Key points of investment:

Incident: The company released its 2024 mid-year report, and net profit fell short of expectations. The company's revenue for the first half of 2024 was 0.464 billion, up 26.9% year on year; gross profit margin was 46.23%, down 5.02 pct year on year; net profit to mother - 68.01 million, compared to 45.94 million in the same period last year; net profit after deducting non-return to mother - 0.115 billion, 2.35 million for the same period last year. Corresponds to quarterly revenue of 0.228 billion in the second quarter of 2024, up 12.1% year on year and down 3.1% month on month; net profit after deducting non-return to mother - 0.123 billion, or 3.14 million in the same period last year.

Contract liabilities and inventory increased steadily at the same time, and new orders continued to increase. As of the end of June, Zhongke Fei's inventory size was 1.37 billion, up 0.26 billion from the beginning of the year, corresponding to a growth rate of 23.2%; the contract debt was 0.628 billion yuan, an increase of 0.188 billion yuan over the beginning of the year, corresponding to a growth rate of 42.6%. The rapid increase in the company's contractual liabilities is mainly due to an increase in advance payments due to the increase in new orders, which ensures the sustainability of the company's revenue scale growth.

Measurement equipment's share of revenue has increased, and product coverage has been actively promoted. 1H24's testing equipment revenue was 0.307 billion, accounting for 66.2% of revenue, down 7.3 pcts from the full year of '23; measurement equipment revenue was 0.15 billion, accounting for 32.3% of revenue, up 7.4 pcts from the full year of '23. The 3D morphology measurement equipment in the company's product matrix accounts for most of the market share among leading domestic customers in the field of wafer-level advanced packaging, and can also meet the technical requirements of 2.5D and 3D packaging applications in HBM.

The decline in gross margin was mainly due to adjustments in the accounting caliber of warranty expenses. 1H24 Zhongkefei's warranty fee was 12.48 million yuan, a year-on-year decrease of 23.7%. This cost was originally included in sales expenses and is now included in operating costs. After adjustment, 1H23's gross profit margin was 46.8%, and 1H24's gross profit margin of 46.2% remained stable year-on-year.

The short-term decline in net profit was mainly due to a sharp increase in R&D investment and stock incentive costs. 1H24 Zhongke's R&D investment reached 0.207 billion, an increase of 114.2% over the previous year; the R&D cost rate was 44.7%, up 18.2 pcts from the same period last year, and 19.0 pcts higher than the R&D cost rate for the full year of 2023. The company granted stock incentives for the first time in April this year, adding 28.52 million yuan in share payment fees, accounting for 6.1% of 1H24's revenue.

Investment analysis opinion: Lower the profit forecast and maintain the “gain” rating. Considering the increase in the company's R&D investment and lowering the company's profit forecast, the company's net profit from 2024 to 2026 is expected to be 0.171, 0.238, and 0.333 billion (the original forecast was 0.195, 0.274, and 0.348 billion), respectively, with year-on-year growth rates of 21.5%, 39.6%, and 39.9%, respectively. The corresponding dynamic price-earnings ratios are 95, 68, and 49 times, respectively. It is expected that under the trend of autonomous control in the industrial chain, Zhongke Fei Test will maintain a trend of rapid increase in market share. At the same time, product categories will continue to increase due to continuous breakthroughs in technology research and development. It is expected that the company will continue to grow and have great potential under the long-term trend of future performance, and still maintain a “gain” rating.

Risk warning: Lower demand affects the pace of production expansion in fabs; equipment verification results fall short of expectations; risk of lengthening raw material procurement cycles.