Revenue for 23 was in line with expectations and profit was lower than expected; 1Q24 revenue exceeded expectations and profit was slightly lower than expected. The company announced 2023 results: revenue of 488 million yuan, +34.3% year over year; net profit to mother of 129 million yuan, +5.3% year over year; net profit without return to mother of 110 million yuan, +7.0% year on year. Among them, 4Q23 achieved revenue of 222 million yuan, +23.6% year over year; net profit to mother of 78 million yuan, -12.1% year over year; net profit after deducting non-return to mother of 67 million yuan, -13.2% year over year. The company's revenue for 23 years was basically in line with our expectations; profits fell short of our expectations due to increased cost pressure due to significant staff expansion.

The company simultaneously announced 1Q24 results: revenue of 44 million yuan, +100.6% year over year; net profit to mother of -0.23 million yuan, which changed from profit to loss; net profit after deducting non-return to mother of -0.25 million yuan, and loss increased year-on-year.

The company's 1Q24 equipment business delivered well, and revenue was higher than our expectations; due to staff growth, expenses increased, and profit was slightly lower than our expectations.

Development trends

The equipment business continued to grow rapidly, and the software business fell short of expectations. The test equipment business revenue in '23 was 384 million yuan, up 57.6% year over year, in line with previous market expectations; we believe that continued delivery of the 1Q24 equipment business will drive the double revenue growth. EDA software revenue in '23 was 93 million yuan, down 16.6% year on year. The boom in the downstream semiconductor industry affected the launch of the company's new EDA software products; 1Q24 software business demand and delivery improved, and we look forward to better financial performance in the next few quarters.

Profits are under pressure due to the high increase in personnel. The number of employees in the company was 318 at the end of '22, and had exceeded 500 by the end of '23. Most of the new employees were high-paying high-end R&D personnel. The company's R&D expenses increased by around 70% year on year in '23 and 1Q24, and we expect that the company's cost pressure will still take several quarters to resolve.

24 years of focus on the restoration of downstream prosperity and the release of profits. The industry's boom in 23 years had an impact on the company's revenue, and profits were under pressure due to continued investment on the R&D side. With the gradual recovery of downstream demand in '24, our overall outlook for the company is positive. We expect the company's revenue to grow 50% year-on-year to 720 million yuan (estimated software business revenue of 250 million yuan and hardware business revenue of 470 million yuan); the profit side still needs to observe subsequent investment. Our neutral forecast is 190 million yuan.

Profit forecasting and valuation

Considering that software business revenue was lower than expected and personnel growth was faster, we lowered the company's 2024/2025 profit by 21.0%/28.5% to 1.91/281 million yuan. The company's target price was lowered by 12.4% to 67.87 yuan (based on the 2026 SOTP, taking into account the upward trend in the industry valuation center, increasing the P/E for the software/hardware business to 50x/30x, respectively, with a 9.8% discount to 2024). There is 39.7% upside compared to the current price, and the current price corresponds to 51.0/34.6 times the 2024/2025 P/E. Considering that the company is a leading manufacturer of EDA and WAT testing machines to improve yield, we are optimistic about the company's long-term development and maintain a superior industry rating.

risks

Fluctuations in the international situation and risk of industry fluctuations; hardware demand falls short of expectations due to declining downstream prosperity; data analysis software business falls short of expectations.