Description of the event

Recently, Xinyuan Micro released its report for the third quarter of 2024. 2024Q3 achieved revenue of 0.411 billion yuan, a year-on-year decrease of 19.55%; realized net profit to mother of 0.031 billion yuan, a year-on-year decrease of 62.74%; realized deducted non-net profit of 0.004 billion yuan, a year-on-year decrease of 94.53%; and gross margin of 46.22%, an increase of 5.10 pcts year-on-year. In the first three quarters of 2024, the company achieved revenue of 1.105 billion yuan, a year-on-year decrease of 8.44%; realized net profit of 0.108 billion yuan, a year-on-year decrease of 51.12%; realized deducted non-net profit of 0.04 billion yuan, a year-on-year decrease of 77.97%; and gross margin was 42.46%, which was basically the same as the previous year.

Incident comments

The company has plenty of orders and increased investment in R&D. In the first half of 2024, the company signed a new order of 1.219 billion yuan, an increase of about 30% over the previous year. Among them, new orders for Qiandao gluing and imaging maintained good year-on-year growth, and new orders for advanced packaging and small-size applications increased significantly. New orders for temporary bonding and unbonding of new products used in the Chiplet field increased more than tenfold year over year, and the company's strategic new product Qiandao single-piece high-temperature sulfuric acid chemical cleaning equipment also received orders from important domestic customers. By the end of June 2024, the company's on-hand orders exceeded 2.6 billion yuan, a record high. 2024Q3, the number of orders signed by the company is still maintaining a good growth trend, and on-hand orders are expected to reach new highs. Currently, the company's contract debt and inventory are 0.47 billion yuan and 1,876 billion yuan respectively. Compared with the previous quarter, both have increased, and subsequent revenue growth is guaranteed.

In the first three quarters of 2024, the company's R&D expenses reached 0.192 billion yuan, an increase of 57.8% over the previous year, accounting for 17.4% of revenue. With continuous R&D investment, the product line also became more mature.

The chemical cleaning machine progressed smoothly, and the first product successfully left the factory. In August 2024, the KS-CM300, the company's first chemical cleaning machine, was successfully launched. The product is suitable for various processes such as pre-deposition, post-thinfilm, post-etch, post-imp, post-CMP, PR-strip, and NiPt remove. The high-temperature SPM cleaning process for machines is recognized by the industry as one of the processes with the highest performance requirements in the 28nm/14nm process, and is also the most difficult and challenging wet process in the industry.

The global cleaning equipment market is expected to be 4.6 billion US dollars in 2023. Compared with the larger market size of the corresponding equipment for gluing, chemical cleaning machines are expected to become an important driving force for the company's subsequent growth.

The competitive landscape is good, and multi-wheel drive is growing. The company's leading domestic market for Qiandao gluing and imaging equipment products. With further product upgrades and iterations, the domestic market share is expected to continue to increase; among them, physical cleaning machines continue to maintain the leading position in the industry, and new chemical cleaning machine products are expected to become the company's new performance growth point; with the increase in demand for advanced packaging, the company's backstage product portfolio (gluing, cleaning, temporary bonding, and unbonding) can be expected to grow. We expect the company to achieve net profit of 0.184 billion yuan, 0.318 billion yuan, and 0.497 billion yuan respectively in 2024-2026, corresponding to the current market capitalization price-earnings ratio levels of 91x, 53x, and 34x, respectively, maintaining a “buy” rating.

Risk warning

1. There is uncertainty about the pace of expansion of production in downstream fabs;

2. The pace of R&D is uncertain.