Key points of investment:

A leader in domestic thin film deposition equipment, and its performance continues to grow steadily. Tuojing Technology was founded in 2010. With years of independent R&D experience and technical accumulation, the company now has a number of core technologies with international advanced standards, forming a series of thin film equipment products mainly PECVD, ALD, SACVD and HDPCVD, which are widely used in the fields of integrated circuit logic chips and memory chip manufacturing. The company's performance continued to grow steadily in 2023. Revenue reached 2.705 billion yuan, up 58.60% year on year, net profit to mother reached 0.66 billion yuan, and gross sales margin reached 51.01%. At the same time, the company had sufficient on-hand orders, and the number of on-hand orders exceeded 6.4 billion yuan in 23.

The boom in the semiconductor equipment industry is expected to pick up, and the future prospects are broad. The scale of global semiconductor equipment continues to expand with the rise of emerging technologies such as 5G and AI. The market size declined in 2023 due to weak downstream chip cycles and excessive terminal inventory. Demand is expected to pick up in 2024, and the market size will increase 4% year on year. The semiconductor market in mainland China continues to expand. Driven by the terminal market, along with China's policy support for the semiconductor industry, the semiconductor industry in mainland China is developing rapidly, with good results in terms of iterative innovation in semiconductor technology and industrial ecology.

The company invests heavily in R&D and continues to enrich the product line

The company continues to invest in high-intensity research and development. Currently, PECVD products can cover a full range of PECVD film materials, including general-purpose dielectric films (SiO2, SiN, TEOS, SiOC, FSG, BPSG, etc.) and advanced dielectric films (LoKi, LoKi, ACHM, ADCI, HTN, a-Si, ONO, etc.); PE-ALD equipment developed by the company has been mass-produced and can deposit dielectric film materials such as SiO2 and SiN; Thermal- ALD equipment has been shipped to different clients for verification, and can deposit films of metals such as AL2 O3 and metal compounds. The company continues to expand the process coverage of PECVD, ALD and other products, and continues to innovate and improve performance indicators according to customer needs. The company's film equipment products have received a large number of orders from customers.

Profit forecasting and investment advice

We selected the A-share semiconductor equipment sector companies Beifang Huachuang, Zhongwei, Shengmei Shanghai, and Huahai Qingke as comparable companies. Currently, the PS valuation of comparable companies is 10/7/6 times, and their PE valuation is 41/31/24 times. We expect the company to achieve operating income of 3.8/4.9/6.2 billion yuan in 24-26, corresponding to 11/8/6 times the current PS valuation, and achieve net profit to mother of 0.76/1.02/1.32 billion yuan, corresponding to the current PE valuation of 53/39/30 times. We are optimistic that the company will benefit from the localization of thin film deposition equipment, and also expect to benefit from the development of new equipment such as hybrid bonding.

First coverage, giving a “buy” rating.

Risk warning

The risk of a long product acceptance cycle, the risk of market competition, the risk of technological innovation, and the risk that the expansion of fab production falls short of expectations.