2021-11-01 Guohai Securities Co., Ltd. conducted a research on North Huachuang and issued a research report "three Quarterly Review: 2021Q3 performance exceeds expectations, leading the rise of domestic alternatives". This report gives an overweight rating to North Huachuang, and the current share price is 381.0 yuan.

North Huachuang (002371)
Events:
North Huachuang released three quarterly results: operating income in the first three quarters of 2021 was 6.173 billion yuan, an increase of 60.95% over the same period last year, and net profit was 658 million yuan, an increase of 101.57% over the same period last year. Non-return net profit was 525 million yuan, an increase of 200.95% over the same period last year.
Main points of investment:
2021Q3 performance exceeded market expectations, operating conditions continued to improve. According to the announcement, the company's 2021Q3 achieved an operating income of 2.565 billion yuan in a single quarter, an increase of 54.65% over the same period last year, a net profit of 348 million yuan, an increase of 144.16% over the same period last year, and a non-return net profit of 300 million yuan, an increase of 296.69% over the same period last year, exceeding market expectations. Benefiting from the company's good cost and expense control, profitability improved significantly compared with the same period last year. In the first three quarters, the company achieved a gross profit margin of 40.94% (+ 5.77pct) and a net profit rate of 12.35% (+ 2.23pct). Thanks to the scale effect brought about by the rapid growth of revenue, the company's expense rate improved as a whole, and the expense rate during the first three quarters was 15.95% (- 2.76pct, excluding R & D). The sales expense rate is 5.48% (+ 0.2pct), the management expense rate is 10.49% (- 2.99pct), and the financial expense rate is-0.02% (+ 0.03pct). In addition, the ratio of inventory to revenue in the company's three-quarter report dropped from 198% to 123%, a month-on-month drop in 75pct, while the contract debt reported in the third quarter reached 5.503 billion yuan, an increase of 16.02% over the report, another record high. The company's operating conditions are improving, production and marketing are booming, while downstream demand continues to expand, and future performance growth has a high degree of certainty.
Adhere to R & D investment to build a strong moat, semiconductor equipment platform leader to speed up the voyage. Based on independent research and development, the company has gradually mastered and accumulated core technologies such as etching technology, thin film deposition technology, oxidation / diffusion technology, cleaning technology and crystal growth technology in the process of development. it has formed a diversified, multi-disciplinary and cross-disciplinary core technology system, with the technical synergy advantages of wide process coverage and multi-process integration. In the first three quarters of 2021, the company generated R & D expenses of 869 million yuan, an increase of 191.19% over the same period last year. R & D expenses accounted for 14.07% of revenue Prida, an increase of 6.29pct over the same period last year, reflecting the company's determination to build a moat through research and development. As the leader of semiconductor equipment in China, the company ploughs the etching machines, PVD, CVD, vertical furnaces, cleaning machines and other key equipment for semiconductor manufacturing. In addition to lithography, the company basically achieves the full process coverage of semiconductor manufacturing. At the same time, the company is rich in customer resources. It has long-term and stable cooperative relations with Semiconductor Manufacturing International Corporation, Changjiang Storage and other top wafer manufacturers in China, and is the main supplier of semiconductor equipment in China. The company has strong R & D strength, prominent advantages of products and customers, and a significant moat for a long time, which is expected to lead the continuous rise of the tide of domestic substitution for semiconductor equipment.
Profit Forecast and Investment rating Company, as the leading domestic semiconductor equipment enterprise, deeply distributes semiconductor equipment, vacuum equipment, new energy lithium equipment and precision components, with perfect product system and strong comprehensive competitiveness. after the events of Huawei and SMIC, the urgency and necessity of independent control of semiconductor equipment is highlighted, and the domestic substitution process is speeding up in an all-round way. The company is expected to lead the tide of localization of semiconductor equipment to continue to rise. Based on the principle of prudence, regardless of the impact of fixed increase on the company's performance and equity for the time being, we expect the company's return net profit from 2021 to 2023 to be 9.49 pounds 13.54 yuan / 1.785 billion yuan, corresponding to 1.91 pounds 2.73 pounds 3.60 yuan per share, and the previous PE valuation to be 194,136 pounds 103 times, considering that semiconductor equipment is a key link of the semiconductor industry chain that can be controlled independently. High prosperity in the industry and good progress in domestic substitution, high certainty in performance growth, and maintenance of "overweight" rating.
The risk indicates that the downstream demand is lower than the expected risk; the company's new product research and development progress is not as expected; the competition pattern is worsening risk; the fixed increase project is less than the expected risk.

A total of 26 agencies have rated the stock in the last 90 days, including 20 buy ratings and 6 overweight ratings; the average institutional target price in the past 90 days is 441.13; according to the Securities Star valuation analysis tool, the North Huachuang (002371) good company has a rating of 3 stars, a good price rating of 1 star and a comprehensive valuation rating of 2 stars.