Overcoming challenges is the only way to emerge from darkness.

Since 2018, the display panel industry has faced a downturn, with global monitor panel sales dropping to 158 million units by 2022, marking a roughly 9% year-over-year declineA glimmer of recovery was anticipated only in the latter half of 2023. This decline, in turn, reverberated throughout the industry, impacting companies across the supply chain, including major panel testing equipment manufacturers like Jingce Electronics, Huaxing Yunchuang, and Jingzhida, all witnessing a slowdown in revenue growth over recent years.

Yet, in the face of this industry-wide struggle, panel testing equipment companies are actively searching for alternatives, shifting their focus toward semiconductor testing, measurement, and inspection equipmentThe increasing complexity of chip manufacturing procedures means demand for sophisticated testing and measurement equipment is more crucial than ever for ensuring yield rates in chip production.

Moreover, the surge in semiconductor production spurred by advancements in artificial intelligence has further inflated the need for this equipmentIn 2023, the global semiconductor measurement and inspection equipment market reached $12.83 billion, with projections suggesting it could climb to $18.67 billion by 2026 as the industry stabilizes.

As a result of this burgeoning demand, testing equipment firms are increasingly investing in semiconductor testing and related technologies, though they are differentiating their specific focus areasFor instance, Huaxing Yunchuang and Jingzhida are concentrating on testing equipment, while Jingce Electronics leans toward measurement and inspection tools.

Generally, measurement and inspection equipment poses greater challenges and offers higher value compared to testing equipment, which is reflected in the profit margins of semiconductor businesses among these companies

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In 2023, Jingce Electronics boasted a semiconductor business gross margin of 52.8%, nearly double that of Jingzhida.

Given its strong profitability, Jingce Electronics has reported rapid growthIn the first three quarters of 2024, the firm's revenue hit 1.83 billion yuan, an 18.5% year-over-year increase, while its net profit soared by an astounding 752.6% to 82 million yuanHowever, as impressive as this performance is, it merely reflects past outcomesWhat can sustain Jingce Electronics' growth moving forward?

1. Robust R&D and Production Capabilities Driving Growth

In the domestic semiconductor measurement and inspection equipment sector, competitors like Changchuan Technology and Saiting Co. primarily expand their capabilities through acquisitionsIn contrast, Jingce Electronics stands out as one of the few players enhancing its product coverage through independent research and development.

In recent years, the company has consistently ramped up its research and development spending, maintaining substantial capital expenditures primarily represented by construction projects, thus establishing a solid foundation for technological advancement.

The results of this investment are noteworthy; even when placed against traditional semiconductor measurement and inspection equipment firms, Jingce Electronics performs commendablyIncluding verification and small-volume product shipments, the company's product coverage has reached 39.6%, placing it at the forefront of the industry.

Among its flagship products, the firm has successfully delivered and validated 7nm advanced process technologies for its film thickness, OCD equipment, and electron beam defect review tools; it has even entered the verification phase for even more advanced processes.

This strong product portfolio has earned the trust of numerous clients, including major players like SMIC, Hua Hong Group, and Yangtze Memory TechnologiesBy the end of the third quarter of 2024, the company had secured 1.69 billion yuan in orders for semiconductor testing, a 13.5% year-over-year increase.

However, it is important to note that the majority of the company’s products in semiconductor measurement and inspection equipment fall under categories with relatively low technical barriers, and they are only beginning to break into more advanced offerings.

In 2023, Jingce Electronics secured a 170 million yuan order for advanced 14nm optical inspection equipment, which it delivered by September 2024.

While pioneering firms such as ZK Feimiao and Shanghai Rui Li have made faster progress in high-barrier technologies, including precision measurement and nano-pattern wafer inspection equipment, Jingce Electronics is poised to close the technological gap as its R&D intensifies, potentially generating even stronger growth momentum.

2. Urgent Need for Domestic Substitutes Presents Development Opportunities

The global measurement and inspection equipment market is currently dominated by foreign manufacturers, including KLA Corporation, Applied Materials, and Hitachi, with KLA holding a staggering 50% market share

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In 2023, the domestic market share for semiconductor measurement and inspection equipment was approximately 3%.

However, there is encouraging news: domestic enterprises are making steady breakthroughsBetween 2018 and 2022, ZK Feimiao's domestic market share rose from 0.4% to 2.3%, while Jingce Electronics increased its share from 0.03% to 0.84%. Collectively, the market shares of Rui Li, Jingce, and Feimiao grew from 0.7% to 3.5%.

Further, Jingce Electronics has unique advantages over its foreign competitorsFirst is the reduced lead time; the company generally has a delivery cycle of over six months compared to over twelve months for international firmsAdditionally, there is a distinct price advantage—while maintaining equivalent performance, the company’s equipment can be priced about 30% lower than that of foreign counterparts due to lower labor and processing costs, offering excellent cost-effectiveness.

As the trend of domestic substitution continues, Jingce Electronics, leveraging these numerous advantages, is poised for substantial growth.

3. Recovery of Traditional Business and Surge in New Opportunities

While the company’s semiconductor inspection equipment business is expanding rapidly, its display testing equipment still accounts for a significant 70% of its revenue, exerting considerable influence on overall performance.

After a few years of stagnation, the display industry has started to emerge from its cyclical low, with significant investment in major panel-related projects surpassing 200 billion yuan in the first half of 2024.

Moreover, the company is adapting to changes in downstream demand by exploring XR inspection technologies, which could lead to significant growth in the future.

In the third quarter of 2024, the company's display business achieved revenue of 493 million yuan, which represents a year-over-year increase of 56%, with orders on hand totaling 830 million yuan.

In addition to the recovery in the display testing segment, the growth of the company’s new energy inspection business is also noteworthy

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