Acm Research (Shanghai), Inc. (688082.SH), which has a high increase in performance and has raised its income guidance, is expected to continue to grow rapidly with the accelerated release of diversified products.

The recovery of the semiconductor industry is being confirmed by the market. Whether it is the upstream semiconductor equipment company Acm Research(Shanghai),Inc.(688082.SH), the midstream wafer foundry companies Semiconductor Manufacturing International Corporation(688981.SH) and HUA HONG SEMI(01347), or the downstream demand representatives in the SOC field Allwinner Technology(300458.SZ) and Bestechnic (Shanghai) Co., Ltd.(688608.SH), their financial reports or performance increase announcements have collectively confirmed that the entire semiconductor industry chain has entered a high prosperity cycle, indicating that the timing to allocate to the semiconductor industry has arrived. At this moment, Acm Research(Shanghai),Inc., which has gradually developed into a leading semiconductor equipment platform company, deserves investors' attention. In fact, since June, the stock price of Acm Research(Shanghai),Inc. has shown a continuous upward trend, being one of the companies among all listed semiconductor equipment companies to first break away from the bottom, with a very strong stock price performance. The half-year report for 2024 released on August 7 once again showcased its strong fundamentals. According to the financial report, Acm Research(Shanghai),Inc. achieved a year-on-year revenue increase of 49.33% to 2.404 billion yuan in the first half of 2024, achieving rapid growth. Net profit increased by 0.85% year-on-year to 443 million yuan, while non-net profit increased by 6.92% year-on-year to 435 million yuan. This includes a stock payment amount of 172 million yuan. Excluding the impact of stock payments, net profit increased by 33.90% to 615 million yuan, and non-net profit increased by 42.24% to 606 million yuan. The gross profit margin for the period was 50.68%, maintaining a stable level. This performance has been widely recognized by the market. On one hand, Acm Research(Shanghai),Inc.'s stock price surged more than 7% on August 8, leading the semiconductor sector, and although it fell slightly towards the end of trading due to the index's influence, it still closed up by 5.83%. On the other hand, after Acm Research(Shanghai),Inc. released its performance, many brokerage firms including CMSC, Guolian, Zhongyou Securities, Caitong, Huajin Securities, Capital, and Soochow issued research reports on Acm Research(Shanghai),Inc., expressing optimism about its future development, and giving "buy" or "hold" ratings. At the same time, the company's management is also confident in the future development of Acm Research(Shanghai),Inc., not only raising its full-year revenue forecast from between 5.0 billion yuan to 5.8 billion yuan to between 5.3 billion yuan and 5.88 billion yuan, but also announcing that it will use 50 million to 100 million yuan of funds for share repurchase within 12 months from the date of approval by the board of directors. By conducting a detailed analysis of Acm Research(Shanghai),Inc.'s half-year report for 2024, investors can gain a clearer understanding of the company's business development and true value. Accelerated order volume growth drives revenue growth, and stock payment impact releases profit The semiconductor industry has obvious cyclical characteristics, with 2024 marking the beginning of a new cycle, while 2023 was the downturn phase for the industry. Due to the influence of various factors such as geopolitical issues, the global macroeconomic situation was relatively weak in 2023, leading to a supply-demand imbalance in the semiconductor industry, reduced investment, and the industry entering a destocking phase. According to SIA data, global semiconductor industry sales fell by 8.2% to $526.8 billion in 2023. However, in 2024, the semiconductor industry returned to a growth trajectory driven by AI, automotive electronics, high-performance computing, and advanced packaging technology, entering a high prosperity cycle for the industry. According to SIA data, global semiconductor industry sales in the first and second quarters of 2024 increased by 15.2% and 18.3% respectively year-on-year, with a 6.5% quarter-on-quarter increase in the second quarter, indicating a clear trend of industry recovery. Taking advantage of the industry's recovery, Acm Research(Shanghai),Inc. has accelerated market expansion with the dual advantages of product technological differentiation and diversification while continuing to cooperate with existing customers, achieving significant results. Not only did it open up new markets and develop multiple