The company released its 2022 annual report. In 2022, the company achieved revenue of 1,698 million yuan, an increase of 32.32% over the previous year, and net profit attributable to deducting non-net profit of 337 million yuan, an increase of 117.19% over the previous year. 1) Looking at revenue by product, the company's revenue from silane coupling agents and gas-phase white carbon black in '22 changed 34.16% and 11.68%, respectively, to 1,494 million yuan and 113 million yuan respectively. The main reason for the increase in performance in 2022 was a sharp increase in the overall volume and price of the company's main products.

2) Looking at gross margin by product, the company's gross margins for silane coupling agents and gas-phase white carbon black changed 8.87 and -14.36 percentage points year-on-year respectively to 37.19% and 2.83% in '22. 3) Sales of silane coupling agents and gas-phase white carbon black were 58,400 tons and 0.5 million tons respectively in '22, up 10.38% and 7.15% from the previous year. 4) The three-item fee rate decreased 1.72 percentage points year over year to 6.5%. Among them, the sales, management and finance expenses ratio increased -0.03, -0.56, and -1.13 percentage points year-on-year to 2.01%, 5.17%, and -0.68%. The company's R&D expenses accounted for 3.66% of revenue in 2021, an increase of 0.23 percentage points over the previous year.

The company is a sulfur-containing silane leader. In October '22, 50,000 tons of photovoltaic-grade hydrotrichlorosilicon were put into production. 1) The company currently has a single 50,000-ton hydrochlorosilicon production capacity plant and the world's largest sulfur-containing silane production line. Among them, sulfur-containing silane coupling agent products have been certified by the China Petroleum and Chemical Industry Federation for six consecutive years to have the highest share of international and domestic markets, making it a leading domestic sulfur-containing silane enterprise. 2) The company's second set of 50,000 tons of hydrochlorosilicon and a white carbon black supporting plant with a production capacity of 10,000 tons/year entered the trial production stage in October 2022. The second set of 50,000 ton hydrochlorosilicon production equipment has the capacity to produce photovoltaic-grade hydrochlorosilicon. Some of it is used to match the production of terminal silane products, and the rest can be used to produce photovoltaic-grade hydrochlorosilicon and sell it directly to foreign countries. In November 2022, the company achieved overseas sales of photovoltaic-grade hydrochlorosilicon products. The project has been incorporated into the model.

The company is making every effort to promote the construction of key projects and plans to invest 5.2 billion yuan to build new projects. 1) The company's 30,000 ton special silicone new material project and new silicone material project are progressing in an orderly manner. The above projects are expected to be produced by the end of the first quarter of 2023. 2) The first phase (3000 cubic meters) of the company's functional aerogel project with a production capacity of 10,000 m3/year is currently undergoing civil construction. The second phase will have a functional aerogel production capacity of 7,000 m3/year. Construction is expected to be completed in December 2024. 3) The company issued an announcement in October 22 announcing an investment of 100 million yuan to establish Jiujiang Hongbai New Materials Co., Ltd., and plans to invest 5.2 billion yuan to build the “Hongbai New Materials Green New Material Recycling Industry Project”. The first phase plans to invest 2.1 billion yuan; the second phase plans to invest 3.1 billion yuan to mainly produce new green materials such as photovoltaic-grade silicon hydrochloride, high-purity silicon tetrachloride, and gas-phase white carbon black. The project has been incorporated into the model.

Profit forecasts and reference ratings. The price of trichlorosilane fell sharply, and we lowered our profit forecast for the company. We expect the company's net profit to be 369 (-38%), 422 (-42%), and 506 yuan (new) for 2023-2025, respectively. Referring to the valuations of comparable companies in the same industry, considering that the company is a leader in sulfur-containing silane, gave a certain valuation premium; based on 22 times PE in 2023, the target price was 18.70 yuan (the target price in the previous period was based on 15 times PE in 2022, +20%), maintaining a superior market rating.

Risk warning. Risk of falling product prices; investment of production capacity under construction falls short of expectations; macroeconomic downturn.