to the CP/FT product line have been obtained and delivered. Currently, batch orders are being actively sought. The subsidiary Shanghai Precision Film Thickness Series products, OCD equipment, and electron beam equipment have received batch orders from many domestic customers; semiconductor silicon wafer stress measurement equipment has also received repeated orders from customers; brightfield optical defect detection equipment has completed delivery and acceptance of the first set, and more advanced process orders have been obtained; the remaining products with reserves such as graphic dark field defect detection equipment are currently in the process of R&D, certification and expansion. With the continuous improvement of the company's technical level and the continuous improvement of product maturity and market recognition, the company's semiconductor inspection business is developing rapidly, and orders and sales revenue continue to grow. In 2023, the company achieved sales revenue of 395 million yuan across the semiconductor sector, an increase of 116.02% over the previous year. As of April 23, 2024, the company had on-hand orders of about 1,602 billion yuan in the semiconductor sector.

Lowering profit forecasts and maintaining the “gain” rating: The company actively strategically lays out advanced packaging technology in the semiconductor field, deepens strategic cooperation and binding with core customers, and strengthens deep integration in R&D, products, markets, etc.; substantial progress has been made in implementing the overseas strategic layout in the field of new energy, and overseas customer expansion has achieved remarkable results. We are optimistic about the growth momentum of the company's semiconductor and new energy business, but considering that the recovery in consumer electronics market demand falls short of expectations, we lowered our profit forecast. The estimated net profit of the company in 2024-2026 was 261 million yuan, 350 million yuan and 472 million yuan, EPS was 0.94 yuan, 1.26 yuan, and 1.70 yuan respectively, and PE was 66X, 49X, and 36X respectively.

Risk warning: New product development progress falls short of the forecast period; downstream demand recovery falls short of expectations; industry competition increases risk; product development falls short of expectations.