Building for the next leg of WFE growth

Buildingfor the next legof WFE growth Naura reported FY25 revenue of RMB39.4bn, up 31% YoY and broadly in linewith our and Bloomberg consensus, while net profit declined 1.8% YoY toRMB5.5bn, below expectations due to heavier R&D investment andopexassociated withincreasedhiring and Kingsemi consolidation. While 4Qmargincame under pressure, we view this primarilyas a result ofintensified productvalidation rather than deterioration in end demand. Encouragingly, the Companycontinued to deliver strong top-line momentumonrobust IC equipment growth(50%+ YoY)and ongoing product expansion into higher-valueprocess steps.We remain positive on Naura’s positioning as a core beneficiary of China’s WFElocalization trend and domestic foundry capex expansion.Maintain BUY andraise TP to RMB540, based on35x 2027E P/E (prev. 35x 2026EP/E),as welook through near-term margin headwinds and focus on the sequential recoveryand the anticipated earnings inflection in 2027E.Naura’setching and deposition segment revenue both exceeded Target PriceRMB540.00(Previous TPRMB460.00)Up/Downside14.6%Current PriceRMB471.23 China Semiconductors Kevin ZHANG(852) 3761 8727kevinzhang@cmbi.com.hk AaronGUO(852) 3916 3715aaronguo@cmbi.com.hk RMB10bn in FY25, driving IC equipment revenue growth of more than 50%YoY, per mgmt. We believe this performance shows Naura’s strengtheningposition in China’s domestic WFE supply chain. Looking ahead, new productofferings such as 12-inchPVD, vertical furnace systems and HBM-relatedhybrid bonding solutionsshould support deeper penetration into logic,memory and advanced packaging, providing a broader and higher-qualitygrowth runway into 2026E and beyond. We expect IC equipment sales togrow by over 40% YoY in 2026E. Stock Data Source: FactSet Near-term profitability softened on investment and validation butshould improve as scale benefits emerge.Naura’s 4Q margins werepressured by elevated component upgrade costs during client validation fornew productsandweaker profitability in non-IC segments such as PV. At thesame time,Nauracontinued to invest aggressively for future growth, withR&Dexpensesup 46% YoY and admin expenses rising 102% YoY followingtheKingsemi consolidation and headcount expansion.We expectprofitability to improve progressively as validated tools move into volumeproduction, product mix shifts further toward IC equipment, and operatingleverage strengthens into 2H26. Maintain BUY with TP revised to RMB540, based on its three-yearhistorical forward average P/E.We remain bullish on China’s WFE sector,as accelerating domestic substitution and sustained capex from logic andmemory foundries continue to reinforce a strong multi-year growth backdrop.With the most comprehensive WFE portfolio among domestic peers, Naurais positioned to capture this opportunity across a broadening range ofprocess steps. We expect margin expansion to reaccelerate from 2027Eonward,driven by a more favorable mix shift toward higher-marginadvanced-node products and stronger operating leverage as scalecontinues to build. Source: FactSet Source:Bloomberg data, CMBIGM estimates Source:Bloombergdata, CMBIGM estimates Disclosures& Disclaimers Analyst CertificationThe research analyst who is primary responsible for the content of this research report, in wholeor in part, certifies that with respect to the securities or issuer that the analyst covered in this report: (1) all of the views expressed accurately reflect his or her personal views about the subject securities or issuer; and (2)no part of his or hercompensation was, is, or will be, directly or indirectly, related to the specific views expressed by that analyst in this report.Besides, the analyst confirms that neither the analyst nor his/her associates (as defined in the code of conduct issued by TheHong Kong Securities and Futures Commission) (1) have dealt in or traded in the stock(s) covered in this research report within 30 calendar days prior to thedate of issue of this report; (2) willdeal in or trade in the stock(s) covered in this researchreport 3 business days after the date of issue of this report; (3) serve as an officer of any of the HongKong listed companies covered in this report; and (4) have any financial interests in the Hong Kong listed companies coveredin this report. CMBIGM RatingsBUY : Stock with potential return of over 15% over next 12 monthsHOLD: Stock with potential return of +15% to-10% over next 12 monthsSELL: Stock with potential loss of over 10% over next 12 monthsNOT RATED: Stock is not rated byCMBIGM :Industry expected to outperform the relevant broad market benchmark over next 12 months:Industry expected to perform in-line with the relevant broad market benchmark over next 12 months:Industry expected to underperform the relevant broad market benchmark over next 12 months CMB InternationalGlobal MarketsLimited Address: 45/F, Champion Tower, 3 Garden Road, Hong Kong, Tel: (852) 3900 0888 Fax: (852)3900 0800CMB InternationalGloba