Matters:

The company announced its 2024 annual report, in 2024, the company achieved revenue of 9.065 billion yuan (44.73% YoY), and net profit attributable to shareholders of listed companies was 16.16 million yuan (-9.53% YoY). The company intends to distribute a cash dividend of 3.00 yuan (tax included) to all shareholders for every 10 shares.

Ping An's view:

Continuous R&D investment, new products gradually increase: In 2024, the company will achieve revenue of 9.065 billion yuan (44.73% YoY), and net profit attributable to shareholders of listed companies will be 16.16 million yuan (-9.53% YoY, mainly due to the sale of part of the company's shares in Tuojing Technology in 2023. The net income after tax was about 406 million yuan, while the company did not have the equity disposal gain in 2024, and the company's R&D investment increased), and the net profit attributable to the parent company after deducting non-tax was 1.388 billion yuan (16.51% YoY). In 2024, the company's overall gross profit margin and net profit margin will be 41.06% (-4.77pctYoY) and 17.81% (-10.67pctYoY), respectively. Among them, the sales of etching equipment in 2024 will be about 7.277 billion yuan, a year-on-year increase of about 54.72%; MOCVD equipment sales were about 379 million yuan, a year-on-year decrease of about 18.03%; The first LPCVD equipment will be sold in 2024, and the annual equipment sales will be about 156 million yuan. Expense:

In 2024, the company's sales expense ratio, management expense rate and financial expense ratio will be 5.28% (-2.57pctYoY), 5.31% (-0.18pctYoY) and -0.96% (0.43pctYoY), respectively, and the company's expense ratio will be stable. R&D investment: The company continues to maintain a high R&D investment, maintains close cooperation with first-class customers at home and abroad, and the R&D of related equipment products is progressing smoothly and the client verification is good. In 2024, the R&D expenses will be 1.418 billion yuan, an increase of about 601 million yuan over last year, a year-on-year increase of about 73.59%. In order to expand the scale of assets, the company's industrialization construction project is progressing smoothly. The company's production and R&D base of about 140,000 square meters in Nanchang and about 180,000 square meters of production and R&D base in Lingang, Shanghai have been put into use. The headquarters building and R&D center of about 100,000 square meters on the shore of Dishui Lake in Lingang, Shanghai are also under construction. In order to ensure that there are enough factories in the next ten years, and to meet the needs of many new product research and development and rapid growth of production capacity, the company will build new production and R&D bases in Zengcheng District, Guangzhou and Chengdu High-tech Zone.

The etching product line has been continuously enriched, and the domestic substitution has been steadily promoted: 1) CCP etching equipment: the company's CCP etching equipment products have been continuously improved, enriched the performance of the products, and continued to maintain a competitive advantage, and the products have been widely used in the integrated circuit processing and manufacturing production lines of first-line customers at home and abroad. In 2024, more than 1,200 reactors will be produced and shipped for CCP etching equipment, and the cumulative installed capacity will exceed 4,000 reactors. The company's existing etching products have formed a relatively comprehensive coverage of most CCP etching applications above 28nm and most CCP etching applications above 28nm. In view of the integrated Damascus etching process widely used in the production of logic devices of 28nm and below, the CCP etching machine PrimoSD-RIE developed by the company with adjustable electrode spacing has entered the leading logic chip manufacturing client in China, and the preliminary electrical verification has been passed, and more device function tests are underway. PrimoSD-RIE has also entered the sub-28nm R&D line, carrying out on-site R&D work on a number of key etching processes. 2) ICP etching equipment:

The company's ICP etching equipment is mass-produced on the production lines of more than 50 customers covering chips and devices such as logic, DRAM, 3D NAND, power and power management, and micro-motor systems, and continues to verify more ICP etching processes, with the cumulative number of ICP etching equipment installed at the customer level reaching 1,025 reactors in 2024. In addition, according to the needs of customers and market technology development, the company will promote the research and development of more advanced ICP etching technologies in an orderly manner, and make technical reserves for the launch of the next generation of ICP etching equipment to meet the demand for ICP etching for the new generation of logic, DRAM and 3D NAND memory chip manufacturing.

MOCVD equipment is leading in the market, and the development of red and yellow LED equipment is smooth: the company's PRISMOA7 for blue lighting, PRISMOHiT3 for deep ultraviolet LED, PRISMO UniMax for Mini LED display and other products continue to serve customers. As of 2024, the company will continue to maintain its leading position in the international gallium nitride-based MOCVD equipment market. Since its official release in June 2021, PRISMO UniMax has been widely recognized by downstream customers for its advantages of high yield, high wavelength uniformity, and high yield. At the end of 2023, the company will ship the prototype of the equipment for Micro-LED applications, Preciomo Udx, to leading domestic customers for production verification. The company has started the development of MOCVD equipment for red and yellow LEDs, and the development is relatively smooth, and the preliminary results of the laboratory have achieved excellent wavelength uniformity.

Thin film deposition products are introduced to the market, and EPI has entered the stage of mass production verification of the client: the company has developed six thin film deposition products to the market, and the tungsten series of thin film deposition products of AMEC include CVD (Chemical Vapor Deposition) tungsten equipment, HAR (high aspect ratio) tungsten equipment and ALD (atomic layer deposition) tungsten equipment, which can cover all tungsten applications of memory devices; This series of equipment has passed the field verification of key storage clients, and meets the performance indicators of all metal interconnection applications (including high aspect ratio metal interconnection applications) and 3D storage device word line applications in advanced storage applications, and has won repeated mass production orders from customers. During the same period, the company has developed a series of metal gate products used in advanced logic devices: ALD titanium nitride, ALD titanium aluminum, ALD tantalum nitride products, and has completed a number of advanced logic customer equipment verification, which can meet the performance needs of advanced logic customers while the film uniformity of the equipment. The company's EPI equipment R&D team, through basic research and the adoption of technical feedback from key customers, has developed a platform with independent intellectual property rights and innovation, pretreatment and epitaxial reaction chamber, and the company's EPI equipment has successfully entered the mass production verification stage of the client to meet the mass production needs of customers in the advanced process of silicon germanium epitaxial growth process.

Investment suggestion: As a leading domestic enterprise of semiconductor equipment, the company fully benefits from the localization of semiconductors. Combined with the company's order delivery, we slightly adjust the company's profit forecast and add a 27-year profit forecast, and it is expected that the company's net profit attributable to the parent company in 2025-2027 will be 2.363 billion yuan/3.084 billion yuan/4.059 billion yuan (the original value in 25/26 is 2.565 billion yuan/3.160 billion yuan), and the corresponding price-earnings ratios are 50 times, 38 times, and 29 times respectively. As a semiconductor equipment platform enterprise, the company's research and development of thin film deposition equipment and EPI equipment products is progressing smoothly and maintaining the "recommended" rating.

Risk Warning: 1) The risk that the downstream customer's investment in expanding production is less than expected. If the follow-up investment of downstream fabs and LED chip manufacturers is less than expected, the procurement demand for related equipment will weaken, which will affect the company's order volume, which will adversely affect the company's performance. 2) The risk that the research and development of new products is less than expected. If the company's new product development is less than expected, it will affect the company's long-term development. 3) Risk of international trade frictions. In recent years, international trade frictions have continued. If the Sino-US trade friction continues to worsen, the company's production and operation will be affected to a certain extent.