NAURA issued a preliminary earnings announcement for 1H23, expecting to achieve revenue of Rmb7.82bn-8.95bn （up 43.7%-64.4% YoY）， continuing the high growth momentum driven by downstream market demand. In 2Q23, the Company exhibited outstanding profitability, with the midpoint of the net profit margin （NPM） surpassing 25%, showing substantial growth both YoY and QoQ. As a leading domestic semiconductor equipment platform enterprise, NAURA possesses the most comprehensive range of semiconductor equipment among domestic peers, with ample room for growth and a solid leading position. We hold a positive long-term outlook on its prospects and reiterate the "BUY" rating.
　　 Maintaining rapid growth momentum in 1H23.
　　NAURA released its preliminary interim results, anticipating 1H23 revenue of Rmb7.82bn-8.95bn （up 43.7%-64.4% YoY）， with the midpoint at Rmb8.39bn, implying an impressive 54% YoY growth. The attributable net profit （ANP） in 1H23 falls in the range of Rmb1.67bn-1.93bn （up 121.3%-155.8% YoY）， with the midpoint at Rmb1.8bn, implying 139% YoY growth and an NPM of 21.5%.
　　The ex-one-off ANP falls in the range of Rmb1.49bn-1.72bn （up 130.9%- 166.6% YoY）， with the midpoint at Rmb1.6bn, implying 148.7% YoY growth and an adjusted NPM of 19%. The preliminary announcement attributes the growth in operating revenue and ANP to a steady increase in NAURA’s　　market share in the semiconductor equipment business and continuous improvement in operational efficiency in 1H23.
　　 Significant top-line and bottom-line growth in 2Q23.
　　For 2Q23, NAURA expects to generate revenue of Rmb3.95bn-5.08bn, up 19.4%-53.5% YoY and 2%-31% QoQ. The midpoint of Rmb4.52bn implies growth of 36.5% YoY and 16.6% QoQ. The preliminary ANP in 2Q23 is Rmb1.08bn-1.34bn （up 97%-144% YoY）， with the midpoint of Rmb1.2bn implying growth of 120% YoY/104% QoQ and an NPM of 26.8%. The ex-one- off ANP for 2Q23 is projected to be Rmb0.96bn-1.19bn, up 95%-142% YoY and 79%-122% QoQ, with the midpoint of Rmb1.07bn suggesting growth of 119% YoY/101% QoQ and an adjusted NPM of 23.7%. In 2Q23, NAURA demonstrated outstanding profitability, with the NPM rising to above 25%, indicating significant growth both YoY and QoQ. We attribute such growth primarily to the Company's mass supply of etching, thin-film deposition, furnace tubes, and cleaning equipment to the market, which has helped expand its process coverage and market share. As NAURA has not yet disclosed data on the gross profit margin （GPM）， we reckon that the considerable increase in profitability in 2Q23 alone may be linked to its upgraded product structure.
　　 NAURA is poised to continue rapid growth due to its expanded product categories, increased capacity, and ongoing R&D efforts.
　　The Company has a rich product portfolio and strong market competitiveness in various specialized fields, with its products extensively used in semiconductor, new materials, and new energy sectors. In the semiconductor field, NAURA's etching machines, physical vapor deposition （PVD）， chemical vapor deposition （CVD）， oxidation/diffusion furnaces, annealing furnaces,　　cleaning machines, and other products have achieved mass production and are widely applied in integrated circuits （ICs） and the broader semiconductor industry. NAURA has established a diverse and cross-sector product platform, making it a leading domestic supplier of advanced semiconductor equipment. According to the Company's responses to investor questions via the investor relations platform （cited from Wind）， the high-aspect-ratio etching machines used for memory devices have completed the R&D phase and entered the process testing stage, with its technical indicators meeting customer requirements; in the meantime, its existing capacity is sufficient to fulfill the requirements for order production and delivery. Additionally, with funds raised from previous private placements, the Company's semiconductor equipment industrialization plant is scheduled to commence operations in 3Q23 to match increasing business needs. During the earnings briefing held on May 31, 2023, NAURA mentioned its continuous efforts to increase R&D investments in various semiconductor application fields to enhance process coverage and market share. We expect that with the proactive expansion of its product portfolio, ongoing capacity expansion, and intensified R&D efforts, NAURA is well-poised to sustain its rapid growth going forward.
　　 Potential risks:
　　Downstream demand falls short of expectations; the progress of equipment industrialization lags behind expectations; the Company's technology R&D falls short of expectations; the expansion of downstream wafer fabs' capacity falls below expectations; the US imposes tech blockades or supply chain constraints on the Company.
　　 Earnings forecast, valuation, and rating:
　　Considering the sustained and unwavering demand for domestic wafer fab construction as well as accelerated import substitution and localization due to intensified restrictions imposed by the US on China's semiconductor industry, we expect that the market share of domestic equipment vendors will experience substantial growth ahead. As a leading domestic semiconductor equipment manufacturer, NAURA is well-poised to benefit from this trend. We raise our 2023E/24E/25E revenue forecasts to Rmb20.819bn/27.916bn/ 35.972bn （from prior forecasts of Rmb20.019bn/ 26.216bn/33.762bn）。
　　Additionally, we raise our ANP forecasts to Rmb3.811bn/5.189bn/6.488bn （from prior forecasts of Rmb3.233bn/4.383bn /5.637bn）。 Correspondingly, we update the 2023E/24E/25E EPS forecasts to Rmb7.20/9.80/12.25 （originally projected to be Rmb6.11/8.28/10.64）。 Due to the Company's position as a leading domestic semiconductor equipment provider that is well-positioned to benefit from the expansion of wafer fabs and the localization trend of equipment, we see broad growth prospects ahead. As of Jul 16, 2023, the Company traded on 76x PE TTM, with an average of 166x over the past three years. Currently, comparable companies including AMEC （688012.SH）， ACM Research Shanghai （688082.SH）， Hwatsing Technology （688120.SH）， Kingsemi （688037.SH）， and Huafeng Test & Control （688200.SH） are trading at 57x 2023E PE per Wind consensus estimates. Taking into account the Company's historical performance and the valuation of comparable companies, we assign 57x 2023E PE to derive a target price of Rmb411 and reiterate the "BUY" rating.
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