Event: the company released the third quarter report of 2022, revenue in the first three quarters of 2022 was 390 million yuan, up 11.8% from the same period last year; net profit from home was 140 million yuan, down 20.% from the same period last year; of which, revenue from Q3 in a single quarter was 130 million yuan, down 12.1% from the same period last year; net profit from home was 44.408 million yuan, down 35.5% from the same period last year.

The performance growth rate is under short-term pressure, and the gross profit margin is higher than the previous month. In the first three quarters of 2022, the company actively improved the competitiveness of its products and won sales orders. against the background of the decline of the semiconductor cycle, the company achieved revenue of 390 million yuan, an increase of 11.8 percent over the same period last year. However, due to the sharp rise in the prices of raw materials such as high-purity polysilicon, quartz crucibles and graphite parts, the company's raw material costs were impacted, and after the superimposed implementation of equity incentives, the payment of new shares and other factors, the company's Q3 net profit declined significantly in a single quarter. In terms of specific profitability, the company's gross profit margin in the first three quarters was about 54%, and the net profit rate was 34.6%, a significant decline compared with the same period last year, but in the third quarter, the company's gross profit margin improved by 1.35pp compared with the second quarter, about 51%. We expect the company's gross profit margin to hit bottom and pick up in the future. In terms of expense rate, in the first three quarters, the company's sales expense rate was 0.8%, management expense rate was 8.4%, financial rate was-2.1%, R & D investment totaled 31.447 million yuan, and R & D expense rate reached 8.1%.

The business of light-doped low-defect silicon wafers is progressing smoothly, and progress has been made in a wide range of high-end silicon wafer products. At present, the surface flatness and metal content control of the company's 8-inch ultra-flat silicon wafers with low defects have reached the company's predetermined goals, and customer evaluation is progressing smoothly. At the same time, the company has entered the domestic mainstream integrated circuit manufacturer certification system, and has started a number of wafer evaluation and sample delivery work, among which a certain wafer has been supplied to a Japanese customer for a long time.

In other high-end wafer products, the company's argon annealed wafer products have also started customer docking work. In terms of capacity layout, the company has completed the order of equipment with an annual output of 1.8 million pieces, and the production line of 50, 000 pieces per month is expected to reach full production by the end of this year.

The main business of monocrystalline silicon materials to enhance product competitiveness, silicon parts business to achieve batch delivery. The company continues to optimize the long crystal process of large diameter monocrystalline silicon to improve equipment production efficiency, single batch output and yield. In terms of silicon parts, the company has met the cleanliness requirements of advanced manufacturing processes, and some silicon parts products have been delivered. At the same time, the company approached a number of 12-inch wafer factories, and the overall customer feedback was good. In the future, with the continuous expansion of customers and the passing of the evaluation of the new material number, the business is expected to usher in a stage of rapid growth.

Profit forecast and investment advice. It is estimated that the company's net profit from 2022 to 2024 will be 2,3.6 and 430 million yuan respectively, corresponding to 35, 20 and 16 times PE respectively, maintaining a "buy" rating.

Risk hints: the localization process of semiconductors is not as expected; the production expansion of downstream etching equipment factories and wafer factories is not as expected; the progress of certification of silicon electrode parts and lightly doped silicon wafers is not as expected; exchange rate fluctuations lead to exchange losses; equity dispersion without real controllers may lead to operational risks, and so on.