new customers, but it also established extensive partnerships with new customers at home and abroad, driving a year-on-year revenue increase of 49.33% to 2.404 billion yuan in the first half of 2024, achieving rapid growth. Benefiting from the continuous optimization of the sales product portfolio, Acm Research(Shanghai),Inc.'s high-margin products continued to increase in volume, maintaining a stable high sales gross margin of 50.68% during the reporting period. Looking back at Acm Research(Shanghai),Inc.'s gross margin, it was below 50% before 2023. Starting from 2023, it stabilized above 50%, ranking among the top in China's semiconductor equipment platform companies, highlighting Acm Research(Shanghai),Inc.'s technological differentiation.The strategy of creating high-profit products has achieved significant results.In the current environment of intense competition for talent in the semiconductor equipment industry, in order to maintain the stability of the existing core R&D team and absorb new high-end R&D talent into the company, the company implemented a four-year stock incentive plan in August 2023. However, stock-based compensation has significantly impacted the release of net profit. During the reporting period, the sales expenses, management expenses, and R&D expenses of Acm Research(Shanghai), Inc. increased by 86.39%, 135.07%, and 62.56% respectively, all of which are not insignificant. There are two main reasons for this. One is that the stock-based compensation given to employees during the reporting period has led to an increase in expenses. In the first half of 2024, the company's stock-based compensation amount was 172 million RMB, compared to 20 million RMB in the same period in 2023. If the impact of stock-based compensation is excluded, then Acm Research(Shanghai), Inc.'s net profit in the first half of 2024 would increase by 156 million RMB year-on-year, with a net profit growth rate reaching 33.90%. Secondly, when the semiconductor industry enters a high boom cycle, companies need to increase fixed and one-time investments to expand their team and production scale, in line with industry development trends and indicative of the company stepping into a period of high growth. Subsequently, with the completion of team expansion and production entering a normal track, the reduction in fixed and one-time investments and the improvement in economies of scale will drive an increase in net profit margin, accelerating the release of profits and further increasing net profit. The increase in R&D expenses is mainly due to improvements in existing products, process development, and the development of new products and processes, consistent with Acm Research(Shanghai), Inc.'s tradition of high R&D investment. Looking at the balance sheet, the high growth of Acm Research(Shanghai), Inc. is further evidenced. At the end of the reporting period, the company's contract liabilities amounted to 1.042 billion RMB, an 18.90% year-on-year increase, breaking the 1 billion mark. Contract liabilities refer to the amount of advance payments received from customers by Acm Research(Shanghai), Inc., and the rapid growth of this indicator signifies strong downstream demand. Thanks to the high growth in revenue and increased prepayments after an increase in orders, Acm Research(Shanghai), Inc.'s cash flow improved significantly. During the reporting period, the net cash flow generated from operating activities of Acm Research(Shanghai), Inc. was 447 million RMB. At the same time, the balance of cash and cash equivalents, time deposits/large deposits, and accrued interest receivables increased to 2.337 billion RMB. The improvement in cash flow not only enhances the company's risk resistance but also lays a solid foundation for the accelerated expansion of Acm Research(Shanghai), Inc.'s business. Driving continuous growth through high R&D investment If we step back from this financial report and look back at the history of Acm Research(Shanghai), Inc., we can see clearly that the company's ability to continuously grow and iterate is deeply rooted in its genes. Starting with cleaning equipment, the company has gradually evolved into a leading semiconductor equipment platform enterprise in China, primarily driven by the company's steadfast pursuance of differentiation in technological competition and platform development. The intersection of these two long-term strategies lies in the need for high R&D investment to support them and drive the company's growth, which is fundamental to Acm Research(Shanghai), Inc.'s continued growth. From 2020 to 2023, the proportion of R&D investment in Acm Research(Shanghai), Inc.'s revenue was 13.97%, 17.18%, 14.88%, and 16.93% respectively, consistently maintaining