We held an NDR with Naura yesterday. The company’s new orders rose by ~25% YoY in 2024 driven by strong IC orders, and the momentum continued in 1Q25. It expects no material impact from geopolitical tensions (i.e., the entity list) with new bookings expected to grow at a similar rate this year. The company is proactively expanding its product coverage, through internal R&D and external acquisitions. Its key IC equipment categories include etching, deposition, thermal processing, cleaning, and newly covered ion implantation (since Mar 2025). It also plans to acquire a 17.9% stake in Kingsemi (link), a photolithography coating equipment maker. This reinforced our positive stance on the company as China’s leading SME player with the most comprehensive product portfolio. Reiterate BUY as Naura continues to benefit from China's accelerating semiconductor localization amid tightening export restrictions, while expanding its product breadth to strengthen its position as a one-stop equipment platform for customers. TP remains unchanged at RMB512 based on 36.8x 25E PE.

Industry consolidation remains a key theme, exemplified by Naura’s intended acquisition of ~18% stake in Kingsemi (688037 CH, NR). Kingsemi’s 2024 revenue was RMB1.8bn (vs. Naura: RMB29.8bn), with a 37.7% GPM (vs. Naura: 42.9%). The company believes this strategic move enhances Naura’s evolution into a comprehensive semiconductor equipment platform, combining organic growth with targeted M&A to deepen product coverage and customer penetration. The transaction is expected to close by 3Q25. The deal also validates our prior view that domestic semiconductor industry consolidation will gain pace in 2025E.

Naura remains confident in the domestic SME capex cycle, citing strong demand from both mature and advanced node projects. SEMI estimated China se equipment capex topped US$50bn (+35% YoY) in 2024, driven by front-loaded spending amid geopolitical uncertainty. SEMI projects China market size to decline to US$38bn in 2025E after the 2024 peak. Naura expects a normalization of demand for overseas products, creating more space for local vendors. Mgmt. expects investment in domestic mature nodes to stabilize over the next 2-3 years, while advanced logic and memory, which already accounted over half of 2024 sales, will likely drive future upside. We forecast Naura’s revenue to grow at a higher-than-peers’ avg. rate of 30% to RMB38.9bn in 2025E, implying a 6% share gain based on SEMI’s forecast.

Maintain BUY with TP unchanged at RMB512. We view Naura as the best- positioned player in China’s SME landscape, given its comprehensive product suite, growing industry partnerships, and rising exposure to advanced process nodes. We slightly lower 2025E NP by 2% on GPM revision while maintaining revenue forecast. The stock is currently trading at 31.2x 25E P/E. TP is based on 36.8x 25E P/E, close to 1SD above 3-yr hist. avg. of 31.2x, as we believe there is ongoing rerating of the sector amid increasing geopolitical uncertainties. TP reflects 1.1x PEG and 18% upside. Potential risks: declining domestic capex and intensified competition.