3Q24 results are in line with our expectations

The company announced 3Q24 results: The company achieved operating income of 2.059 billion yuan, a year-on-year increase of 35.96%, and net profit to mother of 0.396 billion yuan, an increase of 152.63% year-on-year, in line with our expectations.

Development trends

3Q24's revenue grew steadily year on month, and new orders increased rapidly year on year: 3Q24's revenue was 2.059 billion yuan, YoY +35.96%, QoQ +11.77%, and maintained steady year-on-month growth, including etching equipment revenue of 1.715 billion yuan and YoY +49.41%. According to the company's three-quarter report, the main reason for the rapid growth of etching equipment is the rapid increase in new shipments of high-end products with key etching processes in advanced logic and memory device manufacturing, and mass production of key etching processes in advanced logic devices and high depth-width ratio etching processes for advanced memory devices. The company's new orders in the first three quarters of 2024 were 7.64 billion yuan, YoY +52%, new etching equipment orders were 6.25 billion yuan, YoY +54.7%, of which 3Q24 companies signed new orders of 2.94 billion yuan and etching equipment orders were 2.31 billion yuan, and new orders grew rapidly.

Gross margin was repaired month-on-month, and profitability continued to improve: 3Q24's gross margin was 43.3%, QoQ+5.5ppt. We believe that the main reason for the gross margin repair was that its gross margin stabilized as new equipment shipments increased; 3Q24 net profit of 0.396 billion yuan, YoY +152.63%, QoQ +48.11%, net profit margin reached 19.2%, QoQ+4.7ppt, profitability continued to recover. Due to the company's increased R&D efforts in 2024, the current research projects cover six types of equipment and more than 20 kinds of new equipment. 3Q24's R&D investment increased by 64.38% over the same period last year.

New LPCVD equipment has confirmed revenue one after another, and several new devices have been developed simultaneously: in the first three quarters of 2024, the company's LPCVD equipment achieved revenue of 0.028 billion yuan, new orders of 0.3 billion yuan, and the gradual launch of new products. In addition, the company's EPI equipment has successfully entered the client mass production verification stage. According to the disclosure of the company's three quarterly reports, it has now completed process verification for many advanced logic devices and MTM device customers. We believe that the company's simultaneous development of multiple devices is expected to open up the company's market space in the future.

Profit forecasting and valuation

We keep the company's profit forecast unchanged. We expect the company to achieve operating income of 8.949/12.085 billion yuan in 2024/2025 and achieve net profit of 1.798/2.787 billion yuan. The current stock price corresponds to 40.2 xp/E in 2025. Due to the upward trend in semiconductor valuation, we used the forward P/E valuation method to value the company and gave the company 35xP/E in 2027, raising the target price by 24.7% to 215.8 yuan, corresponding to the company's 48.2xP/E in 2025. There is still 19.7% room to rise from the current stock price, maintaining the outperforming industry rating.

risks

Fab capital expenses have declined, new product development verification falls short of expectations, and component supply risks.