Naura announced 1H24 results. 1H revenue grew 46.4% YoY to RMB12.3bn, while NP grew 54.5% YoY to RMB2.8bn, both aligning with the mid-point of company's earnings pre-announcement. 1H24 revenue/NP were 40%/46% of our FY24E forecast, consistent with the company's historical seasonality, which saw 38%/46% in 1H23. GPM improved to 45.5% in 1H24 (vs. 42%/41% in 1H23/FY23), while NPM expanded to 22.5% in 1H24 from 17.7% in FY23. We think Naura's 1H24 results confirm that the company's growth trajectory remains intact. Looking forward, we expect Naura to 1) ride the tailwinds of semiconductor localization trend, 2) grow on product coverage expansion and market share gains, and 3) benefit from economies of scale and improving GPM. Reiterate BUY with TP unchanged at RMB405.

1H24 revenue in-line with expectation. From a quarterly standpoint, 2Q24 revenue/NP increased by 42.2%/37.0% YoY (vs. 38%/120% YoY in 2Q23) and 10.5%/46.8% QoQ. We maintain our previous revenue projection for 2024/25E, given the in-line results. The company's 1H24 semiconductor equipment revenue increased by 55.1% YoY, making up 92% of total revenue (vs. 87% in 1H23). We believe that escalating geopolitical tensions, coupled with the push for faster domestication of semiconductor equipment and favorable policies/subsidies, have contributed to the company's enhanced revenue in 1H24. We expect the equipment segment to grow 45.9%/28.5% YoY in 2024/25E, and maintain our total revenue projection at RMB30.9bn/RMB39.0 for the same period, implying 39.7%/26.5% growth.

Better-than-expected GPM expansion, driven by favourable product mix and economies of scale. 2Q GPM was 47.4%, up 4.0ppt sequentially. We revised up our 2024/25E GPM forecasts by 5.2ppt/3.9ppt, as we believe Naura will continue to benefit from these tailwinds and maintain GPM at a similar level. We revised up our 2024/25E NP forecasts by 9%/1%, on higher GPM estimates. The accretive impact will be partially offset by higher R&D and other operating expenses, since Naura's priority is to expand its product coverage.

We reiterate our BUY rating for Naura, with an unchanged TP at RMB405. The TP implies a valuation at 35.77x 2024E P/E, close to 1SD above 2-year historical average forward P/E, which we think is justified considering Naura's leading position in domestic semiconductor equipment market. Naura is our favourite pick under the semiconductor localization theme. Risks: 1) intensified competition from overseas and domestic peers and 2) escalating geopolitical tensions.