Xinyuan Micro: Leading domestic glue-coated imaging equipment, solidifying the foundation to gain strength. Xinyuan Micro was founded in 2002, formerly known as Shenyang Xinyuan Advanced Semiconductor Technology Co., Ltd., founded by the Shenyang Institute of Automation of the Chinese Academy of Sciences. Since its establishment, the company has been deeply involved in lithography process gluing and imaging equipment and single-chip wet processing equipment. After more than 20 years of development, the company has formed four major business segments for small-size equipment such as front-end gluing equipment, front-end cleaning equipment, advanced back-end packaging equipment, and compounds. The products have completely covered various fields such as front-end wafer processing, advanced back-end packaging, and compound semiconductors. In 2023, the company achieved operating income of 1.717 billion yuan, an increase of 23.98% year on year; net profit to mother was 0.251 billion yuan, an increase of 25.21% year on year. The company's total production capacity plan is to have a production capacity base of 4 billion yuan or more by the end of 2023. Currently, there are plenty of orders in hand, and there is plenty of momentum for subsequent growth.

Gluing development: Stable market position, low localization rate and broad growth space. Gluing imaging equipment is the only core process equipment that operates online with a lithography machine in wafer manufacturing production lines. The product structure is complex, production efficiency and stability requirements are high, and it has high technical barriers. In 2023, the global glue-coated imaging equipment market was about 3.5 billion US dollars, of which Tokyo Electronics accounted for more than 90% of the market share. Among local Chinese manufacturers, only Xinyuan Micro has a small market share.

Compared with other core process equipment, the localization rate of glued imaging equipment is significantly lower, and there is still plenty of room for improvement in the future. The company's more mature machines such as offline, i-Line, and KrF have achieved mass sales, and technical indicators have continued to improve. The submersible machine has also received orders from 5 important domestic customers. In 2023, the company's lithography process gluing and imaging equipment achieved revenue of 1.066 billion yuan, an increase of 40.80% over the previous year, and a gross margin of 38.84%. The company's market position is relatively stable, and the signing of orders is currently maintaining a good pace.

Cleaning equipment: Leading in physical cleaning in China, chemical cleaning surpassed the global cleaning equipment market of about 4.6 billion US dollars in 2023. Companies such as DNS (SCREEN), Lam Research, TEL, SEMES, Shengmei Semiconductor, and Xinyuan Micro occupy the main share. Among them, the total market share of the top three overseas manufacturers reached nearly 75%. The company Qiandao Physical Cleaning has become the preferred brand for domestic logic and power customers, and has continued to consolidate its leading domestic advantage in recent years; the Qiandao chemical cleaning machine market is larger than physical cleaning machines, the company has received verification orders from important domestic customers, and the industrialization process is progressing rapidly, and it is expected to become the second growth curve for cleaning equipment.

Advanced packaging: Actively laying out the back-end market. Products are introduced into leading customer companies' back-end advanced packaging gluing imaging equipment and single-chip wet processing equipment. They have been used as mainstream models in batches for many years in large domestic and international first-tier manufacturers such as TSMC, Shenghe Jingwei, Changdian Technology, Huatian Technology, Tongfu Microelectronics, and Zhuhai Tiancheng, etc., and have become the preferred brand for many well-known customers. At the same time, the company has also launched a variety of new products, including temporary bonding, unbonding, frame cleaning, etc., which are used in the field of 2.5D/3D advanced packaging, and have now entered the small-batch sales stage.

Profit forecast: abundant on-hand orders, multi-wheel drive growth

As of the end of the 2023 reporting period, the company had on-hand orders of approximately $2.2 billion (tax included). The company's competitive pattern in the field of front-end gluing and imaging equipment is good. With product upgrades and iterations, the domestic market share is expected to continue to increase; among them, physical cleaning machines continue to maintain the leading position in the industry, and new chemical cleaning machine products are expected to become the company's new performance growth point; with the increase in demand for advanced packaging, the company's back-end product portfolio (gluing, cleaning, temporary bonding, and unbonding) can be expected to grow. We expect the company to achieve net profit of 0.293 billion yuan, 0.416 billion yuan, and 0.583 billion yuan respectively in 2024-2026, corresponding to the current market capitalization price-earnings ratio levels of 44x, 31x, and 22x, respectively, covering the “buy” rating for the first time.

Risk warning

1. There is uncertainty about the pace of expansion of production in downstream fabs;

2. The pace of R&D is uncertain.