Profit increased sharply throughout the year, and the boom in silicon trichloride declined in the fourth quarter. The company released its 2022 annual report, with annual revenue of 2.65 billion yuan (+65.6% year-on-year) and net profit of 750 million yuan (+123.2% year-on-year).

Among them, revenue for the fourth quarter alone was 6.0 billion yuan (+27.4% YoY, -16.6% YoY); Guimu's net profit was 130 million yuan (+41.7% YoY, -42.6% YoY). The company's annual gross margin was 41.2%, an increase of 7.3 pcts over the previous year, a year-on-year increase of 7.3 pcts, a year-on-year rate of 3.4%, a year-on-year decrease of 0.7 pcts. Among them, the sales cost/management cost/financial expenses ratio was 0.7/2.7/ -0.1%, year-on-year -0.2/-0.5/-0.1pcts, the R&D expense ratio reached 4.1%, the annual net interest rate was 28.1%, an increase of 7.1 pcts over the previous year. The performance was in line with expectations.

Silicon tetrachloride products are rapidly released, and the operating rate of potassium sulfate is low due to export policies. By sector, the project with an annual output of 50,000 tons of hydrochlorosilicon entered the trial production stage in November 2022. The annual revenue of silicon series products was 1.35 billion yuan (+93.2% year-on-year), and the sales volume of hydrochloride/silicon tetrachloride was 61/24,000 tons respectively (+2.1%/+42.4% year-on-year). The gross margin reached 60.3%, an increase of 17.1 pcts over the previous year. The annual revenue of potassium-series products was 8.3 billion yuan (+9.8% year-on-year), sales of potassium hydroxide/potassium sulfate were 72/37,000 tons (+1.2/ -57.1% year-on-year), and gross margin was 18.7%, a year-on-year decrease of 8.0 pcts. The production capacity of the company's newly built silane coupling agent was gradually released, achieving annual revenue of 3.1 billion yuan, with production and sales volume of 14/12,000 tons respectively, with an average price of 26,200 yuan/ton, contributing an increase to the company's performance.

Consolidate the leading position of global hydrochlorosilicon and expand the layout of new downstream materials. The company's current main production capacity includes 115,000 tons/year of silicon tetrachloride, 50,000 tons/year of silicon tetrachloride, 56,000 tons/year of potassium hydroxide, and 100,000 tons/year of potassium sulfate. The company is under construction of 72,200 tons/year of silicon trichloride expansion and 28,900 tons/year of silicon tetrachloride, which is expected to be put into operation in April 2023; continues to promote the “30,000 tons of propylene chloride project per year”; initiated the design work for the third phase of the silane coupling agent project to expand the production scale of silane coupling agents and improve the product sequence.

The company has now formed a “four-silicon-two gas-two potassium” production system. In the future, it will continue to gain strength in the four major industrial chain sectors of basic chemicals, high-purity electronic materials, inorganic silicon, and silicone. Electronic gases (electronic grade dichlorodihydrogen silicon, electronic grade silicon tetrachloride), silane coupling agent intermediates and series products, and downstream new material products such as gas-phase silicon dioxide are expected to be rapidly released, and future growth can be expected.

Risk warning: Risks such as the risk of new project commissioning falling short of expectations, risks such as lower downstream demand than expected, product price declines exceeding expectations, increased competition for new entrants, etc., and risk of company executives reducing their holdings.

Investment advice: Maintain a “buy” rating.

Net profit attributable to the parent in 2023-2025 is expected to be 583/7.46/814 million yuan, with a year-on-year growth rate of -22.0/27.8/ 9.1%; diluted EPS is 2.14/2.73/2.98 yuan. The current stock price corresponds to PE = 16/12/11x, maintaining the “buy” rating.