(Report Producer/Analyst: Huachuang Securities, Geng Chen, Yue Yang)
1. The leading domestic semiconductor quantity testing equipment, the expansion of the product matrix opens up the growth space
(1) A leader in the field of semiconductor quality control in China, relying on the platform of the Chinese Academy of Sciences to grow rapidly
Since its establishment in 2014, the company has focused on the semiconductor quantity inspection track, and has successfully launched non-patterned wafer defect detection, pattern wafer defect detection, three-dimensional topography measurement, thin film thickness measurement and 3D curved glass measurement equipment, which are used in 28nm and above wafer manufacturing and advanced packaging fields, and the company is also developing new products to broaden the product matrix:
Technology accumulation stage (2014-2018): Relying on a professional R&D team, the company took non-patterned wafer defect detection and 3D topography measurement equipment as the starting point, and in 2017, the aforementioned equipment passed the certification of SMIC and JCET advanced production lines, and in 2018, the company's graphic wafer defect detection equipment also passed the acceptance of JCET;
Continuous expansion stage (2019-2022): Relying on the technical accumulation of optical detection technology and big data detection algorithms, the company has achieved a rapid breakthrough in front-end measurement equipment, and in 2019-2020, the company's three-dimensional topography measurement equipment and thin film thickness measurement equipment have passed the production line verification of Yangtze River Storage and Silan Jike respectively;
Rapid Expansion Stage (2023-present): The company will be listed on the Science and Technology Innovation Board in May 2023, and the IPO funds will help the company's long-term development.
At present, the company is actively developing new products such as nano pattern wafer defect detection equipment and wafer metal film measurement equipment, and with the gradual breakthrough of new products, the company's performance is expected to continue to grow in the future.
The company's equipment mainly includes testing equipment (no pattern wafer defect detection equipment, pattern wafer defect detection equipment) and measurement equipment (three-dimensional morphology measurement equipment, film thickness measurement equipment, 3D curved glass measurement equipment), the company's products have been repeated orders in major domestic integrated circuit manufacturers, successfully breaking the monopoly of foreign manufacturers:
Testing equipment: The performance of the company's non-patterned wafer defect detection equipment is comparable to that of overseas leaders, and has been applied indiscriminately in the production lines of well-known wafer manufacturers such as SMIC, and the pattern wafer defect detection equipment has been applied indiscriminately in advanced packaging manufacturers such as Changdian Advanced and Huatian Technology, and its market share is expected to continue to increase in the future.
Measuring equipment: The company's three-dimensional topography measurement equipment can support the front-end process of integrated circuits with 28nm and above processes, and has been recognized by head customers such as Yangtze River Storage;
The actual controllers of the company are Chen Lu and Ha Chengshu, and the Institute of Microelectronics of the Chinese Academy of Sciences and Hubble Investment are all shareholders of the company.
As of the end of 2023Q3, Chen Lu and Ha Chengshu hold 11.81% of the company's shares through Suzhou Yi Lumens, and the employee shareholding platform Xiao Naguang holds 5.89% of the company's shares, Chen Lu and Ha Chengshu have control over Xiao Naguang through Suzhou Yi Lumens, and Ms. Ha Chengshu directly holds 5.20% of the company's shares.
Chen Lu and Ha Chengshu control a total of 22.90% of the company's shares and are the actual controllers of the company. In addition, the Institute of Microelectronics of the Chinese Academy of Sciences and Shenzhen Capital are shareholders of the company, holding 3.63% and 3.06% of the company's shares respectively.
The company is based on the Institute of Microelectronics of the Chinese Academy of Sciences, with rich experience in R&D of core technical personnel and broad international vision of the management.
Mr. Chen Lu, chairman of the company & core technical personnel, has been engaged in the field of semiconductor quality control equipment research for 20 years, once served as a senior scientist of Kelei Semiconductor, returned to China in 2010 to work at the Institute of Microelectronics of the Chinese Academy of Sciences, and led the team to start a business in 2014. Since its establishment, the company has formed a team of experts with rich experience in optics, algorithms, software, etc., through cooperation with the Institute of Microelectronics of the Chinese Academy of Sciences and self-training, which constitutes the backbone of the company's research and development. As of June 30, 2023, the company's R&D team has reached 334 people, providing a solid guarantee for subsequent development.
