Matters:

The company announced its 2023 annual report. In 2023, the company achieved revenue of 2,429 billion yuan (-11.03% YoY) and net profit attributable to shareholders of listed companies of 150 million yuan (-44.79% YoY). The company plans to distribute a cash dividend of 2 yuan (tax included) for every 10 shares to all shareholders.

Ping An's point of view:

Weak demand for equipment in the field of new energy affects the company's performance, and the company continues to maintain a high level of R&D investment: in 2023, the company achieved revenue of 2,429 billion yuan (-11.03% YoY), net profit attributable to shareholders of listed companies of 150 million yuan (-44.79% YoY), and net profit of 0.3 million yuan (-72.83% YoY) after deducting net income from the mother. The company's overall gross margin and net margin in 2023 were 48.95% (4.56pctYOY) and 3.68% (-3.94pcTYoy), respectively. Affected by the slowdown in demand in the display and new energy industries, the company's revenue and net profit declined year-on-year. In the fourth quarter of 2023, the company achieved revenue of 885 million yuan (-2.83% YoY), net profit attributable to shareholders of listed companies of 163 million yuan (26.87% YoY), and net profit of 114 million yuan (208.88% YoY) after deducting net income from the mother. Looking at business classification: 1) Display sector: Adverse factors such as the global economic downturn and weak consumer electronics market demand persist, terminal consumer demand is recovering slowly, and the display panel industry is under great pressure.

In 2023, the company achieved sales revenue of 1,748 billion yuan in the display sector, a decrease of 19.42% compared with the same period last year. 2) Semiconductor sector: With the continuous improvement of the company's technical level and increasing market recognition of the company's products, the company's semiconductor inspection business is developing rapidly, and orders and sales revenue continue to grow. In 2023, the company achieved sales revenue of 395 million yuan in the semiconductor sector as a whole, an increase of 116.02% over the same period last year. 3) New energy sector: Affected by increased market competition and a slowdown in overall customer acceptance. In 2023, the company achieved sales revenue of 241 million yuan in the field of new energy, a year-on-year decrease of 29.74%. In terms of R&D investment: The company continued to maintain the intensity of R&D investment, with R&D investment of 660 million yuan, an increase of 11.92% over the previous year, accounting for 27.15% of revenue. Among them, R&D investment in the testing field was 302 million yuan, a year-on-year decrease of 5.34%; R&D investment in semiconductor testing was 270 million yuan, an increase of 27.06%; and R&D investment in the field of new energy was 87 million yuan, an increase of 51.92% over the previous year. In terms of in-hand orders: As of the 2023 annual report, the company has obtained a total amount of about 3,536 billion yuan in on-hand orders, including about 1,248 billion yuan in on-hand orders in the display sector, about 1,602 billion yuan in the semiconductor sector, and about 686 million yuan in the new energy sector. The company's semiconductor and new energy sectors have become an important support for the company's business performance.

The semiconductor business is expanding smoothly, and there are sufficient orders in hand: At present, the company has basically formed a layout in all fields of semiconductor testing. The company's subsidiary, Wuhan Jinghong, mainly focuses on the automatic test equipment (ATE) field (main products are memory chip test equipment), aging (Burn-In) product lines, and has achieved batch repeat orders, CP (ChipProbe, chip detection) /FT (FinalTest, final testing, that is, factory testing) products related to the product line have obtained corresponding orders and completed delivery. The company's subsidiary Shanghai Precision Measurement mainly focuses on the field of semiconductor front-end testing equipment and is committed to the development and production of semiconductor front-end measurement and testing equipment. The equipment is used in the four major fields of silicon wafer processing, wafer manufacturing, scientific research laboratories, and third-generation semiconductors. Shanghai precision film thickness series products, OCD equipment, and electron beam equipment have received batch orders from many domestic customers, and semiconductor silicon wafer stress measurement equipment has also received repeated orders from customers. The first set of bright field optical defect detection equipment has been delivered and accepted, and orders for more advanced processes have been obtained. The remaining products with reserves such as graphic dark field defect detection equipment are currently in the process of R&D, certification and expansion. At present, the company's core products cover 1xnm and above. Advanced film thickness products, OCD equipment, and electron beam defect review equipment have received orders from leading customers. As the process becomes more advanced and the process links continue to increase, industry development places higher demands on the level of process control. The demand for testing equipment and measurement equipment in the manufacturing process will increase, and the company will fully benefit from the localization of semiconductor equipment.

Investment advice: Considering the persistence of adverse factors such as weak demand in the consumer electronics market, terminal consumer demand is recovering slowly, indicating that industry equipment investment is still at the bottom of the cycle. We lowered the company's 24/25 profit forecast and added a 26-year profit forecast. It is estimated that in 2024-2026, the company will achieve net profit of 255 million yuan, 346 million yuan, and 456 million yuan (the original value in 24/25 was 484 million yuan and 614 million yuan), and the price-earnings ratios corresponding to the current stock price are 62 times, 46 times, and 35 times, respectively. On the one hand, the company is in the semiconductor testing equipment field, especially in the field of front-end measurement, where the supply rate of domestic equipment in production lines is low, and the company is scarce; on the other hand, the company's layout in the semiconductor industry has expanded from Qiandao measurement equipment to the semiconductor manufacturing and packaging industry chain. The semiconductor sector has on-hand orders of about 1,602 billion yuan, providing important support for the company's future business performance. Therefore, maintain the company's “Recommended” rating.

Risk warning: 1) Risk that large customers account for too much. The company's upstream panel industry is highly concentrated. If orders from the company's major customers fluctuate significantly, it will have a direct impact on the company's performance. 2) Untimely development of new products. Product technology in the panel industry is upgrading rapidly. If the company does not develop new products in a timely manner, it will not be conducive to the company's market development.

3) Downstream investment risk; the panel industry has accelerated its shift to mainland China in recent years. If major changes occur, investment in the panel industry declines or falls short of expectations, which will have a clear impact on the company's performance. 4) Semiconductor equipment technology research and development risks. The semiconductor industry has high technical content and high equipment value, and the company faces the risk that R&D and certification of new products will not meet expectations.