Key points of investment

The company disclosed its 2024 semi-annual performance forecast: it is expected to achieve net profit of 2.57-2.96 billion yuan in the first half of 2024, an increase of 42.84%-64.51% over the previous year. Among them, Q2 will achieve net profit of 1.443-1.833 billion yuan, an increase of 19.55%-51.86% over the previous year. Benefiting from the company's rising process coverage and market share of process equipment such as etching, film deposition, cleaning, furnace tubes, and rapid annealing, performance grew rapidly. Looking at the whole year, as the scale of the company's revenue expands, the scale effect gradually becomes apparent, and the company's net profit to mother is expected to continue to grow year-on-year.

Local semiconductor equipment platform companies will benefit from the wave of domestic substitution for a long time. 1) Etching equipment: For customers such as 12-inch logic, storage, power, advanced packaging, etc., to achieve full coverage of silicon, metal, and medium etching processes. 2) Thin film deposition equipment: Breaking through many core technologies such as PVD, CVD, and ALD, more than 20 products such as copper-connected film deposition and aluminum film deposition have become preferred machines for mainstream domestic chip manufacturers. 3) Vertical furnace equipment: medium temperature oxidation/annealing furnaces, high temperature oxidation/annealing furnaces, low pressure chemical vapor deposition furnaces, and batch atomic layer deposition furnaces have all become mass production equipment for mainstream domestic customers and continue to receive repeated orders. 4) Epitaxial equipment: covers more than 20 types of mass production equipment, including SiC epitaxial furnaces, silicon-based GaN epitaxial furnaces, 6/8-inch multi-chip silicon epitaxial furnaces, etc. 5) Cleaning equipment: The single-chip cleaning machine covers the entire Al/Cu process and is the preferred machine for back-end processes from mainstream domestic manufacturers; trough cleaning machines have been mass-produced by many clients and have received repeated orders.

Etching equipment and thin-film deposition equipment are the core equipment for semiconductors, accounting for up to 44% of the total value. According to Gartner, etching equipment and thin-film deposition equipment rank in the top two leading semiconductor devices with a value ratio of 22%, and companies that lay out high-value semiconductor equipment may have an advantage. Starting with etching equipment, Lam Research (Lam Research) has grown into a semiconductor equipment etching machine and thin film deposition equipment giant through independent development and multiple mergers and acquisitions. It has now formed three major business segments centered on etching equipment (46% market share), thin film deposition equipment (CVD market share 23%, ALD 12% market share), and cleaning equipment (12% market share). Beifang Huachuang is targeting Lam. Its etching equipment has achieved full coverage of silicon, metal, and medium etching processes, and thin-film deposition equipment has become the preferred machine for mainstream domestic chip manufacturers. Against the backdrop of increased bans on advanced equipment in Europe and the US, I am optimistic that North China Huachuang will occupy a higher share as a leader in the high-price segment of domestic semiconductor equipment.

Profit forecast and investment rating: Considering the company's order situation, we maintain the company's net profit forecast for 2024-2026 at 5.6/7.3/9.2 billion yuan, respectively. The current market value corresponds to dynamic PE of 30/23/18 times, respectively. Maintains a “buy” rating based on the company's high growth.

Risk warning: Fab capital expenses fall short of expectations, progress in the industrialization of new products falls short of expectations, etc.