Key takeaway

The company's revenue and net profit attributable to shareholders of the parent company increased by 68.95% and 98.13% YoY, respectively, in 1H26, exceeding our expectations. Driven by rising capital expenditure on high-end PCBs across the AI computing power value chain, the company's high-end LDI equipment recorded increases in both sales volume and prices. In addition, orders for advanced packaging lithography equipment created new growth, while the commissioning of capacity at the phase II production base and improved delivery capabilities further supported growth. Strong demand in both domestic and overseas markets drove the company's revenue growth. The company's profitability improved significantly in 2Q26, with its net margin reaching a record quarterly high. CFMEE is a global leader in direct imaging lithography equipment for PCBs and is actively expanding into laser drilling equipment to unlock incremental growth. The company also holds a leading first-mover advantage in mSAP and advanced packaging, both of which have clear industry growth trends. We are optimistic about the company's growth trajectory.

Event

The company released its 1H26 report, recording revenue of RMB1.106bn, up 68.95% YoY, and net profit attributable to shareholders of the parent company of RMB281mn, up 98.13% YoY. In 2Q26, revenue reached RMB591mn, up 43.36% YoY, while net profit attributable to shareholders of the parent company reached RMB173mn, up 91.89% YoY.

Quick Take

Profitability improved significantly in 2Q26, with results exceeding our expectations

Driven by rising capital expenditure on high-end PCBs across the AI computing power value chain, high-end LDI equipment recorded increases in both sales volume and prices. Orders for advanced packaging lithography equipment also created new growth, while the commissioning of capacity at the phase II production base and improved delivery capabilities further supported growth. Strong demand in both domestic and overseas markets drove the company's revenue growth. The company's revenue increased by 68.95% YoY in 1H26 and by 43.36% YoY in 2Q26 alone, demonstrating rapid revenue growth. By revenue mix, the PCB business generated revenue of RMB880mn in 1H26, accounting for 79.6% of the total, while the pan-semiconductor business generated revenue of RMB169mn, accounting for 15.3%. Revenue growth in 1H26 was mainly driven by the PCB business, while revenue recognition for substrate and advanced packaging equipment is expected to be more concentrated in 2H26.

The company's gross margin was 44.87% in 2Q26, up 2.32 pcts YoY and 3.93 pcts QoQ, mainly due to a higher share of advanced circuit equipment models. In terms of expenses, the company's selling expense, administrative expense, R&D expense, and finance expense ratios were 2.89%, 2.92%, 4.69%, and 1.69%, respectively, in 2Q26, changing by -0.24 pcts, -0.10 pcts, -4.51 pcts, and +1.69 pcts YoY. Economies of scale continued to emerge amid rapid revenue growth, driving a significant YoY decline in expense ratios. The company's net margin was 29.29% in 2Q26, up 7.41 pcts YoY and 8.23 pcts QoQ. Profitability improved substantially, with the quarterly net margin reaching a record high since listing.

Synergistic breakthroughs across multiple pan-semiconductor segments, with clear strategic positioning advantages in mSAP and advanced packaging

Amid expectations of rising 1.6T optical module shipments, SLP manufacturers using the mSAP process are actively expanding capacity. The company's MAS 6P dedicated LDI equipment for packaging substrates delivers a resolution of 6/6 μm and over 50% higher production efficiency than competing overseas products. Its overall equipment yield and operating performance are on par with those of leading international suppliers. As a key domestically produced solution for mSAP processes, it is being delivered in volume to leading domestic packaging substrate manufacturers, further breaking the monopoly of overseas equipment suppliers. Orders are expected to grow rapidly. In addition, the company has newly launched the MAS 2, which delivers an ultra-fine L/S pattern exposure resolution of 2/2 μm and is designed f or high-end IC substrates and panel-level packaging applications.

1H26 will be a critical window for the company's advanced packaging equipment to achieve large -scale adoption. HBM stacking for AI chips worldwide continues to drive capacity shortages in CoWoS-L, SoW, and 2.5D RDL interposers. With its core advantages of maskless operation, intelligent dynamic alignment correction, and compatibility with large-format substrates, direct imaging lithography has become essential equipment for middle-end processes. The company's WLP 2000 wafer-level direct imaging lithography equipment has been supplied in volume to leading domestic semiconductor packaging and testing companies. It has passed reliability validation on a leading manufacturer's CoWoS-L production line and secured repeat volume orders. In panel-level packaging, the company's independently developed PLP 2000, China's first direct imaging lithography system for 510 mm × 515 mm panel-level packaging, has successfully secured an order from a major advanced packaging customer. The PLP 2000 can meet the 2 μm mass-production resolution requirements of advanced packaging processes such as CoPoS, glass substrates, and FOPLP. The company's wafer-level and panel-level equipment forms a complete advanced packaging lithography solution, covering the full range of processes from 2.xD wafer interposers to large-format panel packaging. The company is well positioned to benefit from the long-term growth of the Chiplet heterogeneous integration industry.

Investment recommendation: CFMEE is a global leader in direct imaging lithography equipment for PCBs. Its active expansion into laser drilling equipment provides incremental growth opportunities. The company also has a leading strategic position in mSAP and advanced packaging, both of which are supported by clear industry trends. We expect the company to generate revenue of RMB2.499bn, RMB4.009bn, and RMB5.379bn in 2026 – 2028, up 77.45%, 60.44%, and 34.18% YoY, respectively, and net profit attributable to shareholders of the parent company of RMB626mn, RMB1.029bn, and RMB1.501bn, up 115.88%, 64.37%, and 45.91% YoY, respectively, implying P/E ratios of 98.03x, 59.64x, and 40.87x, respectively; we maintain our “Buy” rating.

Risks: ① Risk of intensifying market competition: In recent years, China’s PCB and pan-semiconductor equipment industries have achieved continuous technological advances, while the advantages of domestic equipment in cost performance and after-sales service have gradually become evident. The gradual rise of Chinese PCB and pan-semiconductor equipment manufacturers may draw greater attention from international competitors, thereby intensifying market competition. In addition, rapid demand growth in the PCB and pan-semiconductor equipment markets, coupled with the substantial scope for import substitution in China, may attract more potential entrants. Therefore, the company faces the risk of intensifying market competition.

Risk of weaker-than-expected downstream market growth: The company’s industry is affected by demand fluctuations in downstream end markets for PCB and pan-semiconductor products, and its development tends to be cyclical; if the shift toward higher-end products in these end markets slows or the global macroeconomic environment experiences a cyclical downturn, market demand for products in these end markets will be directly affected, which may adversely affect demand for upstream PCB and pan-semiconductor lithography equipment and expose the company to cyclical volatility.