(2) The company's performance maintains high growth, and profitability is expected to continue to improve under the scale effect
The development of the semiconductor equipment industry is superimposed on the wave of domestic substitution, and the company continues to expand its product line, and its performance is expected to maintain high growth.
With the expansion of downstream wafer factories superimposed on the acceleration of domestic substitution, the company, as a leader in domestic semiconductor quantity testing equipment, seized the opportunity to achieve high performance growth.
The company's operating income increased from 30 million yuan in 2018 to 509 million yuan in 2022, with a CAGR of 102.95%.
In terms of net profit attributable to the parent company, the company turned losses into profits in 2020, and increased R&D investment in 2022, resulting in short-term net profit pressure.
The company's 2023Q1-3 operating income was +127.99% year-on-year to 588 million yuan, and the net profit attributable to the parent company was +454.18% year-on-year to 79 million yuan. With the expansion of the company's new products, the performance is expected to continue to grow at a high rate under the scale effect.
Under the scale effect, the company's gross profit margin grew rapidly, the expense ratio tended to be stable during the period, and the profitability is expected to be further improved.
The company's scale effect gradually emerged, and the optimization of product structure drove the comprehensive gross profit margin to grow rapidly from 23.67% in 2018 to 49.86% in 2023Q1-3.
In terms of period expense ratio, as the company was still in its infancy from 2018 to 2019, high R&D investment and equity incentive expenses led to a high current R&D and management expense rate, and after 2020, with the expansion of the company's revenue scale, the period expenses gradually stabilized while maintaining high R&D investment.
Looking forward to the future, with the gradual increase of the company's new products and the continuous optimization of product structure, the company's profitability is expected to further improve.
In terms of products, in recent years, the rapid increase in the volume of testing equipment has driven the rapid growth of the company's overall performance, and the demand is expected to continue to be strong.
Testing equipment: In 2022, the company's testing equipment revenue increased by 45.01% year-on-year to 385 million yuan, accounting for 75.56% of total revenue, and the gross profit margin was 52.63%. Benefiting from the development of the industry and the company's strong technical strength, the company's products are rapidly expanding, and the company's testing equipment business is expected to continue to grow at a high rate in the future with the recovery of terminal demand and the acceleration of domestic substitution.
Measuring equipment: In 2022, the company's measurement equipment revenue increased by 25.06% year-on-year to 118 million yuan, accounting for 23.09% of total revenue and gross profit margin of 35.84%. In the future, with the increase in shipments, the scale effect will appear, and the profitability of the company's measurement equipment business is expected to continue to improve.
The company has abundant orders in hand and cash flow from operating activities to positive, which is expected to provide a strong guarantee for performance growth.
At the end of 2022, the company's contract liabilities reached 485 million yuan, and at the end of 2023Q3, it increased by 42 million yuan to 527 million yuan from the end of the previous year.
In terms of cash flow, the company's net cash flow from operating activities turned from negative to positive to 67 million yuan in 2022, and the company's operating cash flow will be good in 2023, and it will continue to increase investment to provide guarantee for subsequent development.
(3) The recovery of downstream demand has led to a rebound in wafer factory spending, and the company is expected to benefit first
The recovery of downstream demand and the wave of domestic substitution have accelerated the expansion of major domestic wafer fabs to meet customer demand. Referring to the current cycle of the industry, we believe that the semiconductor industry is expected to usher in a new round of upward cycle in 2024, the demand for pan-consumer chips such as mobile phones and PCs is expected to gradually pick up, and the development of emerging application fields such as AI, 5G, and new energy vehicles will drive the rapid increase in semiconductor demand, and the capital expenditure of wafer fabs is expected to resume its growth trend.
At the same time, with the further support of national policies for the mainland semiconductor industry, and the continuous transfer of the supply chain to the domestic terminal manufacturers, the trend of domestic substitution of semiconductors is accelerating. At present, major domestic wafer fabs such as SMIC and Huahong Group have a low share of the global market, and domestic wafer fabs are accelerating the expansion of production to meet the domestic market demand, which in turn will drive the shipment volume of the domestic semiconductor equipment industry to increase.
The importance of semiconductor testing and measurement equipment is highlighted, KLA and other leading companies dominate the market, and there is a broad space for domestic substitution.
