Key points of investment

Benefiting from strong downstream demand, the company's performance increased dramatically: in the first half of 2024, the company's revenue was 2.404 billion yuan, +49.3% year over year, mainly due to continued strong demand for equipment in China's semiconductor industry. The company achieved remarkable results in new customer development and new market development with the advantages of core technology and product diversification, increasing overall revenue; net profit to mother was 0.443 billion yuan, +0.9% year over year; net profit without return to mother was 0.434 billion yuan, compared with +6.9% year over year. Q2 revenue for a single quarter was 1.483 billion yuan, +49.2% YoY, +61% month-on-month; net profit to mother was 0.363 billion yuan, +17.5% YoY, +353.7%.

The high expense ratio during the 24H1 period affected the net interest rate. In the first half of 2024, the company's gross margin was 50.7%, -0.9pct year on year, the net interest rate was 18.4%, and the net interest rate was 18.4% year-on-year, and -8.9pct year on year. The main reason was the expansion of the business scale, personnel growth and increase in share payments that granted restricted stock confirmation to employees. The total share payment expenses included in sales/management/R&D expenses totaled about 0.181 billion yuan. Taken together, the fee rate for the first half of 2024 was 30.1%, +6.8pct year on year. Among them, the sales expense ratio was 9.9%, +2.0pct year on year, the management expense ratio (including R&D) was 20.88%, +3.5pct year over year, and the financial expense ratio was -0.6%, +1.3 pct year over year. The gross margin in Q2 was 53.4%, +3.7 pct year on year, +7.1 pct month on month, net profit margin 24.5%, -6.5 pct year on year, and +16.8 pct month on month. The increase in profitability in Q2 was mainly due to an increase in the share of high-margin products such as electroplating.

Order acceptance was accelerated, and the company raised its annual revenue forecast to 5.3-5.8 billion yuan: Shengmei raised the full-year revenue forecast range for 2024 to between RMB 5.3 billion and 5.88 billion. The original forecast at the beginning of the year was between RMB 5 billion and RMB 5.8 billion for the full year. The main reasons for the increase in business performance forecasts are: 1) the company has made significant progress in expanding its domestic and foreign market business and received multiple orders; 2) the company's semiconductor products have gradually been recognized by customers, driving revenue growth; 3) the semiconductor industry continues to pick up, and demand in the Chinese market has exceeded expectations; 4) the company has optimized supply chain management to ensure smooth execution of orders.

Benefiting from the high demand for HBM, the company's cleaning and electroplating products are expected to usher in new growth: TSV (silicon through hole technology) is the core process of HBM, accounting for nearly 30% of the cost, and the increase in demand has brought new growth to the company's cleaning and electroplating products. Currently, the company's entire line of wet cleaning equipment and copper plating equipment can be used in the HBM process: SAPS mega-sonic single-piece cleaning equipment can be used for TSV deep hole cleaning; multi-positive copper plating equipment can be used for TSV copper plating. In the future, benefiting from the surge in data calculation volume of large AI models, the HBM market will become a new growth point for the company, driving a high increase in demand for the company's core products.

Profit forecast and investment rating: The company's main business continues to grow and product categories continue to expand. We maintain the 2024-2026 net profit forecast of 1.24/1.55/1.87 billion yuan. The current stock price corresponds to dynamic PE of 32/26/21 times, respectively, maintaining the “increase” rating.

Risk warning: Risk of poor recovery of accounts receivable due to poor management of downstream customers, and risk of falling inventory prices due to slow downstream acceptance.