On the evening of April 29th, Zhichun Technology (603690.SH) released its annual report for the year 2023. In 2023, Zhichun Technology achieved a total revenue of 3.151 billion yuan, a year-on-year increase of 3.33%; it realized a net profit attributable to the parent company of 377 million yuan, a year-on-year increase of 33.58%; and it realized a non-IFRS net profit of 102 million yuan, a year-on-year decrease of 64.25%.
The annual report indicates that the growth rate of net profit attributable to the parent company of Zhichun Technology in 2023 significantly exceeded the growth rate of revenue, mainly due to the investment income of approximately 125 million yuan generated from the transfer of part of the equity in the associated company Guizhou Weidun Jinglin Electronic Materials Co., Ltd. during the reporting period, as well as the gains from fair value changes; the decline in non-IFRS net profit was mainly affected by financial costs, depreciation expenses, and short-term losses from businesses that are still ramping up.
In 2023, the financial expenses of Zhichun Technology increased by 118.21% year-on-year, mainly due to the increase in interest expenses and exchange rate fluctuations that led to a significant increase in exchange losses; sales expenses increased by 24.49%, mainly for the development of new business markets; R&D expenses increased by 16.35%, reaching 224 million yuan.
"The management has formulated practical plans to reduce financial costs and adjust the allocation of resources among different businesses of the company. The company is confident in achieving net profit growth in the future," said Zhichun Technology.
In 2023, 13.3 billion yuan in new orders were added.
Since its listing in 2017, Zhichun Technology has allocated core resources to the integrated circuit field, with 80% of its business currently in the semiconductor industry. The annual report shows that Zhichun Technology has become a leader in high-purity process systems and a leader in wet process equipment in the domestic integrated circuit field, and has successfully become one of the main local suppliers of bulk gases for domestic 28nm and above mainstream integrated circuit manufacturing enterprises.
In the field of high-purity process systems, Zhichun Technology's system integration and support equipment have a solid leading position in the domestic market, and it has become the largest supplier of high-purity process system support equipment in the country. Currently, the business volume of support equipment is close to 40% of the total volume of system integration business, effectively replacing and changing the supply pattern originally monopolized by overseas gas companies.
"In the field of high-purity process systems, Zhichun's impurity control has reached the PPT (parts per trillion) level, and Zhichun is also the first domestic supplier to participate in the construction of the core process system of domestic 28nm wafer factories," Hong Menghua, General Manager of Zhichun Integration, previously stated to Yicai.
In the field of wet cleaning equipment, Zhiwei Technology, a subsidiary of Zhichun Technology, is one of the main suppliers in the country, capable of covering the market demand in various sub-segments of wafer manufacturing, including logic circuits, high-density storage, compound semiconductor specialty processes, etc. Currently, all the development of its wet process equipment for the 28nm node has been completed, and there are orders for all process machines. In more advanced process nodes, Zhiwei Technology has also obtained some process orders.
The annual report shows that in 2023, the new orders for wet process equipment from Zhiwei Technology were lower than the company's expectations at the beginning of the year. The progress in obtaining orders for high-end equipment was delayed due to the progress of user expansion, but in machines such as high-temperature sulfuric acid, FINETCH, and single-wafer phosphoric acid, which are still monopolized by international manufacturers, the company's delivery and verification progress are leading in the country.In the field of electronic materials, Zichun Technology provides customers with component materials and professional services, including the supply of equipment parts, bulk gas station services, component cleaning services, wafer regeneration services, and on-site services in wafer factories. Based on the existing volume of wafer production lines in operation in the domestic market, Zichun Technology has established the first complete component cleaning anode production line in Hefei, providing cleaning and surface treatment of internal parts for wafer or equipment factories. The annual report shows that its wafer regeneration business is still unable to meet the business expectations due to the low utilization rates of industry users.
In 2023, Zichun Technology's new business expansion of bulk gas stations went smoothly. The annual report indicates that the first fully domestic 12-inch wafer corresponding to 28nm and above bulk gas supply factory invested and designed by the company has fully met the standards and has been running stably in 2023, breaking the monopoly of semiconductor-grade bulk gas by international suppliers and achieving a breakthrough in domestic independent bulk gas stations for this process node.
In 2023, Zichun Technology's total new orders amounted to 13.293 billion yuan, including 8.661 billion yuan for electronic materials and special service orders with a term of 5 to 15 years.
Regarding the driving force for future performance growth, Jiang Yuan, Chairman of Zichun Technology, said in an exclusive interview with First Financial that on the one hand, it comes from high-purity process system support equipment, semiconductor wet equipment, and furnace tubes related to CAPEX (capital expenditure), which brings new orders with the increase in CAPEX; on the other hand, Zichun is horizontally laid out around user needs in the same capability circle, including wafer regeneration services, component regeneration services, and semiconductor-grade bulk gas supply services for the entire factory, so there are products and services that can achieve revenue during the user's construction period, production period, and technology upgrade period.
Balancing strategic layout and resource investment
Since its listing in 2017, Zichun Technology has clearly proposed to match the rapid growth of its business by heavily investing in R&D and increasing production capacity. From 2017 to 2023, Zichun Technology's R&D investment has soared from 0.13 billion yuan to 3.07 billion yuan.
Zhao Hao, Deputy General Manager of Zichun Technology Group, previously stated to First Financial that Zichun's R&D model starts with customer needs, promotes the organization and management of R&D resources, and ultimately focuses on core technology for research and breakthroughs, while also ensuring that it is convenient for future mass production. In the future, Zichun will still be rooted in customer and market demand, cooperate with domestic universities and research institutes, continuously iterate, and reserve cutting-edge technologies.
In terms of R&D results, Zichun's wet process equipment products have successfully developed four major platforms, covering almost all wet processes. In some machine segments that are still monopolized by international manufacturers, it has maintained a leading domestic verification and delivery progress. It is reported that as of the end of April 2024, the cumulative output of Zichun Technology's S300SPM machine on the user's mass production line has exceeded 500,000 wafers, becoming an important milestone in the domestication of high-end wet process equipment. Currently, Zichun Technology is also the only domestic manufacturer of single-wafer sulfuric acid equipment that has achieved the above single machine mass production indicators.
In addition, in the field of system integration, Zichun Technology has invested resources in developing imported substitute products for support equipment such as precursor equipment, grinding liquid equipment, gas online mixing equipment, and some core components.
In terms of production scale, Zichun Technology's production space has expanded from 9,000 square meters in 2017 to 370,000 square meters, with fixed assets and construction in progress exceeding 2 billion yuan.However, the substantial investment in research and development and production has also put financial pressure on Zichun Technology, with its cash flow being negative for the past three years. "The main contradiction in the company's development in recent years has been the contradiction between the demand for funds for research and development investment, capacity layout, supply chain security, and rapid business growth, and the supply of financial resources, but this has precisely honed the company's strategic layout and the ultimate ability to balance limited resources between long-term and short-term goals," Zichun Technology stated in its annual report.