The company maintained high year-on-year revenue growth in 2024Q2, maintaining a “buy” rating. The company released its 2024 semi-annual report. The company achieved operating income of 3.448 billion yuan, YoY +36.46%; realized net profit of 0.517 billion yuan, YoY -48.48%; after deducting non-net profit of 0.483 billion yuan, YoY -6.88%; gross profit margin of 41.32%, YOY-2.58pcts; net profit margin 14.97%, YOY-24.7pcts . Among them, 2024Q2 revenue was 1.843 billion yuan, YoY +41.37%, QoQ +14.81%; net profit to mother 0.268 billion yuan, YoY -63.23%, QoQ +7.39%; net non-net profit of 0.22 billion yuan, YoY -24.32%, QoQ -16.23%. We maintain the company's profit forecast for 2024-2026. We expect net profit of 2024/2025/2026 to be 2.092/2.773/3.625 billion yuan, EPS 3.37/4.46/5.83 yuan. The current stock price corresponds to PE of 38.9/29.4/22.5 times. As a leading domestic etching company, the company is accelerating its expansion towards platform companies and maintaining a “buy” rating.

Changes in accounting standards affect short-term gross profit, and high R&D investment helps increase market share According to the Ministry of Finance's “Compilation of Corporate Accounting Standards Application Guidelines 2024”, the company included the estimated loss of 0.095 billion yuan in guaranteed warranty expenses for 2024H1 in operating costs. If the estimated product quality assurance loss of 0.05 billion yuan generated by 2023H1 is re-classified as operating costs, according to our calculations, the company's 2024Q2 gross margin was -2.59 pcts year over year. In addition, 2024H1's net profit declined year-on-year, mainly due to (1) the sale of some shares of Tuojing Technology in 2023, which generated earnings of 0.406 billion yuan after tax, while the company had no such equity disposal proceeds in 2024; (2) 2024H1 invested 0.97 billion yuan in R&D, +110.84% over the same period last year. The company continues to invest at a high level in R&D, and its market share in some key customers is steadily increasing.

The growth of new 2024H1 orders is strong, and the platform-based layout is expected to accelerate the expansion of 2024H1's new orders of 4.7 billion yuan, +40.3% over the same period last year. Among them, orders for etching equipment were added by 3.94 billion yuan, +50.7% year-on-year; LPCVD added orders of 0.168 billion yuan. The company expects cumulative new orders to exceed 7.5 billion yuan in the first three quarters of 2024, an increase of more than 50% over the previous year; the cumulative number of new orders for the full year of 2024 will reach 11-13 billion yuan. It is also expected that the number of units shipped will increase by more than 200% year-on-year in the full year of 2024, laying a good foundation for confirmed revenue in 2024. The company is currently developing six categories of equipment. Relying on a continuous high level of R&D investment and deep technical reserves, it is expected to cover 50%-60% of equipment in key IC fields within the next 5-10 years.

Risk warning: Fab production expansion falls short of expectations; new product verification falls short of expectations; market competition pattern intensifies.