China Micro released its 2024 three-quarter report. In 24Q1-Q3, the company achieved revenue of 5.51 billion yuan, yoy +36.3%, net profit to mother 0.91 billion yuan, yoy -21.3%, net profit excluding non-return to mother 0.81 billion yuan, yoy +10.9%, comprehensive gross profit margin of 42.2%, yoy-3.6pcts. The year-on-year decline in the company's profit side was mainly due to 1) a 96% increase in R&D investment; 2) the sale of some Tuojing Technology shares in 2023, generating net income of about 0.4 billion yuan after tax, with no such revenue in 24 years. The company achieved revenue of 2.06 billion yuan in single 24Q3, yoy +36.0%, qoq +11.8%, net profit to mother 0.4 billion yuan, yoy +152.6%, qoq +48.1%, net profit without return to mother 0.33 billion yuan, yoy +53.8%, qoq +49.9%, comprehensive gross margin of 43.7%, yoy-2pcts, qoq+5.5pcts, Q2 was affected by accounting standards, and Q3 gross margin returned to normal levels. The company's Q3 performance growth was mainly due to 1) a significant increase in new shipments of advanced logic and storage high-end etching equipment and an increase in revenue scale; 2) 24Q3 equity investment income was 0.081 billion yuan, +0.183 billion yuan year-on-year.

Shipments of new high-end etching equipment increased significantly, and key processes achieved mass production. CCME's 2024 Q1-Q3 etching equipment revenue was 4.413 billion yuan, +53.8% year-on-year, accounting for 80%. Among them, 24Q3 etching equipment revenue reached 1.715 billion yuan, +49.4% over the same period, accounting for 83%. Plasma etching equipment from major companies continued to be recognized by more customers at home and abroad. New shipments of high-end products with key etching processes in advanced logic and memory device manufacturing increased significantly, and key etching processes in the middle of advanced logic devices and ultra-high aspect ratio etching processes for advanced memory devices achieved mass production.

Continue vigorous research and development, and platformization is gradually advancing. The company continued to vigorously develop R&D. The 24Q1/Q2/Q3 R&D expenses were 0.21/0.35/0.35 billion yuan, and the total R&D expenditure increased by 0.756 billion yuan (yoy +96%) over the previous year, laying a good foundation for continued growth. Other equipment other than etching equipment has also made good progress: 1) MOCVD:

Actively lay out the silicon carbide and gallium nitride-based power device markets, and have made good progress in the development of dedicated MOCVD equipment for micro-LED and other display fields. Several new MOCVD products that have been shipped and are about to be shipped are entering the market one after another; 2) LPCVD: the company's new product, LPCVD equipment 24Q1-Q3, achieved first sales, revenue 0.028 billion yuan; 3) EPI equipment: EPI equipment has entered the client mass production verification stage, and has completed the process process for many advanced logic device and MTM device customers Verification.

Contract debt continues to rise, and on-hand orders are plentiful. The 24Q1-Q3 company produced a total of 1,160 cavities of special equipment, an increase of about 310% over the previous year. The corresponding output value was about 9.419 billion yuan, or +287% over the same period, laying a good foundation for the company's subsequent shipments and revenue recognition. The balance of goods issued at the end of September 2024 was about 3.507 billion yuan, up 2.64 billion yuan from the balance of 0.868 billion yuan at the beginning of the year; the contract debt balance at the end of September 2024 was about 2.988 billion yuan, up about 2.216 billion yuan from 0.772 billion yuan at the beginning of the year, and 0.453 billion yuan at the end of 24Q2. 24Q1-Q3 added orders of 7.64 billion yuan, or +52% year-on-year, including 6.25 billion yuan for etching equipment, +54.7%; LPCVD added 0.3 billion yuan of new orders, and the launch of new products began. Looking at the Q3 single quarter, the new orders were 2.94 billion yuan, including 2.31 billion yuan for etching orders and 0.132 billion yuan for LPCVD orders. The company actively prepares goods to meet strong downstream demand, and is full of on-hand orders.

Profit forecast and investment suggestions: The company continues to increase investment in R&D, accelerate platform-based layout, and continuously improve process coverage and market share to support the company's medium- to long-term sustainable development. We expect the company to achieve revenue of 8.614/11.508/15.001 billion yuan and net profit of 1.52/2.35/3.27 billion yuan in 2024-2026, maintaining the “Highly Recommended” rating.

Risk warning: Development of new technologies and products has fallen short of expectations, global trade disputes have affected, and industry competition has intensified.