1H24 results are in line with our expectations

The company announced 1H24 results: the company's revenue was 3.448 billion yuan, up 36.46% year on year, net profit to mother was 0.512 billion yuan, down 48.48% year on year, after deducting non-return net profit of 0.483 billion yuan, down 6.88% year on year, in line with our expectations.

Development trends

New orders grew rapidly year on year, and gross margin fell month-on-month: the company's 2Q24 operating income was 1.843 billion yuan, up 14.81% year on year, net profit to mother was 0.268 billion yuan, down 63.23% year on year, up 7.39% month on month. The main reason for the decline in net profit to mother was that the company sold part of Tuojing Technology's shares in 2023, generating net income after tax of about 0.406 billion yuan, and the company did not dispose of such shares in 2024; 2Q24 The company's gross margin was 37.9%, down 6.7ppt from month to month. The main reason was the change in accounting standards, which stipulated that guarantee warranty fees should be included in operating costs. 1H24 signed a new order of 4.7 billion yuan, an increase of 40.3% year on year, including etching equipment of 3.94 billion yuan, an increase of 50.7% year on year, and LPCVD added an additional order of 0.168 billion yuan.

Etching equipment revenue grew rapidly, and LPCVD gradually contributed revenue: the company's 1H24 revenue was 3.448 billion yuan, up 36.46% year on year, with etching equipment revenue of 2.698 billion yuan, up 56.68% year on year, MOCVD equipment revenue 0.152 billion yuan, down 49.04% year on year, and LPCVD equipment revenue of 0.028 billion yuan, beginning to gradually contribute revenue. According to the company's announcement, the company's etching equipment has entered the yield test stage for the verification of the Damascus etching process with an integrated metal mask on the first advanced logic client, and has already entered the second customer to carry out on-site verification; in the advanced storage field, the company has verified mass production capacity with an etching ≥ 60:1 depth to width ratio structure on the production line.

Film equipment is actively developing new categories, and the product line continues to expand: According to the company's semi-annual report, the company has achieved R&D, delivery, and mass production verification of six types of film equipment to meet the performance indicators of metal interconnection tungsten processes, and has received repeated mass production orders from customers; the HAR (high depth to width ratio) tungsten equipment developed by the company on the basis of CVD W uses innovative process solutions and has passed on-site verification by key storage clients to meet various performance indicators in high depth and width ratio metal interconnection applications in storage devices, and received repeated mass production orders from customers. In addition, Zhongwei is further developing ALD equipment for titanium nitride thin film deposition, PECVD equipment for titanium thin film deposition, and silicon germanium selective epitaxial equipment.

Profit forecasting and valuation

We keep the company's profit forecast unchanged. We expect the company to achieve operating income of 8.949/12.085 billion yuan in 2024/2025, and achieve net profit of 1.798/2.787 billion yuan. The current stock price corresponds to 2024/2025 48.0/30.9xp/E, and we keep our target price unchanged at 173 yuan, corresponding to the company's 2024/2025 59.8/38.6xp/E. There is still 24.6% room for improvement compared to the current stock price, maintaining an outperforming industry rating.

risks

Fab capital expenditure is declining, new product development and introduction falls short of expectations, and component delivery risks.