Beifang Huachuang announced its performance forecast for the first half of 2024. The company expects 24H1 to achieve revenue of 11.41-13.14 billion yuan, a year-on-year increase of 35.4%-55.9%, a year-on-year increase of 2.57-2.96 billion yuan, a year-on-year increase of 42.8%-64.5%. It is expected to achieve net profit after deduction of 2.44-2.81 billion yuan, an increase of 51.6%-74.6% year-on-year. Looking at a single quarter, 24Q2 is expected to achieve median revenue of 6.42 billion yuan, yoy +40.8%, and qoq +9.5%. The median net profit expected to be realized is 1.64 billion yuan, yoy +35.7%, and qoq +45.1%. The estimated median net profit after deducting non-mother is 1.55 billion yuan, yoy +44.4%, and qoq +44.8%. The company's steady increase in revenue is mainly due to the continuous enrichment of the product matrix, and the coverage and market share of equipment processes such as etching, film deposition, cleaning, furnace tubes, and rapid annealing used in the field of integrated circuits continues to rise. Profitability that has greatly exceeded expectations is mainly due to the continuous expansion of revenue scale, prominent scale effects, intelligent manufacturing has helped improve the company's operating level, and cost control has been continuously strengthened.

Thin film deposition equipment: Innovation breaks through overseas monopolies, and the category continues to improve. The global semiconductor thin film deposition equipment market is expected to expand from $12.5 billion in 2017 to $34 billion in 2025, maintaining a compound annual growth rate of 13.3%. 1) PVD (physical vapor deposition): Applied materials monopolize more than 80% of the PVD market. Northern Huachuang magnetron sputtering PVD has established core technical advantages through continuous breakthroughs in various key technologies, including sputtering source design, representing the high level of domestic integrated circuit film preparation process equipment. 2) CVD (Chemical Vapor Deposition): In the CVD market, Applied Materials, Fanlin Semiconductor, and Tokyo Electronics account for about 70% of the global market share. The company PECVD has achieved stable mass production at major mainstream manufacturers in the field of compound semiconductors. HDPCVD can produce higher plasma density and quality than PECVD devices at lower deposition temperatures, and the company's HDPCVD product OrionProxima has officially entered client verification.

Etching equipment: 10 billion dollar market, accelerated introduction of domestic equipment. The global etching equipment market is expected to grow to 15.5 billion US dollars by 2025, with plasma etching accounting for more than 90% of dry etching. As a leader in domestic semiconductor etching equipment, the company has achieved full coverage in silicon etching, metal etching, and medium etching processes, and continues to innovate products and technology: 1) iteratively upgrade high depth-width ratio TSV etching equipment, which surpassed 100 cavities in 2023; 2) released the first domestic crystal edge dry etching equipment, which has been mass-produced on the client side; 3) launched a glue remover to open up a new layout in the etching field. It has completed multiple customer verification and mass production. We believe that the process coverage and market share of the company's etching equipment will continue to increase steadily.

Cleaning and annealing equipment: platform-based layout to improve the product matrix. 1) Cleaning equipment: The global semiconductor cleaning equipment market is expected to grow to $3.19 billion in 2024, with DNS and TEL accounting for more than 70% of the market. North Huachuang has two major platforms, single-chip and trough cleaning, which are mainly used in the field of 12-inch integrated circuits: single-chip cleaning machines cover all Al/Cu processes, and trough cleaners have been mass-produced by many clients. 2) Annealing equipment: The global heat treatment equipment market is expected to reach 1.991 billion US dollars in 2025. North Huachuang's main products are vertical furnace equipment, which has become mass production equipment for mainstream domestic customers, and has shipped more than 700 units.

Collaborative layout of the industrial chain to build a semiconductor component platform. Based on the flowmeter platform, the company plans to lay out key components such as gas mass flow meters, radio frequency power supplies, and automation systems to build a high-end semiconductor component platform. Among them, Qixing Flowmeter, an important subsidiary of the parts platform, plans to increase capital and expand shares, and implement an equity incentive plan to improve the long-term incentive and restraint mechanism for risk sharing and benefit sharing between enterprises and employees through the establishment of an employee shareholding platform to increase capital and shareholding.

Profit forecast and investment advice: We expect the company to achieve operating income of 30.94/40.93/51.16 billion yuan in 2024/2025/2026, up 40.1%/32.3%/25.0% year on year, and achieve net profit of 6.03/8.1/10.07 billion yuan, up 54.7%/34.3%/24.3% year on year. The current stock price corresponding to 2024/2025/2026 PE is 28/21/17X, respectively. As a leader in semiconductor equipment, Beifang Huachuang maintains a “Highly Recommended” rating.

Risk warning: New technology and product development progress falls short of expectations; impact of global trade disputes; intensification of industry competition.