Event: The company released the third quarterly report of 2023, and the company realized operating income of 250 million yuan (YoY+21.75%) in Q3; net profit of parent company was 41 million yuan (YoY+36.85%); net profit of parent company after deduction of non-profit was 38 million yuan (YoY+52.12%).

In the first three quarters, it realized operating income of 668 million yuan (YoY+21.97%) and net profit of 95 million yuan (YoY+36.87%).

The third quarter performance grew steadily and the profitability improved: the gross profit margin of Q3 was 29.48%, up 2.80pcts year-on-year; the net profit margin was 16.48%, up 2.00pcts year-on-year. Q3 performance of the Company increased year-on-year, mainly due to the expansion of sales scale and gradual improvement of capacity utilization rate of the Company. Q3 R & D expense ratio was 5.07%, down 0.03pcts year-on-year; sales expense ratio was 2.13%, flat year-on-year; financial expense ratio was 0.06%, down 0.75pcts year-on-year; management expense ratio was 4.09%, up 0.20pcts year-on-year. The increase in revenue in the first three quarters of the company was mainly due to the increase in the development of new products by customers, which led to the increase in demand for masks and the increase in the number of orders accepted by the company.

The increase in net profit in the first three quarters of the Company was mainly due to the high overall capacity utilization rate of the Company, structural optimization of products, businesses and customers, and the profitability of products was better than that of the same period last year.

New projects to develop semiconductor masks, product research and development steady progress: production end: the company has Hefei and Shenzhen production bases, Hefei factory continued to expand production, Shenzhen factory stable operation. Foshan new plant is in the early stage of deployment, new base projects include "high-precision mask production base construction project" and "high-end semiconductor mask production base construction project new project", is expected to be put into operation in the next three years, the project is currently in the equipment procurement stage.

Foshan Project will further expand the reticle production capacity of the Company, improve product precision and quality, and support downstream customers nearby, and continue to give full play to the advantages of product delivery of the Company. R & D end:

The company continues to support the development investment of high-end products. In terms of flat panel display mask technology, the company has achieved mass production of 8.6 generation high-precision TFT mask and 6 generation medium-high precision AMOLED/LTPS mask, and is gradually promoting the research and development of 6 generation ultra-high precision AMOLED/LTPS mask and the planning and development of high-specification semi-permeable mask; In terms of semiconductor chip mask technology, the Company has achieved customer test certification and mass production of semiconductor chip masks at the 180nm process node, and simultaneously carried out process research and development of 130nm-65nm semiconductor chip masks and mask process development planning required for 28nm semiconductor chips.

Investment advice:

We estimate that the company's revenue from 2023 to 2025 will be 950 million yuan, 1.24 billion yuan and 1.667 billion yuan respectively, and the net profit attributable to the parent company will be 137 million yuan, 198 million yuan and 256 million yuan respectively, corresponding to EPS of 0.51 yuan, 0.74 yuan and 0.96 yuan respectively. Taking into account the high prosperity of the reticle industry, the leading position of the company in the flat panel display reticle market and future capacity expansion, the company will be given 35 times PE in 2024, corresponding to a target price of 25.9 yuan for 12 months, and maintain the investment rating of "Buy-A".

Risk warning: policy changes and uncertainty of trade situation; changes in downstream customer demand; excessive inventory level of consumables business; progress of new products falling short of expectations; capacity expansion falling short of expectations, etc.