Quartz crucibles are scarce targets, and the industry, which has been deeply cultivated for ten years, eventually ushered in a boom. The company was founded in 2011 and quickly entered the industry in the following years. At present, the company has become the leading domestic quartz crucible manufacturer in terms of technology and production. In '22, the company produced 126,800 quartz crucibles and sold 1212,200 pieces. The average unit price was about 6,200 yuan each. We forecast that the entire industry will consume about 950,000 quartz crucibles in '23, corresponding to 440 GW of silicon wafers. Limited by the continuing shortage of high-purity quartz sand for the inner layer of crucibles this year and next two years, the company's access to resource guarantees as an industry leader will support the rapid expansion of production to maintain a high gross profit margin of over 40%.

Demand for N-shaped, large-size silicon wafers has exploded rapidly, and demand for high-quality quartz crucibles continues to be strong. The penetration rate of N-type silicon wafers will reach 25% in 2023, while 182+210 mm silicon wafers will account for more than 90% of shipments. Considering that the cost of crucibles still accounts for a very low share of the overall cost of silicon wafers but is critical to the quality and operating rate of silicon wafers, the new technology will push downstream silicon wafers and leading integrated component manufacturers to increase their procurement efforts for high-quality quartz crucibles, which may further increase unit prices.

It will take time for upstream production to expand, and resources to protect the supply of quartz sand are particularly rare. The current boom in the quartz sand industry chain stems from the slow expansion of production by overseas high-purity quartz sand suppliers compared to the expansion of production capacity in the entire photovoltaic industry chain. Currently, the price of high-purity quartz sand continues to rise. Leading companies have reached 120-130,000 yuan/ton for outer sand and 34-370,000 yuan/ton for inner layer sand. At the end of last month, Sibico announced a $200 million production expansion plan. It is expected to be put on the market as early as '25, and the quartz sand boom will continue in the short term. By 2024, the company's insurance and supply resources became the biggest leverage for profit take-off in the current market.

Binding to TCL Zhonghuan silicon wafers leader, silicon material processing supporting business has been growing steadily. The silicon material processing supporting business was one of the company's important revenue pillars in the past. It mainly focused on the cost plus proportional processing fee model. The gross profit level was relatively stable. It mainly supports TCL Central, which will grow steadily with the Central business.

Valuation: We forecast the company's revenue for 23/24/25 to be 40.2/55.0/3.85 billion yuan; the net profit of the mother is 125/17.7/1.50 billion yuan respectively; EPS is 7.7/10.9/9.3 yuan/share, respectively, and the current stock price corresponding to PE is 11.9/8.4/9.8 times, respectively. At present, large-scale expansion of overseas quartz faucet production in the upstream industry is expected to take place in early '25 as soon as possible. The company will also enjoy high prosperity with its technological and resource advantages. We gave the company 14.6 times the target PE in 2023, with a corresponding target price of 117.1 yuan. For the first time, we gave it a “superior to the market” rating.

Risks: Upstream overseas manufacturers are expanding production faster than expected; subsequent stability of insurance and supply resources continues to be weaker than expected; industry competition is stronger than expected; overall demand in the photovoltaic industry is slowing down.