Analytical judgment:

Significant marginal improvements, or a double hit in performance and valuation

We believe that recently, the company's semiconductor and military businesses have all achieved marginal improvements, or experienced a double hit in performance and valuation. Poor industry demand in 2023 affected all aspects of the company's business development, manufacturing, project delivery schedule and revenue cycle. Looking at this year, the new energy sector has launched high value-added products and expanded new demand at low altitude; verification in the semiconductor field has progressed in stages, and Huawei products have been delivered; at the same time, demand for military products has resumed, and the company's performance growth is more flexible. According to the 23rd annual report, most of the main applications of electronic vacuum devices are in harsh environments such as high frequency, high voltage, and high current. In recent years, application demand in fields with high service life requirements for core devices, such as the “New Half Army”, has continued to expand and increase. According to the customs investment activity record table, the company's revenue will continue to rise in the next three quarters.

Military industry: Demand is picking up and being upgraded. The volume of control boxes is the pioneer of military vacuum devices. Vacuum relays are the basic core electronic components of power control and communication systems. The company's products are used in key projects such as military shortwave communication and over-the-horizon radar. The main application areas also include space and satellite applications. According to the 2023 annual report, the company has also developed the military DC contactor market one after another in recent years. Product models and application scenarios have continued to expand, and revenue has steadily increased. According to the customs investment activity record sheet, batch delivery of control box products in the company's special business will begin in June 2024. We expect the special business to grow rapidly as demand for traditional military products recovers and orders for control box products are released.

Semiconductors: Verification is accelerated, and shipments of Huawei products are expected to increase significantly this year. The company is one of the earliest suppliers of electronic devices for semiconductor equipment in China. The company's products are widely used in equipment such as plasma etching, enhanced gas phase deposition, and gas phase cleaning. According to the customs activity record table, taking an etching machine as an example, an etching machine generally has 4-5 cavities, 2 matching boxes in each chamber, and 2-3 capacitors in each matching box. Generally, there are 2 variable capacitors and 1 fixed capacitor. In terms of vacuum capacitors, the company's main competitors are foreign brands, but the company's products have characteristics such as high voltage resistance, high carrying current, low loss, and long life. They are basically comparable to foreign competitors in terms of performance parameters, and are more advantageous in terms of price.

According to the customs investment activity record table, the semiconductor business between the company and Huawei Technology continued to advance in 2024. Currently, a certain amount of product shipments have been completed, and after this batch of products is delivered, customers will also increase product supply demand. At the same time, product verification between the company and major semiconductor equipment manufacturers such as North China Chuang and China Micro has also made phased progress, and batch delivery will begin in the second half of 2024. As the domestic substitution trend accelerates and the company's product yield continues to increase, the company's semiconductor business revenue is expected to increase significantly in 2024.

New energy: The launch of high-add-on control box products consolidates profits. eVTOL demand is worth looking forward to in the new energy sector. According to the customs investment activity record table, the company's gross profit margin and net profit increased steadily this year, which was less affected by price cuts, mainly due to the company's launch of civilian control box products with higher added value, while the scale of product shipments continued to increase. Control box products have been rapidly promoted in the market since their launch. Currently, major customers include SAIC Motor Group and Ningde Times. The company relies on a new generation of Y series relays, and the control box is integrated, modular and miniaturized, which can meet the needs of customers to reduce volume, weight and cost. Furthermore, according to the company's response on the Q&A platform, the company already has revenue in the eVTOL field and has a relevant R&D team and technical foundation. Low-altitude manning is the most important application scenario for future low-altitude economic development, and eVTOL has the greatest potential for growth. At the same time, the company has accumulated a series of products and technologies in the automotive and aviation fields, which has great advantages in expanding the eVTOL market. We expect the new energy sector to continue to provide strong performance support.

Large scientific devices: Undertake core device development tasks, highlighting its monopoly strength. The company is a core device supplier in the field of large scientific installations. Its main products are active electronic vacuum devices such as high-power speed regulators, high-power S-band magnetrons, and high-power couplers. According to the company announcement and customs activity record sheet, the company undertook the 650 MHz/800kW speed control tube project for the Cyclic Positive and Negative Electron Collider (CEPC) high frequency power source system of the Institute of High Energy Materials of the Chinese Academy of Sciences. The delivery of the speed control tube entered the testing stage in June 2022, and all test indicators met the standards in July 2023. The second phase of the project to be launched later will increase the power of the first phase of 100kW to 500kW. The company's 648MHz speed controller will be used.

Investment advice

The company is a leading manufacturer of electronic vacuum devices in China. Products are scarce and technical barriers are strong. The steady downstream growth of new energy sources has built a safety cushion for performance; the military business has increased the volume of new machines with breakthroughs in solid-state power distribution technology, and growth in the short to medium term is prominent; the semiconductor business accelerates with the domestic substitution process, and long-term growth can be expected. Taking into account the impact of the company's demand fluctuations in 23 and military order delays, etc., we adjusted the company's profit forecast for 2024-2025 and increased the profit forecast for 2026. We expect the company's revenue for 2024-2026 to be 9.85/1,355/ 1,754 million yuan (1,259/1,702 billion yuan for the previous 24 and 25 years, respectively), and net profit of 0.88/2.02/305 million yuan (previously 24/ 332 million yuan respectively), EPS respectively 0.93/2.11/3.18 yuan (2.19/3.46 yuan for the previous 24 and 25 years, respectively). Corresponding to the closing price of 31.27 yuan/share on June 18, 2024, PE was 34/15/10 times, respectively, maintaining a “buy” rating.

Risk warning

The risk of decline in the new energy sector, the risk of downstream application expansion, and the risk of sales in overseas markets.