With the evolution of Moore's Law, the semiconductor industry is gradually developing towards advanced manufacturing processes, and process quality control, as a key link to ensure the yield of chip production, makes the importance of semiconductor testing and measurement equipment increasingly prominent.
However, according to the statistics of VLSI Research and QY Research, the mainland semiconductor testing and measurement equipment market in 2020 was dominated by overseas manufacturers such as KLA (54.8%), Applied Materials (9.0%), Hitachi (7.1%), Leitai Optics (4.3%), ASML (2.93%), and CR5 accounted for more than 75% As a leader in domestic high-end semiconductor testing and measurement equipment, Zhongke Flying Testing is expected to deeply benefit from this round of domestic substitution opportunities.
The company's products have been introduced to downstream well-known customers, and continue to expand equipment categories to contribute to the long-term growth momentum of performance.
According to the prospectus, the company has a number of equipment in the 28nm production line through the acceptance, the existing products have been recognized by SMIC, Yangtze River Storage, Changdian Technology and Huatian Technology and other well-known domestic wafer factories and advanced packaging manufacturers, in 2022, the company achieved sales of 138 semiconductor testing and measurement equipment, a year-on-year increase of 27.8%.
In terms of new product layout, the company has a 1Xnm production line of non-pattern defect detection equipment SPRUCE-900 is under development, and at the same time, the technology accumulation has begun for the front-end nano pattern defect detection equipment.
Under the demonstration role of benchmark customers, the company's superior products will be further increased, superimposed on the continuous breakthrough of new products, the future product structure is expected to continue to optimize, and the performance will continue to grow.
The recovery of terminal demand is expected to drive the capital expenditure of wafer factories back to the track of high growth, and changes in the form of international trade will help domestic semiconductor manufacturers usher in a new round of development opportunities.
We are optimistic that as a leading manufacturer in the field of high-end semiconductor testing and measurement equipment in China, the company is actively expanding the layout of nano pattern wafer defect detection equipment, which is expected to grow rapidly in this round of domestic substitution.
Second, the recovery of demand and the acceleration of domestic substitution have driven the development of the semiconductor quantity testing equipment market
(1) The importance of process control is highlighted, and the demand for semiconductor quantity testing equipment is expected to continue to grow
In the integrated circuit manufacturing process, quality control equipment plays a vital role in ensuring the yield of chip production.
Due to the many steps in the production process of integrated circuits, there are hundreds of processes in the front process alone, and with the evolution of the integrated circuit process, the steps of the manufacturing process continue to increase, and the number of fatal defects in the process will also increase, so the yield of each process must reach an extremely high level of almost "zero defects" in order to ensure the yield rate of the final chip. Quality control runs through the whole process of integrated circuit front-end, middle-end and back-end manufacturing, which is the key to ensuring chip yield.
According to the process division, the process control equipment can be divided into two categories: testing equipment and measurement equipment.
Among them, the testing equipment is mainly used to detect whether there is heterogeneity on the surface of the wafer or in the circuit structure, such as particle pollution, surface scratches, open and short circuits and other characteristic structural defects that have a negative impact on the chip process performance, while the measurement equipment is mainly used to quantitatively describe the structure size and material characteristics on the observed wafer circuit, such as the measurement of physical parameters such as film thickness, key size, etching depth, surface topography, etching and other physical parameters, the two are used together, are important equipment in the chip production and manufacturing process.
In terms of technical principles, optical detection technology, electron beam detection technology and X-ray measurement technology will be used in inspection and measurement.
In all the semiconductor testing and measurement equipment, the equipment that still applies optical detection technology accounts for the majority, and the detection of impurity particles on the wafer surface, pattern defects and other problems and the measurement of wafer film thickness, key size, overlay accuracy, and surface topography all require optical detection technology.
Specifically, optical detection technology uses optical principles to obtain detection results by computational analysis of optical signals. Since no direct contact with the wafer is required during the inspection process, it has the advantage of being less damaging to the wafer.
Terminal innovation superimposes the development of the integrated circuit industry to advanced processes, and the market size of semiconductor testing and measurement equipment continues to grow.
