In recent years, the semiconductor industry has experienced significant growth, particularly with homegrown semiconductor equipment manufacturers gaining momentumAs of December 5th, the Semiconductor Industry Association reported that global semiconductor sales are projected to reach an unprecedented $569 billion by October 2024. This remarkable figure underscores a larger trend within the semiconductor sector, which has witnessed continuous sales growth for seven consecutive months.

Semiconductor manufacturing is driven by a foundational principle: “one generation of equipment, one generation of technology, one generation of products.” At the very forefront of this industry are semiconductor equipment manufacturers, serving as the heart and soul of semiconductor development.

By the end of the third quarter of 2024, contract liabilities within the semiconductor equipment sector soared to 20.18 billion yuan, reflecting an impressive year-on-year growth of 13.99%. Companies such as Changchuan Technology, Zhongwei Semiconductor, and Northern Huachuang have begun to showcase notable performance results, indicating a pivot back towards growth.

Among these, Changchuan Technology stands out with a quarterly report bursting with positive figures that far surpass rivals like Tongfu Microelectronics, Northern Huachuang, and Weir SharesChangchuan Technology is the only domestic firm in China that has achieved full coverage in testing equipment within the semiconductor sector, marking a notable milestone in independent innovation and technology.

In a striking announcement, the company revealed a staggering 268-fold increase in net profit, a true testament to its exceptional performance in the third quarterBetween 2019 and 2022, Changchuan Technology experienced exponential growth, almost doubling its performance annuallyHowever, this upward trajectory was abruptly halted in 2023.

The company reported an operating income of 1.775 billion yuan in 2023, a sharp decline of 31.1%. The net profit attributed to parent company shareholders dropped significantly by 90% to just 45.15 million yuan

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This downturn can largely be attributed to cyclical changes within the semiconductor industry, which led to decreased demand from downstream clients such as Changdian Technology, Huatian Technology, Tongfu Microelectronics, and others.

Nevertheless, the tides began to turn in 2024. The semiconductor landscape is warming up again, bolstered by robust downstream demand and a wave of domestic replacement within Chinese semiconductor equipmentAs a result, Changchuan Technology's performance is showing promising signs of recovery.

For the first three quarters of 2024, the company achieved revenues of 2.535 billion yuan, reflecting an astonishing year-on-year growth of 109.72%. The net profit attributable to shareholders skyrocketed to 357 million yuan, an astronomical year-on-year increase of around 26,858.78%!

An examination of the company’s contract liabilities reveals an abundance of orders, suggesting that 2023's performance slowdown was merely an artifact of broader industry challengesAs the market continues to rebound, so too will Changchuan Technology’s financial outcomes.

At the same time, the company's profitability has significantly increasedOver the past few years, Changchuan Technology has maintained a steady gross profit margin consistently above 50%, indicating a robust competitive positionHowever, its net profit margin has shown considerable fluctuations.

Encouragingly, by the third quarter of 2024, the net profit margin rebounded to 14.91%, reflecting substantial improvement compared to 2023, largely driven by a reduced sales expense ratio.

When observing performance on a quarterly basis, these improvements in gross and net profit margins are even more pronouncedIn the third quarter of 2024, the gross profit margin increased from 54.6% in the first quarter to 57.73%, while the net profit margin leaped from a mere 0.66% in the first quarter to 15.11%. This trend reflects not only an industry recovery but also indicates effective product structural optimization and cost reduction efforts by the company.

What accounts for the impressive performance of Changchuan Technology? Starting in 2023, there has been a burgeoning demand fueled by emerging industries like artificial intelligence, particularly in the advanced packaging market, which is becoming a new growth point within the semiconductor testing sector.

The rise of advanced packaging has catalyzed a significant increase in demand for testing equipment, particularly for test machines, sorting machines, and probe stations, three products representing the highest value in the market

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Test machines, in particular, account for a staggering 63.1% of the value share.

While Changchuan Technology may not yet enjoy the same recognition as its A-share counterparts like Northern Huachuang and Zhongwei Semiconductor, it has established itself as the leading domestic player in testing equipment, positioning itself as an indispensable force in the local market.

From the revenue perspective, testing machines accounted for 60.9% of Changchuan Technology's income in the first half of 2024, sorting machines contributed 30.87%, while probe stations and other products made up 8.23%.

This data shows that Changchuan Technology successfully covers the most value-driven segments of semiconductor testing equipment.

The crucial reason for their revenue growth lies in the substantial increase in the share of high-margin test machines, which soared from 32.97% in 2023 to an impressive 60.9% in 2024, constituting nearly 72% of the company’s profits.

As the only company in the country achieving full coverage across testing machinery, sorting machines, and probe stations, Changchuan Technology’s expansive product line places it in a unique position within the sector.

Looking back over a longer timeline, two primary factors contribute to the revenue growth of Changchuan Technology: endogenous growth through independent development and expansion through acquisitions.

Since 2020, the company's research and development investment has escalated from 192 million yuan to 673 million yuan in the third quarter of 2024, exhibiting a compound annual growth rate of 50%. Notably, their R&D expense ratio consistently remains above 20%—a testament to their commitment to innovation.

In contrast, rivals like Huafeng Measurement Control maintain an R&D expense ratio of 19.48%. Remarkably, even amidst a decline in revenue during 2023, Changchuan Technology continued to increase its R&D investments, reaching 788 million yuan, thus pushing the annual R&D expense ratio up to an astounding 44.38%.

In tandem with these efforts, the company has also pursued strategic acquisitions, purchasing two semiconductor testing equipment firms in 2019 and 2023. The acquisition of STI in 2019 for 490 million yuan allowed Changchuan Technology to leverage industry-leading AOI technology, supporting breakthroughs in optical technology for products like probe stations

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