The decline in performance fluctuation was mainly affected by cost estimates: in the first half of 2024, the company achieved revenue of 0.694 billion yuan, -0.29% over the same period. The slight phased decrease in revenue was mainly affected by factors such as stock order structure, production delivery and acceptance cycle. 2024H1 achieved net profit of 0.076 billion yuan, or -43.88% year on year; deducted non-net profit was 0.036 billion yuan, -65.52% year over year. The large decline in profit was mainly due to a significant increase in R&D investment, expansion in employee size, and increase in share payment expenses. Q2 revenue for a single quarter was 0.449 billion yuan, +10.31% year over month, +84.02% month on month. The pace of Q2 order delivery and acceptance returned to normal, and revenue growth resumed; net profit to mother was 0.06 billion yuan, -13.73% year over year, +276% month on month.

Product acceptance structure adjustment and cost rate increase, profitability declined in stages: 2024H1's gross margin was 40.22%, -3.22pct year on year. We believe that the decline in gross margin is mainly due to the impact of the product acceptance structure. In the future, as the localization rate of equipment parts continues to increase and the superposition effect is released, there is still plenty of room for improvement in gross margin; the net sales margin is 10.77%, -8.73 pct year on year. The 2024H1 company's cost ratio for the period was 42.09%, +12.36pct. Among them, the sales/management/R&D/finance expenses ratio was 11.06%/15.16%/16.87%/-1.01%, respectively, and +2.52/+4.46/+5.80/0.42pct. 2024H1 continued to increase R&D investment. The R&D investment was 0.117 billion yuan, +52% year-on-year. Various new product iterations and R&D are progressing smoothly. Q2 gross margin for a single quarter was 40.18%, -1.94 pct year over month, -0.12 pct month on month; net sales margin was 13.15%, -3.96 pct year on year, +6.75 pct month on month.

Breakthroughs in various fields led to continued growth in new orders, with sufficient orders in hand: as of 2024Q2, the company's inventory was 1.736 billion yuan, +10% year over year; contract debt was 0.345 billion yuan, -26% year over year. 2024H1's new orders were 1.219 billion yuan, or +31% year over year. Among them, new orders for Qiandao Track maintained good year-on-year growth, and new orders for small-size equipment such as advanced packaging and compounds increased significantly. New orders for temporary bonding and unbonding of new products used in the Chiplet field increased more than tenfold year over year, and the company's strategic new product, Qiandao single-piece high-temperature sulfuric acid chemical cleaning equipment, also received orders from important domestic customers. By the end of 2024Q2, the company's on-hand orders exceeded 2.6 billion yuan, a record high. 2024Q2's net cash flow from operating activities was 0.116 billion yuan, a year-on-year correction, with a sharp increase of 163% month-on-month, indicating good order repayment conditions.

In replacing domestic production of front-end glue-coated imaging, cleaning equipment and advanced packaging equipment later have further opened up room for growth:

(1) Qiandao Track: As the only manufacturer in China that can provide a mass-produced front-end track, the company has now completed full coverage of Qiandao wafer manufacturing ≥28nm process nodes. Offline, i-Line, KrF and ARF immersion machines have all been sold in batches, and the ≤14nm advanced process technology is also being verified in an orderly manner.

The company has made good progress in the development of Track FTEX, a next-generation ultra-high productivity architecture, which can meet the needs of future more advanced lithography machines to increase production capacity. (2) Frontier cleaning equipment: 2024H1. The company received a large number of orders from high-end domestic logic customers, further consolidating its leading position. In addition, the company's Qiandao chemical cleaning machine has received verification orders from many customers. Among them, the high temperature SPM chemical cleaning machine has received verification orders from leading domestic logic customers (the high temperature SPM cleaning process is one of the processes with the highest performance requirements in the 28 nm/14 nm process, and it is also the wet process with the highest technical barriers). (3) Advanced back-end packaging equipment: The company's track and single-chip wet equipment for advanced packaging has been used as mainstream models in batches for many years in major domestic and international first-line factories such as TSMC, Shenghe Jingwei, Changdian Technology, Huatian Technology, and Tongfu Microelectronics. 2024H1 has successfully verified its temporary bonding and unbonding machines. It has reached in-depth cooperation with many domestic 2.5D and HBM customers. Currently, it has mass-produced or verified orders for more than 10 units.

Profit forecast and investment rating: Considering the pace of equipment delivery, we maintain the company's 2024-2026 net profit forecast of 0.33/0.43/0.55 billion yuan, respectively, and the current market value corresponds to dynamic PE of 34/26/21 times, respectively.

Maintains an “gain” rating based on the company's growth in the field of forward track and cleaning.

Risk warning: Investment in the semiconductor industry is declining, new product development & industrialization falls short of expectations, etc.