Innovation in emerging fields such as AI and new energy vehicles, superimposed on Moore's Law, has promoted the development of the chip industry chain to advanced processes, and the value of semiconductor equipment has continued to rise. According to VLSI Research and QY Research data, the global semiconductor inspection and measurement equipment market size grew from $4.76 billion in 2016 to $9.21 billion in 2022, with a CAGR of 11.63%, of which the mainland market grew at a higher rate, with a CAGR of 31.61% from 2016 to 2020. In the future, with the recovery of capital expenditure of downstream fabs and the development of advanced processes, the market size of semiconductor testing and measurement equipment is expected to continue to grow.
Nano pattern wafer defect inspection equipment occupies nearly 1/4 of the market share, and the company actively deploys related products to expand the accessible market scale.
According to the statistics of VLSI Research and QY Research, according to the type of equipment, the top three devices in the market share in 2020 are nano-pattern wafer defect inspection equipment (24.70%), mask defect inspection equipment (11.30%), and non-patterned wafer defect inspection equipment (9.70%).
At present, the company's product line has covered a series of products such as non-patterned wafer defect detection equipment (9.70%), patterned wafer defect detection equipment (6.30%), three-dimensional topography measurement equipment (0.90%), dielectric film measurement equipment (3.00%) and overlay accuracy measurement equipment (7.30%), covering a total market share of 27.20% corresponding to product categories.
At the same time, the company is actively deploying other types of equipment such as nano pattern wafer defect detection equipment and wafer metal film measurement equipment, with corresponding market shares of 24.70% and 0.50% respectively, and the company's reachable market scale will be greatly increased after the successful research and development of related products.
(2) The recovery of demand drives the expansion of wafer factories and the growth of the semiconductor quality control equipment market
Looking back at the development of the global semiconductor industry, the industry boom cycle has bottomed out.
Since 2000, the global semiconductor industry has gone through about 5 cycles, each of which is about 4 years. Since the second half of 2019, the outbreak of 5G, new energy vehicles and other fields has driven the growth of semiconductor demand, and the mismatch between supply and demand has formed a super cycle, after the super boom semiconductor cycle, the year-on-year growth rate of global semiconductor industry sales peaked in 2021Q2 and fell, and then the year-on-year decline narrowed in 2023M5.
At present, domestic chip companies in LED drivers, DDIC and other industries have taken the lead in completing the destocking stage, and the demand for related pan-consumer chips such as mobile phones and security has gradually bottomed out.
The use of semiconductors in new energy vehicles has increased significantly, and it is expected to drive the growing demand for related semiconductors in the future.
Compared with traditional fuel vehicles, the value of semiconductors in electric vehicles has increased significantly.
From the perspective of usage, traditional cars only need 850-1050 chips, while new energy vehicles need 920-1180 chips.
From the perspective of value, taking power semiconductors as an example, the amount of power semiconductors used in traditional fuel vehicles is only 71 US dollars, while the average cost of power semiconductors in light hybrid vehicles, hybrid/plug-in hybrid vehicles, and pure electric vehicles is 90/305/350 US dollars, which is 27%/330%/393% higher than that of traditional vehicles, respectively, and the increase in the penetration rate of new energy vehicles in the future is expected to drive the rapid growth of semiconductor demand.
The high demand for "computing power + storage power" in the AI era has driven the continuous expansion of the related chip market.
At the same time, benefiting from the vigorous development of industries such as industrial Internet, Internet of Vehicles/autonomous driving, and mobile Internet, the amount of data and computing power demand for edge computing is also expanding, and the future will work with cloud computing to drive the growth of the AI chip industry.
According to WSTS data, the global AI chip market size was only $11 billion in 2019 and is expected to grow to $72.6 billion by 2025, with a CAGR of 37%, and according to Jiazi Lightyear data, China's AI chip market size will grow from 6.1 billion yuan in 2018 to 55.6 billion yuan in 2023, with a CAGR of 56%. In the future, with the continuous implementation of AI application scenarios, the scale of the AI chip market is expected to continue to grow.
With the imminent recovery of downstream demand and the continuous innovation of terminal applications, the capital expenditure of wafer fabs is expected to return to the growth track.
Affected by cyclical fluctuations in the industry, the upward trend of capital expenditure of the world's leading fabs in 2023 has slowed down, taking TSMC as an example, the capital expenditure in 2022 will be US$35.335 billion, and the 2023 capital expenditure guidance will be around US$32 billion, a year-on-year increase of -10.0%.
According to SEMI's forecast, from 2023 to 2026, global semiconductor manufacturers will increase their 200mm fab capacity by 14%, adding 12 new 200mm wafer fabs (excluding EPI), reaching a record high of more than 7.7 million wafers per month.
