Key investment points

Incident: On December 24, 2024, the company announced that it would use no more than 1.005 billion yuan of its own capital to acquire the remaining 82% shares of Xinyu Semiconductor, a subsidiary of the ion implanter.

The transaction was completed in three phases based on the 2024-2026 subsidiary's performance to reduce acquisition risk: Huahai Qingke adheres to the “equipment+service” platform-based development strategy and successfully entered the field of ion implanters through this acquisition. The transaction will be completed in three phases based on assessment criteria such as the 2024-2026 performance, revenue structure, and number of machines delivered to the target of the acquisition. Specifically: (1) Xinyu's revenue in 2024 needs to reach 0.045 billion, 0.105 billion, and 340 million yuan, respectively, and the total machine revenue must account for more than 80%, and other businesses such as parts, maintenance, and materials account for no more than 20%; (2) From 2024 to 2025, no less than 4 and 8 machines must be delivered separately to enter the client verification or acceptance process. If Xinyu Company exceeds the above assessment standards, the acquirer will reward Xinyu Company's core technical team through cash rewards. If (1) the performance does not reach 85% and (2) the number of delivered machines does not meet the standard, the compensation amount will be calculated according to a specific formula and can be executed by deducting payment fees or shares, etc., and the total compensation does not exceed the total transfer consideration; this gambling compensation mechanism aims to minimize the acquisition risk of the buyer and motivate the core team of Xinyu Company.

Xinyu's core team has focused on the ion implantation industry for more than 30 years. Low-energy large-beam ion implantation equipment has been verified by many clients: Xinyu Company was founded in 2018 and is mainly engaged in R&D, production and sales of integrated circuit ion implanters. The company's low energy large beam ion injection equipment has been sent to the client for verification. The core technical team of Xinyu Company has more than 30 years of professional experience in the ion implantation industry, and has accumulated rich industry knowledge and core parameters of product design and process performance. The team also upgraded and improved the transmission path of the ion beam flow system, which is the core module of the equipment, so that Xinyu's products are superior to similar competitors in terms of wafer particle pollution control effectiveness and wafer loading efficiency, and the localization rate of equipment components is higher. From January to May 2024, Xinyu Company's revenue was 0.7806 million yuan, and net profit to mother was -15.1668 million yuan. The main reason is that the ion implantation equipment already issued by the company is still in the process of customer verification and has not yet generated revenue.

Benefiting from the rapid development of AI and high-performance computing, the company's CMP equipment and thinning equipment will be more widely used: with the rapid development of AI and high-performance computing, requirements for chip performance and power consumption continue to increase, Chiplet, which implements multiple module chips and underlying basic chip packages through internal interconnect technology, and DramDie's vertically stacked high-bandwidth memory (HBM) demand is increasing. The company's main products, CMP equipment and thinning equipment, are all key core equipment for chip stacking technology and advanced packaging technology, and will be more widely used.

Profit forecast and investment rating: We maintain the company's 2024-2026 net profit of 1.09/1.38/1.58 billion yuan, and the current market value corresponds to dynamic PE of 40/31/27X, respectively. Based on the company's high growth, we maintain a “buy” rating.

Risk warning: The acquisition progress fell short of expectations, and downstream production expansion fell short of expectations.