Items:

The company issued an announcement of pre-increase in annual performance in 2022. The company is expected to achieve a net profit of 190.00-19.2 billion yuan in 2022, an increase of 231.9%, 235.4%, and a deduction of 190.50-19.25 billion yuan, an increase of 233.8%, 237.3% over the same period last year. Of this total, 2022Q4 achieved a net profit of 39.15-4.015 billion yuan, an increase of 213.0%, 229.0%, and a decrease of 26.0%, 29.6%. The net profit of non-parent was 39.42-4.142 billion yuan, an increase of 217.5%, 233.6%, and a decrease of 25.7%, 29.3%. The performance is in line with expectations.

Comments:

The volume of silicon business has risen rapidly, and the company's performance has achieved rapid growth. In 2022, the production of the company was stable, and the production line of 35000 tons of polysilicon in Phase B of Phase III climbed smoothly. The output of polysilicon in 2022Q1-3 reached 100100 tons, an increase of 58.98 percent over the same period last year, and sales volume reached 109500 tons, an increase of 71.88 percent over the same period last year. The company is expected to produce 3-32000 tons of polysilicon in the fourth quarter and 13.0-132000 tons in 2022. According to PVInfoLink data, the average price of polysilicon densifier in 2022 was 271 yuan / kg, an increase of 46.1% compared with the average price of 186 yuan / kg in 2021. Strong demand in the industry, silicon prices continue to rise and remain high, making silicon profits in 2022 to reach a new high in recent years, leading to a high performance of the company.

Production capacity continues to expand and enhance the advantage of scale. The 100000-ton high-purity polysilicon project in Baotou is under construction and is expected to be completed and put into production in 2023Q2, when the company's scale effect will be further enhanced. The first phase of Baotou industrial silicon and organosilicon project will build an annual production capacity of 150000 tons of high purity industrial silicon, which is expected to be put into production in 2023Q3. After the first phase of the project is completed and put into production, it is expected to achieve 100% raw material supply for the company's Baotou 100000-ton polysilicon project, helping the company to further reduce costs and increase efficiency.

Actively sign silicon material long order to ensure the steady development of business. With the release of new silicon production capacity in 2023, the shortage of silicon supply is expected to ease gradually. In order to ensure the subsequent shipment of silicon products, from October to December 2022, the company successively signed a long list of 1.2558 million tons of silicon. If the competition in the follow-up silicon link intensifies, the signing of the long order will help the company bind downstream customers, ensure the follow-up shipment of silicon, and improve the stability of business development.

Investment suggestion: the company will lay out the upstream industrial chain, continue to reduce costs and increase efficiency, and the silicon industry will take the lead in the industry. We estimate that the net profit of the company from 2022 to 2024 is respectively 191.0, 142.1 and 13.74 billion yuan (the previous value is 197.3, 142.1 and 13.74 billion yuan), and the current market capitalization corresponding to PE is respectively times that of 6-8-8. With reference to the valuation of comparable companies, and considering that this year is the cyclical high of silicon profits, 10x PE in 2023 is given, corresponding to the target price of 66.50 yuan, maintaining the "recommended" rating.

Risk factors: terminal demand is lower than expected, production capacity expansion is not as expected, market competition is intensified, and so on.