The Zhitong Finance App learned that Minsheng Securities released a research report saying that US semiconductor stocks have continued to rise sharply recently, and in the past trading day (January 19), the stock price of the world's leading semiconductor equipment application materials reached a record high. The equipment sector showed performance resilience that exceeded expectations at the bottom of the semiconductor cycle. Looking ahead to 2024, the bank is more optimistic about the equipment sector's performance growth under the recovery of industry sentiment and accelerated domestic substitution, and some sector leaders have sufficient cost performance. It is recommended to focus on: North China Chuang (002371.SZ), China Micro (688012.SH), Tuojing Technology (688072.SH), Xinlai Ying 688037.SH 688361.SH Lumber (300260.SZ)

Minsheng Securities's views are as follows:

Compared with leading players in China and the US, A-share semiconductor equipment showed more growth.

According to Bloomberg's unanimous expectations, the 2024E PE of leading global equipment companies such as Applied Materials (AMAT.O), Fanlin Group (LRCX.O), and ASML.O (ASML.O) is in the 22-35 times range, but the 2024E net profit growth rate is in the range of -18% to 0% year-on-year. Looking at domestic manufacturers, on the other hand, according to the bank's forecast, the 2024E PE from leading domestic equipment manufacturers such as Beifang Huachuang and Tuojing Technology is in the 25-40 times range, which is close to the valuation level of leading global companies. However, the 2024 net profit growth rate is mostly in the 35% to 60% range, far surpassing overseas leaders. In comparison, the growth of A-share equipment manufacturers is remarkable.

The performance resilience of the equipment sector is outstanding.

Looking back at the 2023 performance, the equipment sector benefited from the acceleration of domestic substitution and showed performance growth that exceeded expectations:

1) North Huachuang: It is expected to achieve revenue of 209.7 billion yuan to 23.10 billion yuan in 2023, YOY +42.8 ~ +57.3%; net profit to mother of 36.1-4.15 billion yuan, YOY +53.4% to 57.3%. Mainly thanks to dozens of process breakthroughs and mass production applications of high-end integrated circuit equipment, process coverage has increased dramatically.

2) Zhongwei Company: It is expected to achieve revenue of 6.26 billion yuan in 2023, YOY +32.1%. Among them, the main etching equipment revenue reached 4.70 billion yuan, YOY +49.4%. Newly developed LPCVD and ALD equipment also entered the market and received repeated orders.

3) Zhongke Flying Test: It is expected to achieve revenue of 850 to 900 million yuan in 2023, YOY +66.9% to 76.7%, and net profit of 115 to 165 million yuan. Profit will be released sharply, and after deducting non-net profit, it will also turn a loss into a profit.

4) Xinlai Yingcai: It is expected to achieve net profit of 220 to 270 million yuan in 2023, corresponding to net profit of 0.52 to 102 million yuan in the 23Q4 single quarter. The median value corresponds to a 33% month-on-month increase, and achieved significant profit improvement.

Domestic equipment orders are plentiful, laying the foundation for continued performance growth in 2024.

In addition to impressive performance growth rates, many companies also reaped higher order growth rates in 2023, which is expected to support the continued growth of 2024 results. North China Huachuang announced that it will sign more than 30 billion yuan of new orders in 2023, of which integrated circuit orders account for more than 70%. China Micro announced new orders of 8.36 billion yuan in 2023, YOY +32.3%, including 6.95 billion yuan of new orders for main etching equipment, YOY +60.1%.

Domestic substitution is advancing at an accelerated pace, and investment in semiconductor equipment in mainland China bucked the trend.

According to the SEMI report, due to the downturn in the semiconductor industry cycle, global fab equipment sales fell 3.7% year on year to US$90.6 billion in 2023, but this was significantly higher than the previous forecast of 18.8% year-on-year decline, mainly due to strong growth in equipment spending in the Chinese market. At the same time, SEMI expects 2024/2025 to be accompanied by a recovery in the semiconductor cycle, and the global equipment market will grow by 3%/18% year on year, returning to a growth trajectory. The bank is optimistic about the continued growth of the domestic market under the dual driving forces of cycle recovery and domestic substitution.

Risk factors: cyclical fluctuations in the semiconductor equipment market; intensification of geopolitical conflicts; localization verification falls short of expectations.