Investment Highlights:

The leader of thin film deposition equipment in China, with sustained and stable growth in performance, Tuojing Technology was established in 2010, the company has many years of independent research and development experience and technology accumulation, and now has a number of core technologies with international advanced level, forming a series of thin film equipment products based on PECVD, ALD, SACVD and HDPCVD, which have been widely used in the fields of integrated circuit logic chips and memory chip manufacturing. In 2023, the company's performance will continue to grow steadily, with operating income reaching 2.705 billion yuan, a year-on-year increase of 58.60%, net profit attributable to the parent company reaching 660 million yuan, and gross sales margin reaching 51.01%, while the company has sufficient orders in hand, with more than 6.4 billion yuan in hand orders in 23 years.

The prosperity of the semiconductor equipment industry is expected to rebound, and the future prospects are broad, and the scale of global semiconductor equipment continues to expand with the rise of emerging technologies such as 5G and AI, and the market size will decline in 2023 due to the weak downstream chip cycle and high terminal inventory, and the demand is expected to pick up in 2024, and the market size will increase by 4% year-on-year. The semiconductor market in Chinese mainland continues to expand, driven by the terminal market, along with China's policy support for the semiconductor industry, the semiconductor industry in Chinese mainland has developed rapidly, and has formed good results in semiconductor technology iterative innovation and industrial ecology.

The company vigorously invests in R&D and continues to enrich its product line The

company continues to maintain high-intensity R&D investment, and at present, PECVD products can cover a full range of PECVD film materials, including general dielectric films (SiO2, SiN, TEOS, SiON, SiOC, FSG, BPSG, PSG, etc.) and advanced dielectric films (LoKI, LoKII, ACHM, ADCI, HTN, a-Si, ONO, etc.); The PE-ALD equipment developed by the company has achieved mass production, which can deposit SiO2, SiN and other dielectric thin film materials; Thermal-ALD devices have been shipped to various customers for validation and can deposit thin films of metals and metal compounds such as AL2 O3. The company continues to expand the process coverage of PECVD, ALD and other products, and continues to innovate and improve performance indicators according to customer needs, and the company's thin film equipment products have received a large number of orders from customers.

Profit Forecast and Investment Suggestions

We select companies in the same industry in the A-share semiconductor equipment sector as comparable companies, such as North Huachuang, China Micro Corporation, Shengmei Shanghai, and Huahai Qingke, with the current PS valuation of comparable companies being 10/7/6 times and their PE valuation being 41/31/24 times. We expect the company to achieve operating income of 38/49/6.2 billion yuan in 24-26 years, corresponding to 11/8/6 times of the current PS valuation, and 7.6/10.2/1.32 billion yuan of net profit attributable to the parent company, corresponding to the current PE valuation of 53/39/30 times. We are optimistic that the company will benefit from the localization of thin film deposition equipment, and at the same time, it is expected to benefit from the development of new equipment such as hybrid bonding.

First coverage, with a "buy" rating.

Risk Warning: The

risk of long product acceptance cycle, market competition risk, technological innovation risk, and the risk that the expansion of wafer factory is less than expected.