Incidents:

On October 29, 2024, the company released its three-quarter report for 2024; for the first three quarters of 2024, the company's revenue was 0.279 billion yuan, +26%; net profit to mother - -0.057 billion yuan, -99%; net profit not after deducted from mother - -0.043 billion yuan, -18.75% year on year; the main reason for the decline in net profit was the company's fixed increase investment loss in Sirapu and an increase in R&D investment; 2024Q3, the company's revenue was 0.083 billion yuan, YoY +19.34%; net profit to mother - -0.016 billion yuan, +44.48% year on year; net profit after deduction - -0.024 billion yuan, +24.85% year on year. Net profit decreased significantly year-on-year.

Investment highlights:

EDA licensing revenue increased, and 2024Q3 profit and loss decreased significantly

In the first three quarters of 2024, the year-on-year growth rate of EDA licensing revenue was impressive (+42% year over year); mainland China's share of revenue continued to rise. Specifically, in the first three quarters of 2024; by product: EDA tool licensing/semiconductor device characteristic testing instruments/technology development solutions business revenue of 0.192/0.054/0.033 billion yuan, accounting for 68.81%/19.51%/11.68% of revenue.

In EDA licensing tools, design/manufacturing EDA revenue was 0.111/0.081 billion yuan, +74.7%/+13.3% YoY.

By region: Mainland China/overseas revenue of 0.211/0.087 billion yuan, +40%/+3% year over year, accounting for 69%/31% of revenue. The main reasons for the company's high domestic revenue growth include seizing the development opportunities of the domestic EDA industry while accelerating domestic localization support and market expansion.

Gross margin increased significantly, increasing R&D investment to establish a solid foundation for growth

In the first three quarters of 2024, the company's gross profit margin was 90.26%, +8.02pct; the 2024Q3 gross margin was 93.27%, +15.28pct year on year; the main reasons for the increase in gross margin include changes in the product structure of semiconductor characteristic testing systems and an increase in the share of sales of high-margin products.

In the first three quarters of 2024, the company's sales/management/ R&D expense ratios were 24.20%/15.99%/67.25%, respectively, -1.98/-2.66/-0.22pct; total R&D investment was 0.199 billion yuan, +32.54% year-on-year. As of 2024H1, the number of R&D personnel in the company was 381, +42% year-on-year, accounting for 70.69% of the total number of people in the company. We believe that the company's vigorous investment in R&D will lay a solid foundation for the company to continue to expand its product line and accelerate technological breakthroughs.

Full-process tools are basically formed, and customer expansion+merger and acquisition integration enables long-term growth

The company's main customers include the world's top ten fabs and the world's leading integrated circuit companies.

The main customers of EDA tools for device modeling and verification include the top ten global fabs such as TSMC, Samsung Electronics, UMC, GF, and SMIC; the main customers for circuit simulation and verification EDA tools include leading global integrated circuit companies such as Samsung Electronics and SK Hynix. As the company continues to increase investment in R&D, enrich its product line, further develop markets and expand customers, the number of customers and sales orders of the company has been growing steadily.

The company accelerates the implementation and implementation of an application-driven EDA full-process strategy. As of 2024H1, with the design platform products launched by the company, the entire DTCO manufacturing EDA process for process development and the full design EDA process for memory etc. were basically formed. The company also has the ability to integrate mergers and acquisitions to expand its product line. Acquisitions of Boda, Entasys, Xinzhilian, and Magwel were completed and successfully integrated before and after listing, providing a model for continuing mergers and acquisitions.

As of 2024Q3, the company has sufficient capital in its accounts, with a monetary capital of 1.216 billion yuan, and has the capacity foundation for continuous mergers and acquisitions.

Profit forecast and investment rating: The company is a leading domestic EDA manufacturer. It has a solid base of leading customers, achieved many successful acquisitions and integrations before and after listing, and continuously expanding the company's product richness and technical capabilities in the EDA field. We expect the company's revenue in 2024-2026 to be 0.417/0.53/0.678 billion yuan; net profit to mother will be -0.041/-0.023/0.025 billion yuan respectively; the current stock price corresponding to 2024-2026 PS will be 20/16/12X, respectively, covered for the first time, giving a “buy” rating.

Risk warning: Stock payments may affect performance, risk of technological upgrading iteration, risk of R&D investment falling short of expectations, risk of loss of technical personnel, and risk of market competition.