a trend of high R&D investment. In the first half of 2024, Acm Research(Shanghai), Inc.'s R&D investment further increased. The R&D investment during the period was 390 million RMB, a 62.46% increase year-on-year, with R&D investment accounting for 16.24% of operating income, an increase of 1.32 percentage points from the same period of the previous year. Long-term high R&D investment has already yielded significant results in three specific areas: firstly, Acm Research(Shanghai), Inc.'s product matrix has expanded from cleaning equipment to other segments of the industry chain, significantly increasing the company's growth space and achieving platform development. As of now, Acm Research(Shanghai), Inc.'s products include front-end semiconductor processing equipment such as cleaning equipment, semiconductor plating equipment, vertical furnace series equipment, coating and imaging Track equipment, plasma-enhanced chemical vapor deposition (PECVD) equipment, stress-free polishing equipment, as well as back-end advanced packaging process equipment and silicon substrate manufacturing process equipment. Secondly, Acm Research(Shanghai), Inc.'s products have significant differentiation in technological competitive advantages, demonstrating strong technical capabilities in the market. Among them, cleaning equipment, polishing equipment, and plating equipment are at the international leading level. At the same time, core technologies of independently developed vertical furnace equipment, coating and imaging Track equipment, PECVD equipment, etc., also target international leading levels. Thirdly, the number of R&D patents continues to grow. During the reporting period, Acm Research(Shanghai), Inc. applied for a high number of new patents, with 144 new patents submitted, and as of June 30, 2024, Acm ResAcm Research (Shanghai), Inc. has cumulatively applied for 1,310 patents, out of which 463 have been granted. Among them, the ratio of overseas granted patents to domestic patents is as high as 1.57:1, ranking at the forefront among peer companies. This also confirms the research and development strength of Acm Research (Shanghai), Inc. in the global semiconductor industry.Image: Statistics on the number of patent applications and approvals by Acm Research (Shanghai), Inc. Diversification of products enters the harvest period, with platformization expected to accelerate. From an industry perspective, 2024 is just the beginning of a new semiconductor recovery cycle. Taking the semiconductor equipment field as an example, according to SEMI, the global semiconductor equipment market is expected to grow by 3.4% in 2024, reaching $109 billion, with China accounting for 32% of it. By 2025, due to the continued high demand for expansion and AI in mainland China, SEMI predicts that the global semiconductor equipment market will grow by 17% to $128 billion in 2025, with a significant increase in growth rate. CITIC SEC stated that the global semiconductor equipment market will continue to grow in 2024 and 2025, with the Chinese market leading the world. However, there is still a significant gap in semiconductor manufacturing capacity, and there is room for improvement in the localization rate of equipment. Due to the increase in downstream demand and rapid growth in localization rate, it is expected that the orders for Chinese equipment companies will rapidly increase in the next 2-3 years. In this round of industry boom, Acm Research (Shanghai), Inc., which continues to build core competitiveness with high research and development investment, is expected to enter a period of accelerated product diversification and volume. In 2024, Tahoe equipment (single-slot combination equipment), high-temperature single-piece SPM equipment, and edge etching equipment are expected to become new growth points, with electroplating and furnace tube equipment becoming the main revenue drivers. At the same time, the low localization rate PECVD and Track equipment are also expected to see increased volume in the next two years. Specifically, the demand for HBM is expected to increase with the catalyst of AI, and Acm Research (Shanghai), Inc.'s full line of wet cleaning equipment and electroplating copper equipment can be used for HBM processes. Among them, the SAPS mega-sound single-piece cleaning equipment can be used for deep hole cleaning of TSV; the multi-layer electroplating copper equipment can be used for copper plating of TSV. Currently, Acm Research (Shanghai), Inc. has received repeat orders for TSV electroplating equipment from multiple customers, with TSV electroplating equipment orders starting to pick up in the second half of 2023, and is expected to maintain high market demand in 2024. In terms of