Events:

The company released its financial results for the first quarter of 2018, with revenue of 295 million yuan, an increase of 211% over the same period last year, and a net profit of 87.935 million yuan, an increase of 403%, or 0.86 yuan per share.

Viewpoint:

The company's revenue in the first quarter increased by 211% compared with the same period last year, and its profit increased by 403% compared with the same period last year, mainly due to the rapid development of the company's high gross margin, the main business of the diamond line.

From an industry point of view, 100% application of diamond wire in polysilicon wafer slices is expected to be completed in the first quarter, that is, 2018 is a year when the demand for diamond wire is superimposed by single crystal silicon wafers and polysilicon wafers, and the concentration of the diamond wire industry continues to increase. this has led to a big increase in sales of leading enterprises. We expect that the dividend of the diamond line industry will be maintained throughout this year, and the company, as a leading enterprise, is expected to achieve a larger market share.

The cash flow of the company's operating activities fell 210% compared with the same period last year, mainly due to a big increase in sales of the diamond line, but customers settled with bank acceptance drafts, resulting in an increase in bills receivable and prepayments for raw materials purchases. The company's net profit per quarter is 87.94 million yuan, slightly higher than 86.56 million yuan in the fourth quarter of 17 years, and much higher than 17.49 million yuan in the first quarter of 17 years. And from the gross profit margin, the company's gross profit margin in the first quarter is as high as 48.45%, much higher than the 41.46% for the whole of 17 years. We expect to be mainly driven by the high gross margin of the diamond line business. With the continued rapid development of the diamond line business, the high gross profit margin in a single quarter is expected to continue.

Conclusion:

We are optimistic that the photovoltaic industry will be installed throughout the year, and at present, the superposition effect of monocrystalline silicon wafers and polysilicon wafers on the demand for the diamond line has already appeared, coupled with the enhancement of the concentration of the diamond line industry, the high gross profit margin, and the year-round dividend period of the diamond line industry. The company as a leader will fully benefit. It is estimated that the company's revenue from 2018 to 2019 will be 1.92 billion yuan, 2.83 billion yuan and 3.93 billion yuan respectively, the net profit will be 472 million yuan, 606 million yuan and 789 million yuan respectively, the EPS will be 4.63,5.94,7.73 yuan respectively, and the corresponding PE will be 25.2x, 19.7x and 15.1x respectively, maintaining the "highly recommended" rating.

Risk hint

(1) Photovoltaic policy fluctuates more than expected. (2) Photovoltaic installation falls short of expectations. (3) the price of Diamond Line falls faster than expected.