Investment summary

Overview of events

On August 25, the company released the 2022 China report. 2022H1 realized operating income of 290 million, down 8.01% from the same period last year, and realized a net profit of 38 million, down 39.82% from the same period last year.

Steady progress in capacity expansion, extending to the upstream industrial chain to cope with raw material price fluctuations. The investment progress of the first phase of Zhongqi (Hubei) new materials construction project reached 42.70%, and the investment progress of the second phase expansion project of Gaoming second plant reached 67.32%. Affected by the rise in the price of major raw materials such as unsaturated resin, the gross profit margin of 2022H1 was 21.60%, which was lower than that of the same period last year. The gross profit margin of plate and countertop was 21.89% and 20.34% respectively, down 12.7% and 5.5% compared with the same period last year. By extending to the upstream industrial chain, the company plans to independently produce quartz fillers to ensure a stable supply of raw materials. in addition, the company will also reduce costs and increase efficiency through technical transformation and intelligent production to accelerate product iterations to cope with raw material price fluctuations.

Actively layout the race track of new silicon materials, and strive to achieve the goal of two-wheel drive of artificial quartz and new silicon materials. In terms of silicon production capacity, in July 2022, convertible bonds were issued to raise 540 million yuan to invest in the Luocheng silicon new materials R & D and manufacturing integration project (phase I). In the same month, the subsidiary bought 100% equity in Xinhai Mining and Xinlian Mining for 79.8 million yuan. Directly increase the supply of vein quartz ore by 200000 tons per year. The company actively arranges the silicon new material track to build a new profit growth point.

Investment suggestion

The company actively extends the industrial chain to ensure a stable supply of raw materials, layout of silicon new materials race track, and create the second curve of the company's growth. We estimate that the company's operating income in 2022-2024 will be 8.86 billion yuan, an increase of 22.3%, 13.7% and 17.5% over the same period last year. The homing net profit was RMB 1.52 / 1.81 billion, up 7.8% / 19.2% / 18.1%, respectively, and the EPS was 1.29 / 1.54, 1.82 yuan per share, corresponding to the share price on August 24, with a valuation of 23X/19X/17X and maintaining the "buy" rating.

Risk hint

Raw material price fluctuation risk; market competition aggravates risk; real estate market fluctuation risk