Incident: The company released its 2024 three-quarter report. With 2024Q1-Q3, the company achieved operating income of 1.83 billion yuan, an increase of 18.5% over the previous year; net profit to mother was 82.24 million yuan, or -12.6 million yuan in the same period last year, after deducting non-return net profit of 0.66 million yuan, turning a year-on-year loss into a profit. With 2024Q3, the company achieved operating income of 0.71 billion yuan, a year-on-year increase of 63.3%; net profit due to mother was 32.41 million yuan, compared to -24.7 million yuan in the same period last year; net profit after deducting non-attributable net income of 3.68 million yuan, compared to -35.95 million yuan in the same period last year. Revenue growth was impressive, and the profit side continued to improve.

The rapid expansion of the semiconductor business indicates rapid business recovery. By product, 2024Q1-Q3's revenue in the display/semiconductor/new energy sector was 1.27/0.41/0.12 billion yuan, respectively, or +20.5%/+95.3%/-51.5% year-on-year.

As of the disclosure date of the report, the company had orders of 3.17 billion yuan, of which the display/semiconductor/new energy orders were 0.83/1.69/0.65 billion yuan respectively. In the display sector, the recovery situation in the display sector continues to improve due to positive factors such as investment in new large-scale OLED factories, AIPC and AI mobile phone equipment updates, new microOLED investment expansion projects, and the upgrading of old production lines based on production automation. In the semiconductor field, core products have covered advanced manufacturing processes. Film thickness products, OCD equipment, and electron beam defect review equipment have received repeated orders for advanced processes, bright field defect detection equipment for advanced process nodes has been delivered, and the products are in a rapid deployment period.

The scale effect boosts profitability. 2024Q1-Q3, the company's gross margin was 43.4%, year-on-year -1.7pp, of which; net interest rate was 2.4%, year-on-year +5.8pp; the period expense ratio was 49.0%, year-on-year -5.0pp, with sales/management/R&D/finance expenses ratios of 8.7%/11.6%/25.6%/3.2%, respectively, -1.6/-1.3/-2.8/+0.7pp, respectively. The increase in financial expenses was mainly due to increased investment and interest on loans.

R&D efforts are strong, and the product matrix continues to improve. With 2024Q1-Q3, the company invested 0.47 billion yuan in R&D, an increase of 22.963 million yuan over the previous year. The company continues to maintain the intensity of R&D investment and further enhance the core competitiveness of the product.

On the display side, the company set up Shenzhen Precision Inspection to help the company expand AR/VR industry-related business in the field of new displays. New display-related testing and debugging equipment products continue to develop. The micro-OLED module inspection terminal has reached cooperation with top global customers and has completed partial delivery; the AR field and leading customers have reached customized development cooperation for core optical instruments. In terms of semiconductors, the company expanded from front-end measurement equipment to the semiconductor manufacturing and packaging industry chain through capital increase in Hubei Jiangcheng Laboratory, which helps the company seize the rapid development opportunities of the data center, supercomputing, and AI industries and help the semiconductor business grow.

Profit forecasting and investment advice. The company's net profit from 2024-2026 is estimated to be 0.24, 0.32, and 0.45 billion yuan, respectively. Corresponding to the current PE share price, the PE is 71, 53, and 38 times, and the compound net profit growth rate for the next three years is 44%. The company invested heavily in the semiconductor business and expanded rapidly, indicating a rapid recovery in the business and maintaining a “buy” rating.

Risk warning: Risk of semiconductor business expansion or falling short of expectations, downstream demand recovery or falling short of expectations, and customer verification.