Event

The company released a third-quarter report that 2022Q1~Q3 realized revenue of 440 million yuan, + 141.9% compared with the same period last year, and returned to its mother with a net profit of 70 million yuan, reversing losses over the same period last year. Of this total, 2022Q3 achieved revenue of 170 million yuan, + 103.0% year-on-year, and returned to its mother with a net profit of 30 million yuan, reversing losses over the same period last year.

Comment

Strong demand + increased production capacity, gross profit margin, net profit margin further improved. 2022Q1~Q3 realized revenue / return net profit of 440 million yuan (+ 141.9%) / 70 million yuan (turnround), of which Q3 realized revenue / return net profit of 170 million yuan (+ 103.0%) / 30 million yuan (turnround) in a single quarter. Benefiting from the magnificent demeanor of the photovoltaic industry, the company's Kumgang line is full of orders, at the same time, the company is actively expanding production, Q3 production capacity has doubled compared with Q1, strong demand + capacity improvement has driven a substantial increase in performance.

In terms of gross profit margin, 2022Q1~Q3 's gross profit margin / net profit margin is 34.1% (+ 19.1pct) / 16.3% (turnaround) respectively, of which Q3 single-quarter gross profit margin / net profit rate is 38.0% (+ 19.1pct) / 18.5% (turnround), mainly because with the release of production capacity, the material consumption cost of the product decreases, man-machine efficiency and quality improve steadily, and the scale effect gradually appears. In terms of expense rate, Q1~Q3 's sales / management / R & D / financial expense rate is 3.3%, 4.5%, 4.5%, 1.3%, respectively, compared with the same period last year + 0.2pct/-6.7pct/-1.7pct/-6.1pct, and the total expense rate during the period is from-14.4pct to 14.0%, mainly because sales, management, R & D expenses increase with business expansion, but management and R & D expenses are still lower than sales revenue growth. The financial expenses are reduced due to the convertible debt to equity and redemption in the current period. Among them, the sales / management / R & D / financial expense rates of Q3 company are 5.1%, 4.4%, 4.5%, 1.4%, respectively, compared with the same period last year + 2.8pct/-5.3pct/+0.8pct/-4.3pct. The net cash flow of Q1~Q3 's operating activities is-150 million yuan (- 218.0%), which is mainly due to the increase in the purchase of raw materials at the bottom of the production. After the completion of the fixed increase of the company, part of the net funds raised will be used to supplement current funds, and the financial pressure may be effectively alleviated.

The increase in production capacity has accelerated and is expected to reach 3 million km / month in October. With the rapid growth of global photovoltaic installation, the strong demand for silicon wafers boosts production capacity. Diamond wire, as the main consumable material for silicon wafer cutting, the demand is released rapidly. Benefiting from the high prosperity of the photovoltaic industry, the company's fine line products are full of orders on hand. At the same time, the company's production capacity is increasing month by month, according to institutional research and announcement data, with the company's self-made 20-line machine verified successfully and put into use, the production capacity of thin line (equipment input) is expected to increase rapidly from 800000 km / month in January to 3 million km / month in October, 1-2 months ahead of schedule, and the maximum production capacity of the existing base can be expanded to 5 million km / month. Based on previous assumptions, we expect annual shipments to reach 16.9 million km (only 3.36 million km for 2021 annuity rigid line category). The company seizes the opportunity of the industry to greatly expand production, superimposed technological transformation to achieve capacity utilization and product performance, is expected to follow the growth of downstream high-quality silicon wafer enterprises to maintain a high growth trend.

The thinning layout closely follows the iterative requirements, and the leading technology + customer reserve lays a solid foundation. The trend of thin wafer and large size of photovoltaic silicon wafer accelerates the process of diamond wire thinning, and the company's product specification iteration closely follows the transformation of market demand. 1) in the field of carbon steel diamond line, the current mainstream wire diameter of the industry is concentrated in 35 μ m-40 μ m. The company continues to launch small wire diameter products to meet the needs of fine wafer cutting. The sales share of 40 μ m / 38 μ m / 35 μ m is about 20%, 50%, 20%, and the proportion of 33 μ m batch supply needs to be improved. 2) in the field of tungsten wire diamond wire, the current mainstream wire diameter of the industry is about 32 μ m, and the company supplies 30 μ m ~ 32 μ m products on a large scale, and its research and development has reached 28 μ m. With the completion and commissioning of Xiamen tungsten industry, medium tungsten high-tech tungsten wire production capacity construction project, supply bottleneck is expected to open, tungsten wire material cost can be controlled to improve the performance-to-price ratio of tungsten wire products, tungsten wire diamond wire may gradually infiltrate, the company is expected to be the first to benefit by virtue of technology and customer reserves.

Investment suggestion

Consider: 1) the company's capacity expansion is faster than expected, and production capacity is expected to continue to increase in 2023; 2) the increase in gross profit margin caused by scale effect, the decline in expense rate is higher than expected, and profitability continues to increase significantly. We estimate that the company will achieve revenue of 7.5max 14.4 / 1.97 billion in 2024, net profit of 1.260max of 350,000,000, and EPS 1.0Compare of 2.2max of 2.9pm in 2024, which will maintain the "recommended" rating based on the closing price of $33.17x on October 25th and 33-15-12 of PE.

Risk hint

The landing of production capacity is not as expected; the competition in the industry is higher than expected; the sales of products are not as expected.