Moore's Law drives the development of advanced manufacturing processes, and the increase in process steps drives the demand for testing equipment and measurement equipment to multiply.
Driven by Moore's Law, there are more and more steps in the front-end process of integrated circuits, and the process is becoming more and more complex. There are only a few hundred process steps at the 28nm process node, while the number of process steps at the 14nm node and below has increased to nearly 1,000 processes with multi-layer overlaying. According to YOLE data, the number of fatal defects in the process increases by 50% for each generation of process node reduction, so the yield of each process must be maintained at a very high level to ensure the final yield.
When there are more than 500 processes, the final yield can only exceed 95% if the yield of each process exceeds 99.99%, and when the yield of a single process drops to 99.98%, the final total yield will drop to about 90%, so the challenge of the process window in the manufacturing process requires almost "zero defects". With the increasing process and process links, the demand for testing equipment and measurement equipment in the manufacturing process will double, and the market size of testing and measurement equipment is expected to continue to grow.
(3) Overseas manufacturers have a comprehensive product layout, and domestic manufacturers have ushered in substitution opportunities to accelerate the layout of catching up
KLA, a leading overseas manufacturer, occupies more than half of the market share, and domestic manufacturers still have broad room for growth. According to the statistics of VLSI Research and QY Research, in the global testing and measurement equipment market in 2020, KLA, a major overseas manufacturer, accounted for 50.8% of the share, ranking first in the market, Applied Materials (11.5%), Hitachi (8.9%), Leitai Optoelectronics (5.6%), Innovation Technology (5.6%) and ASML (5.2%) ranked second to sixth in turn. The market share of Shanghai Jingce is still relatively small, and there is still broad room for growth in the future.
Overseas leading product series are perfect, and under the background of independent and controllable, domestic manufacturers have ushered in substitution opportunities to accelerate the layout of catching up.
Since 2019, the form of international trade has changed, and the wave of semiconductor localization has begun. The implementation of the U.S. Chips Act in 2022 will further reshape the global industrial landscape, and it is imperative for the semiconductor industry supply chain to be independent and controllable.
In the field of semiconductor testing and measurement equipment, the global leading manufacturer KLA's share and technical advantages are significant, the product layout is perfect, and there are currently 11 types of equipment to achieve mass production.
After years of deep cultivation and accumulation, the performance of products such as non-patterned wafer defect detection equipment and patterned wafer defect detection equipment can be comparable to overseas leaders, and has achieved indiscriminate application on the production line of well-known domestic wafer manufacturers.
1) Non-patterned wafer defect detection equipment series: The equipment is mainly used for defect counting, identification of defect types and spatial distribution on the surface of non-patterned wafers, and the key indicators to evaluate the performance of the equipment are minimum sensitivity and throughput.
The company's technical improvements have made the minimum sensitivity much smaller than the optical imaging resolution corresponding to the wavelength of the light source used by the device, and the current minimum sensitivity of the company's SPRUCE-600 and SPRUCE-800 devices is 60nm and 23nm, respectively.
Among them, the throughput of SPRUCE-600 at 102nm is 100wph, and the sensitivity and throughput of the equipment can meet the needs of different customers.
2) Graphic wafer defect detection equipment series: At present, the company's such equipment is mainly used for wafer shipment inspection in advanced packaging, which can carry out high-precision and high-speed imaging on the wafer surface, and can perform high-speed computing on imaging, so as to identify circuit defects.
At present, the company's BIRCH-100 model products can achieve a minimum sensitivity of 0.5μm and a throughput of 80wph when the sensitivity is 3μm. In the future, the company is expected to rely on the experience accumulated in the field of advanced packaging to achieve a breakthrough in front-end pattern wafer defect inspection equipment.
3) Three-dimensional topography measurement equipment series: This equipment is mainly used for the measurement of nano-scale three-dimensional topography on the wafer, and the key indicator to measure the performance of this type of equipment is repeatability, that is, the standard deviation of the results of repeated measurements of the same position and feature scale on the wafer, the smaller the value, the higher the accuracy of the customer's or its production line to control the process.
In order to meet customer needs, this metric is usually required to achieve 1/3 or less of the customer's actual process control accuracy. At present, the repeatability of the company's equipment has reached 0.1nm, which can be applied to 2Xnm and above processes, and has successfully passed the certification of major customers such as YMTC.
