Affected by the rising price of raw materials, the climbing of silicon wafer production capacity, the payment of equity incentives and other factors, the company's profitability is under short-term pressure, and the net profit in the first three quarters of 2022 is-20.02% compared with the same period last year. From the perspective of business development, on the basis of large-diameter silicon materials, the company extends silicon parts products longitudinally and expands semiconductor large silicon wafers horizontally, with a positive strategic layout and a good momentum of development, waiting to bear fruit. With reference to the company's historical valuation level (the average PE since listing is about 97 times), the company is given 44 times PE (corresponding to the 20% valuation quantile) in 2022, corresponding to the target price of 61 yuan, maintaining the "buy" rating.

Gross profit margin pressure + equity incentives to pay fees, the first three quarters of 2022 return net profit-20.02% year-on-year. In the first three quarters of 2022, the company achieved revenue of 391 million yuan, + 11.81% compared with the same period last year; realized return net profit / deducted non-return net profit of 1.35 billion yuan, 22.03% compared with the same period last year. Among them, 2022Q3 achieved revenue of 128 million yuan, year-on-year-12.11%, month-on-month + 5.33%; net profit of 44 million yuan, year-on-year-35.54%, month-on-month + 8.84%. The revenue growth is mainly due to the high level of the large diameter silicon material market, and the decrease in profits is mainly due to the increase in costs caused by the sharp rise in the price of raw materials such as polysilicon, the high unit cost caused by the production capacity climbing stage of silicon wafer projects, and the payment of new shares after the implementation of equity incentives. As a result, the company's gross profit margin in the first three quarters of 2022 was 53.97%, down 11.5 pcts from the same period last year; the four fee rates totaled 15.14%, up 1.7 pcts from the same period last year; and the net profit rate was 34.57%, lower 13.8pcts than the same period last year.

Actively expand the production capacity of large diameter silicon materials and optimize the sales structure of products. The amount of orders made by Panlin Group and Applied Materials Inc, the mainstream overseas semiconductor equipment manufacturers, continuously reached record highs, but the parts needed for the equipment were so short that they could not be delivered in time, and there was a strong demand for large diameter silicon materials. the company said in its financial report that it would expand production capacity according to the number of direct customer orders and combined with the demand growth rate of the industry. At the same time, the company continues to optimize the sales structure of monocrystalline products according to the downstream market demand, in order to cope with the "large-scale" of silicon parts.

The trend of the R & D team is to tackle the manufacturing process of large-diameter polysilicon materials to meet the needs of customers for larger crystals.

Silicon parts have made a breakthrough, supplying domestic etching machine equipment to the original factory. The company has also made a breakthrough in the high-precision machining of silicon parts. "Multi-angle constant pressure polishing technology" has been put into production to meet the technical requirements of advanced process etching machines. The company cooperates with the silicon parts products developed by the original domestic etching equipment manufacturers (China Micro and North Huachuang), which are suitable for 12-inch plasma etching machines, have been gradually finalized and realized mass production, and have been evaluated and certified by more domestic customers at the same time. Contact with more 12-inch integrated circuit manufacturers, a number of material numbers have been evaluated and passed. After the completion of the expansion of the company's two silicon parts factories in Quanzhou and Jinzhou, the layout of the company's north and south factories can better serve customers all over the country.

Accelerate the promotion of silicon wafer projects to target the high-end product market. The argon annealed wafers developed by the company have the potential to replace overseas suppliers to supply high-quality wafers to domestic integrated circuit manufacturers. The "wafer surface ultra-flat polishing technology" developed around the special wafer process requirements of key customers has reached the company's set goals and continuously meet customer needs. The customer group of semiconductor large-size silicon wafer and the end customer group of the company's silicon parts products belong to similar customers, and the company can make use of the customer resources developed in the silicon parts market to quickly promote the customer contact work of semiconductor large-size silicon wafer. All the production equipment needed for the planned 150,000 pieces / month has been ordered, of which the equipment of the first phase of 50,000 pieces / month has reached the state of large-scale production, and the 100,000 pieces / month equipment ordered in the second phase have entered the market one after another and carried out installation and commissioning, etc. prepare in advance for batch orders after customer evaluation.

Risk factors: customer introduction progress is not as expected; capacity construction is not as expected; product price fluctuation risk.

Profit forecast, valuation and rating: taking into account the sharp rise in the price of raw materials such as polysilicon, we have lowered the company's 2022-2024 net profit forecast to 2.21 million yuan 2.86 million yuan (the original forecast is 2.77 million yuan 3.61 / 458 million yuan), corresponding to the EPS forecast of 1.38 million yuan 1.79max 2.23 yuan. With reference to the company's historical valuation level (the average PE since listing is about 97 times), the company is given 44 times PE (corresponding to the 20% valuation quantile) in 2022, corresponding to the target price of 61 yuan, maintaining the "buy" rating.