China Galaxy Securities: Financial indicators continue to improve, the future of semiconductor equipment looks promising.

China Galaxy Securities released a research report stating that the performance of semiconductor equipment companies in 2024 Q3 has been announced. Core semiconductor equipment companies including Piotech Inc., Advanced Micro-Fabrication Equipment Inc. China, and NAURA Technology Group achieved a total revenue of 16.737 billion RMB in 2024 Q3, an increase of 37.67% year-on-year. They also achieved a total net profit of 3.232 billion RMB, an increase of 56.63% year-on-year. China Galaxy Securities believes that the semiconductor equipment industry has shown good quarterly revenue performance, with continued strong demand for advanced logic and memory chips being the main driving force for the industry's growth, and domestic replacement is expected to accelerate further. The individual stocks recommended for attention include Piotech Inc. (688072.SH), Advanced Micro-Fabrication Equipment Inc. China (688012.SH), and NAURA Technology Group (002371.SZ). Key points of China Galaxy Securities: Event: The performance of semiconductor equipment companies in 2024 Q3 has been released. Piotech Inc., Advanced Micro-Fabrication Equipment Inc. China, NAURA Technology Group, and other 10 core semiconductor equipment companies achieved a total revenue of 16.737 billion RMB in 2024 Q3, an increase of 37.67% year-on-year. They also achieved a total net profit of 3.232 billion RMB, an increase of 56.63% year-on-year. Financial indicators continue to improve, industry maintains high prosperity: Based on the performance of the ten core semiconductor equipment companies in 2024 Q3, except for Kingsemi Co., Ltd., all achieved year-on-year growth in operating income. The decline in operating income of Kingsemi Co., Ltd. was mainly affected by factors such as order structure, production and delivery cycle, and customer terminal installation and acceptance plans. Among them, Hangzhou Changchuan Technology had the largest year-on-year increase of 125.51%. Hangzhou Changchuan Technology, PNC Process Systems, Huafeng Measurement & Control, and Hwatsing Technology all achieved year-on-year growth of over 50%. In terms of net profit performance, Advanced Micro-Fabrication Equipment Inc. China, NAURA Technology Group, Acm Research (Shanghai), Inc., Hwatsing Technology, Beijing Huafeng Test & Control Technology, Hangzhou Changchuan Technology, and PNC Process Systems achieved year-on-year growth. The decline in net profit of other companies was due to a significant increase in research and development expenses. As a technology-intensive industry, the temporary decline in net profit due to high research and development investment is a growth pains period, and short-term disruptions will not change the long-term logic. Contract liabilities and inventory increased year-on-year, the future of semiconductor equipment is promising: In 2024 Q3, the total contract liabilities of the 10 core semiconductor equipment companies were 17.507 billion RMB, an increase of 11.59% year-on-year and a 0.63% increase month-on-month; the total inventory was 55.073 billion RMB, an increase of 41.49% year-on-year and a 9.4% increase month-on-month. In July 2024, SEMI adjusted its previous forecast for the global semiconductor equipment market size in 2024 from 980 billion USD to 1.09 trillion USD, and predicted a new high of 1.28 trillion USD in 2025. From January to September 2024, China's total semiconductor equipment imports amounted to 30.257 billion USD, an increase of 30.3% year-on-year. The total number of imports was 46,496 units, an increase of 14.6% year-on-year. Looking ahead, with the dual drive of growth in demand for advanced logic and memory chips, the semiconductor equipment industry will benefit from the vigorous development of wafer and memory fab expansion. Upgrade of US export restrictions, domestication of equipment is imminent: Recently, the China Special Committee of the US House of Representatives sent letters to Applied Materials, Lam Research, KLA, Tokyo Electron, and ASML, requesting detailed information on sales volume and major customers. Currently, the domestication rates of etching equipment, film deposition equipment, cleaning equipment, and CMP polishing equipment are between 10%-30%, while the domestication rate of heat treatment equipment is between 30%-40%; the domestication rate of degumming machines has reached 90%. However, the domestication rates of quantity/detection equipment, ion implantation equipment, and coating/developing equipment are still low, below 5%; the domestication rate of lithography equipment is less than 1%. This review may directly affect the export of related equipment, catalyzing the acceleration of domestic replacement. Processes with low domestication rates will benefit greatly. Investment advice: The semiconductor equipment industry has shown good quarterly revenue performance, with continued strong demand for advanced logic and memory chips being the main driving force for the industry's sustained growth, and domestic replacement is expected to accelerate further. It is recommended to pay attention to: Skyverse Technology, Piotech Inc., Advanced Micro-Fabrication Equipment Inc. China, NAURA Technology Group, Kingsemi Co., Ltd., Acm Research (Shanghai), Inc., Beijing Huafeng Test & Control Technology, Hangzhou.Changchuan Technology.Risk warning: Risks of semiconductor industry recovery falling short of expectations; risks of escalating international trade frictions; risks of technology iteration and product certification falling short of expectations; risks of production capacity bottlenecks.