3. The R&D team has strong technical strength and broadens the product layout to help the company's long-term development
(1) Independent research and development to build core technical barriers to attract high-quality talents to complete echelon construction
The company's R&D investment continues to be high, and the level of research projects is leading in China, laying a solid foundation for subsequent industrialization development. Since its establishment, the company has maintained a high level of R&D investment, and the industrialization of R&D projects has achieved good results.
Since 2020, the company has once again increased its R&D investment, and according to the prospectus, the company's R&D expenses have increased from 46 million yuan in 2020 to 206 million yuan in 2022, accounting for 40.40% of revenue.
At present, the company's research projects are mainly focused on the field of front-end inspection and measurement equipment, including the research and development of nano-pattern wafer defect detection, pattern wafer optical key size measurement and other equipment, and the follow-up company is expected to rely on the experience accumulated in the field of advanced packaging to break through the front-end equipment.
The company adheres to the path of independent innovation and independent research and development, builds core barriers, and has mastered a number of core technologies.
After years of exploration and technology accumulation, the company has formed 9 core technologies, including deep ultraviolet imaging scanning technology, high-precision multi-mode interferometric measurement technology, and defect recognition algorithm technology based on reference area comparison, and successfully applied them to the company's various series of products, creating good economic benefits for the company.
As of the 2023 semi-annual report, the company has 401 patents, including 85 invention patents, 300 utility model patents, and 3 design patents.
The company's staff team continues to grow and develop, relying on the Institute of Microelectronics of the Chinese Academy of Sciences and independent training, and improving the construction of R&D personnel echelon.
As the semiconductor equipment industry is a capital-intensive and talent-intensive industry, the company has completed technology accumulation and talent team building through cooperation with the Institute of Electronics of the Chinese Academy of Sciences in the early stage of development, and some employees have worked in the company and the Institute of Electronics of the Chinese Academy of Sciences.
As of the semi-annual report of 2023, the company's R&D team has 334 people, accounting for 43.04% of the company's total employees, and the cross-professional and multi-level talent echelon constitutes the backbone of the company's R&D.
(2) With high-quality customer resources, the layout of high-end testing equipment and new products can be expected in the future
The company's testing equipment has excellent performance, continuous iterative optimization and upgrading, and the volume and price of products have risen to contribute to the growth of performance. Since 2017, the company's flagship product non-patterned wafer defect detection equipment has passed the verification of domestic leading customers, and the brand effect has been significant, the product has been widely recognized by the market quickly, and the increase in the number of customers has driven the rapid growth of equipment sales. Looking forward to the future, in the wave of gradual recovery of downstream demand and domestic substitution, the company's products are expected to achieve a double rise in volume and price.
The verification barrier of semiconductor testing and measurement equipment is high, the cycle is long, and the company's customer resources are high-quality, and the first-mover advantage is significant.
Since process quality control is the key to ensuring the yield of chip production, inspection and measurement equipment usually takes a long time to pass customer acceptance, and the industry has high verification barriers.
Since its establishment, the company has focused on the R&D, production and sales of semiconductor testing and measurement equipment, and has accumulated high-quality customer resources such as SMIC, Yangtze River Storage, Silan Jike, Changdian Technology, Huatian Technology, Tongfu Microelectronics, etc.
With the continuous enrichment of the downstream customer base, the company's revenue structure has become more balanced, and the total revenue of the top five customers has decreased from 44.32% in 2021 to 33.27% in 2022. In the future, the company will continue to expand its customer base by virtue of the demonstration effect of benchmark customers, and is expected to realize the industrialization of new products by virtue of customer synergy.
The fundraising project helps the company break through the bottleneck of R&D and production sites, expand product layout, and open up long-term growth space.
The company plans to use 308/142 million yuan to raise funds to build high-end semiconductor quality control equipment industrialization and R&D center upgrade construction project, of which the industrialization of high-end semiconductor quality control equipment will help solve the problem of insufficient R&D and production space of the company, so as to improve R&D efficiency, ensure stable supply to customers, and promote the sustainable development of the company's performance; Carry out in-depth research and development in related directions such as nano pattern wafer defect detection equipment, make technical reserves for expanding products, further enhance market position, and open up long-term growth space.