high-temperature single-piece SPM equipment, the equipment has made significant technological breakthroughs and holds independent global intellectual property rights. The SPM equipment is expected to account for 25-30% of the total pre-cleaning market potential after achieving a technological breakthrough, thus accelerating market penetration. Meanwhile, in the field of cleaning equipment, Acm Research (Shanghai), Inc. launched the Ultra C vac-p negative pressure cleaning equipment for fan-out wafer-level packaging applications in July of this year, marking the successful entry of Shengmei Semiconductor into the high-growth fan-out wafer-level packaging market. A large Chinese semiconductor manufacturer has already ordered the Ultra C vac-p wafer-level negative pressure cleaning equipment and it has been delivered to the customer's factory in July. Acm Research (Shanghai), Inc. also launched a new wafer-level electroplating equipment in August 2024, further expanding the fan-out wafer-level packaging product line. This electroplating equipment is the first in the world to use a horizontal electroplating method, which significantly improves coating uniformity compared to traditional vertical electroplating, effectively reducing cross-contamination between different electroplating solutions, reducing line widths and spacing from the current tens of micrometers level to micron and sub-micron levels, providing a critical solution for the future high-density AI chip wafer packaging. In terms of furnace tube equipment, Acm Research (Shanghai), Inc. is expected to increase its customer base to 17-18 in 2024. The process coverage of PECVD equipment will reach 50% in 2024, and the Ultra PmaxTM plasma-enhanced chemical vapor deposition (PECVD) equipment has been delivered to a Chinese integrated circuit customer in July of this year. SEMI data shows that in 2022, the localization rate of thin film deposition equipment was about 8% in the semiconductor equipment industry, while the localization of Track equipment has just begun. In this context, the two new series of products, PECVD equipment and Track equipment, which will double the global service market size of Acm Research (Shanghai), Inc., will continue to see sustained growth. It is worth noting that as of June 30, 2024, Acm Research (Shanghai), Inc.'s ongoing projects include pre-cleaning equipment, semiconductor electroplating equipment, vertical furnace tube equipment, Track coating and developing equipment, PECVD equipment, etc. Continuous iteration and upgrades in ongoing projects will bring Acm Research (Shanghai), Inc.'s related products to the leading or equivalent level of the international industry. The continuous improvement of technological competitiveness and the enrichment of product matrix will lay a solid foundation for the company's future development. At the same time, in order to further understand the progress of the project "Shengmei Semiconductor Equipment Research and Manufacturing Center" being postponed, this newspaper interviewed Dr. Wang Hui, the chairman of the company. Dr. Wang stated that the project is planned to be gradually put into use in September of this year. The company previously extended the completion date of this financing project to June 2025, mainly to complete the final settlement procedures. The completion of this project will provide new impetus for the enhancement of Acm Research (Shanghai), Inc.'s research and manufacturing capabilities. The acceleration of diversified products is driving Shengmei Semiconductor's platformization process. Data shows that in 2023, Acm Research (Shanghai), Inc.'s semiconductor cleaning equipment, electroplating, furnace tubes and other pre-processing equipment, advanced packaging, and other backend equipment accounted for 67.24% and 24% of the revenue respectively.18% and 8.58%. After entering 2024, this ratio is expected to further optimize, thus driving the valuation of Acm Research (Shanghai), Inc. towards platform-based enterprises.Overall, it is a certainty that the semiconductor industry has entered a period of high prosperity, and Shengmei Semiconductor, which has entered a phase of accelerated production of diversified products after continued high research and development investment, is expected to achieve sustained high growth with the industry's recovery, as evidenced in its financial report for the first half of 2024. However, this is just the beginning, and with the industry's accelerated growth in the future, there is potential for further acceleration in the performance of Acm Research(Shanghai), Inc., bringing about opportunities for excess returns. Therefore, now may be a good time to make a long-term investment in Acm Research(Shanghai), Inc.