Guangliwei released its three-quarter report. In Q1-Q3 of 2024, it achieved revenue of 0.287 billion yuan (yoy +12.22%), net profit to mother of 7.7097 million yuan (yoy -84.89%), and deducted non-net profit of -3.3342 million yuan (year-on-year loss).

Among them, Q3 achieved revenue of 0.116 billion yuan (yoy -10.19%, qoq -9.64%) and net profit of 5.1735 million yuan (yoy -81.65%, qoq -79.66%). The 24Q3 company's revenue declined year-on-year, mainly due to delays in order confirmation from downstream customers. We expect that under the wave of localization, the increase in software business revenue is expected to drive the company's Q4 revenue back to positive growth. Maintain “buy-in.”

The increase in software revenue led to an increase in the company's gross margin

The company's overall gross margin for Q1-Q3 in 2024 was 62.81%, +2.31pct year-on-year. We expect that behind the increase in the company's gross margin, it is mainly due to rapid growth in software revenue. In 2024, the company launched new testability design (DFT) tools and manufacturability design (DFM) tools, and officially released INF-AI, a semiconductor artificial intelligence application platform. We believe that gross margin is expected to continue to rise as the company's ability to commercialize software tools continues to improve.

Vigorous R&D is expected to strengthen the barriers of software and hardware collaboration

The company's sales/management/R&D expense ratio in Q1-Q3 in 2024 was 9.74%/11.95%/70.02%, +0.60pct/+2.83pct/+12.97pct year-on-year. Among them, 24Q1-Q3's R&D expenses rate increased rapidly over the same period last year, mainly due to the company continuing to increase investment in software tools and WAT testing machines. We believe that the company continues to lay out yield improvement products and has gradually built competitive barriers throughout the process. With high R&D investment, the synergetic advantages of yield software+WAT hardware are expected to be further consolidated, and the market share is expected to continue to increase.

Localization of computing power is expected to accelerate the company's revenue growth in 25 years

In the context of integrated circuit autonomy, some domestic chip design companies may switch from overseas film to localized flow film. When replacing a new foundry, they usually need to understand their manufacturing process and optimize the design according to the manufacturing process conditions to achieve higher yield and chip performance, which also brings more business opportunities to the company. We believe that with the combined advantages of yield software+WAT hardware, the company can benefit from the wave of localization and achieve accelerated revenue growth in 25 years.

Profit forecasting and valuation

Considering order confirmation or delays from downstream customers, the software revenue forecast and WAT testing machine shipment forecast were lowered, and the company's 24-26E EPS is expected to be 0.64, 0.94, and 1.33 yuan, respectively (previous values of 0.73, 1.09, and 1.66 yuan). Using the segmented valuation method, the software business can compare the company's average 25E 19.3x PS. Considering that the 24-25 software business revenue CAGR is 90%, which is 25% higher than the average value of comparable companies, the software business is given 25E 27.1x PS; the testing machine business can compare the company's average 25E 35.0x PE, giving 25E35.0x PE. In summary, the company was given a 25-year target market value of 12.93 billion yuan, corresponding to a target price of 64.66 yuan (previous value of 54.30 yuan), which is a “purchase”.

Risk warning: Downstream prosperity falls short of expectations; market competition intensifies.