4. Key assumptions, valuations and earnings forecasts
Our key assumptions for earnings forecasts are:
1) The bottom of the semiconductor industry cycle has passed, the expansion of downstream wafer factories has returned to the growth track, and the supply of upstream components is sufficient, and the company's volume and testing equipment have been verified smoothly in the front-end client;
2) The international trade situation is relatively stable, and the domestic wafer fab has sufficient power for domestic substitution;
3) The competition pattern of the industry remains relatively stable, and there is no intensification of competition in the short term.
We estimate that the company's operating income from 2023 to 2025 will be 8.01/11.93/1.634 billion yuan, and the overall gross profit margin level will be 49.83%, 50.77%, and 52.00% respectively.
1) Testing equipment business: the company's non-patterned wafer defect detection equipment SPRUCE-600 and SPRUCE-800 can achieve batch quantitative production and are widely recognized by customers, SPRUCE-900 new equipment is about to be mass-produced; the company's graphic wafer defect detection equipment has been applied in batches in the production lines of well-known advanced packaging manufacturers such as Changdian Advanced and Huatian Technology, and the company is expected to achieve a breakthrough in the front-end graphic wafer defect detection equipment by virtue of the experience accumulated in the field of advanced packaging in the future.
With the gradual breakthrough and introduction of new equipment, we expect that the company's 2023-2025 testing equipment revenue growth rate will be 57.54%/61.23%/39.71% respectively, and the gross profit margin will be 52.87%/52.71%/53.64%, and the change in gross profit margin is mainly due to the adjustment of product structure.
2) Measurement equipment business: The company's 3D topography measurement equipment CYPRESS-T910 has achieved large-scale production, and the new model CYPRESS-U950 has a repeatability accuracy of 0.1nm, which can be applied to 2Xnm and above processes, and has successfully passed the certification of major customers such as Yangtze River Storage.
We expect that the revenue growth rate of measurement equipment from 2023 to 2025 will be 59.94%/11.43%/25.32% respectively, and the gross profit margin will be 40.00%/41.76%/43.54%.
The recovery of terminal demand is expected to drive downstream wafer factories to actively expand production, and the domestic substitution space for quantity testing equipment is broad, and the company continues to expand its product layout as a leading manufacturer of domestic volume testing equipment.
In terms of inspection, we are accelerating the layout of front-end pattern wafer defect inspection equipment based on non-patterned wafer defect inspection equipment, and in terms of measurement, we are actively laying out product lines such as overlaying, film thickness and key size OCD equipment. We estimate that the company's net profit attributable to the parent company from 2023 to 2025 will be 1.12/1.74/278 million yuan respectively, and the corresponding EPS will be 0.35/0.54/0.87 yuan. Considering the low profitability of domestic semiconductor equipment manufacturers, and the performance is expected to be released quickly under the scale effect, this paper adopts the PSG valuation method.
Referring to the company's historical valuation and the valuation of comparable companies, and due to the high barriers in the volume testing equipment industry, the current localization rate is lower than that of other semiconductor equipment such as etching, thin film deposition, cleaning, CMP, etching, and the company, as one of the few manufacturers in China that can provide volume testing equipment, is still in the period of product acceleration, giving the company 0.65 times PSG in 2024, and the corresponding target price is 89.6 yuan.
5. Risk Warning
(1) Risks of changes in the international trade situation:
Some of the company's raw materials (EFEM and manipulators) need to be purchased from overseas, and if the international trade situation deteriorates, it may affect the company's procurement and adversely affect the company's production and daily operations;
(2) The expansion of downstream wafer fabs is less than expected:
Some downstream demand is weak, if the follow-up investment of downstream wafer fabs is less than expected, the procurement demand for related equipment will weaken, which will have an adverse impact on the company's order volume and performance;
(3) Technology iteration or new product development is not as expected:
If the company cannot keep up with the global technology development trend in the field of semiconductor quality control equipment, and timely foresee and follow up the industry's technological upgrading and iteration, it may have an adverse impact on the company's production and operation;
(4) Risks of intensifying competition in the industry:
The domestic semiconductor equipment market players are gradually increasing, and if the company fails to fully convert the technology into products and continue to improve its market position, the competitive advantage may be weakened, which will adversely affect the company's performance.
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The report comes from [Foresight Think Tank]