The company is a domestic semiconductor target leader and lays out semiconductor precision components. In '23, the company achieved revenue of 2.6 billion yuan (YoY +12%); achieved net profit of 0.26 billion yuan (YoY -4%); 1Q24 achieved revenue of 0.77 billion yuan (YoY +37%), and achieved net profit of 0.06 billion yuan (YoY +60%). The decline in revenue growth in '23 was influenced by factors such as declining semiconductor prosperity and geopolitics; 1Q24's revenue and net profit improved year-on-year, mainly due to a gradual recovery in demand in downstream wafer manufacturing and semiconductor equipment industries.
Target materials are expected to directly benefit from increased Fab plant utilization, and there is plenty of room for autonomous and controlled replacement of semiconductor precision components. Semiconductor target market companies are internationally competitive. According to Frost & Sullivan, the company ranked second in the global semiconductor target market share in '22. 1) In the short term, demand for target materials directly benefited from the increase in the operating rate of Fab plants. According to various company announcements, the utilization rates of 1Q24 SMIC and Huahong were 80.8% and 91.7%, respectively, compared to +4 pcts and +8 pcts, respectively; 2) In the long term, domestic wafer manufacturing capacity continued to expand. According to the ASML announcement, 1Q24 ASML's sales in mainland China reached a record high of 2.6 billion euros, reflecting the continued expansion of production and strong demand for semiconductor equipment in mainland China. The scope of overseas restrictions on the semiconductor industry in mainland China continues to expand, domestic equipment is being verified and introduced at an accelerated pace, and semiconductor equipment and components continue to benefit from domestic substitution.
Relying on the accumulated technology accumulation and customer advantages of semiconductor targets, semiconductor components grew rapidly. In '23, the company's semiconductor precision parts business revenue was 0.57 billion yuan (YoY +59%), which increased to 22%.
Deeply cultivate the target material business to accumulate core technology, and increase investment in R&D and production capacity to broaden the moat.
1Q24 raised the company's R&D rate to 7.18%. The company issued convertible bonds in '21 and raised 0.516 billion yuan with a share conversion price of 51.93 yuan. The capital was invested in construction projects for panel targets and components. In '22, the company raised 1.629 billion yuan in capital through a fixed increase of 19.39 million shares, and an issue price of 85.0 yuan. It is mainly used for the industrialization of target materials and the construction of semiconductor material R&D centers.
The company is forecast to achieve revenue of 3.224/4.187/5.569 billion yuan in 24-26, +24%/+30%/+33% year-on-year, and realized net profit of 3.41/4.59/6.26 yuan, +34%/+36% YoY, corresponding EPS of 1.29/1.73/2.36 yuan. Considering the increase in the operating rate of the semiconductor industry, the industry continues to expand production combined with the major trend of autonomy and control, the parts business is expected to continue to expand. 45xPE will be given in 2024, corresponding to the target price of 58.05 yuan/share, covering the first time, and giving a “buy” rating.
Risk warning
The risk that downstream demand will fall short of expectations; the risk of increased market competition; the risk of exchange rate fluctuations; the risk of the ban on restricted shares being lifted; and the risk of majority shareholders' pledges.