Main points of investment:

Actively expand overseas business and improve the stability of photovoltaic performance. Since 2018, with the domestic photovoltaic industry policy has undergone great changes, domestic photovoltaic demand is relatively weak, product prices have fallen sharply. At the same time, the rapid decline in the price of photovoltaic products has further driven the growth of overseas demand; so far, the cost of photovoltaic power generation in many overseas countries has been lower than conventional energy and reached affordable access to the Internet, and the application areas of photovoltaic power generation in the world are constantly expanding. In the face of the booming overseas market, the company firmly implements the photovoltaic internationalization strategy. In the first three quarters of 2018, the company achieved overseas market revenue of more than 4.168 billion yuan, an increase of 100.67% over the same period last year, and a global market share of more than 5%. The strategy of "photovoltaic internationalization" alleviates the negative impact of domestic market fluctuations to a certain extent, while the overseas market has a short payback cycle, which can effectively reduce the cost of capital occupation. Looking to the future, with the growth of the global photovoltaic industry and the increase in the proportion of overseas business, the company's performance stability will be improved.

The layout of the second main business of semiconductors injects new impetus into the development of the company. Benefiting from the transfer of the semiconductor industry and the trend of domestic chip replacement, the domestic semiconductor industry has ushered in the spring of rapid development. From 2017 to 2020, 62 new semiconductor production lines are expected around the world, of which 26 are located in Chinese mainland, accounting for 42%. The large-scale wave of fab construction will bring investment opportunities for matching equipment, consumables and spare parts. The forward-looking Industrial Research Institute predicts that equipment sales in the Chinese mainland market are still expected to grow by 44% in 2018 and 46% in 2019. In 2019, Chinese mainland semiconductor equipment sales are also expected to surpass South Korea to become the world's major semiconductor equipment market.

In the face of a good external environment, the company actively seize the opportunity of semiconductor localization and lay out the semiconductor industry in order to find a new fulcrum outside photovoltaic. This fund-raising project is an important measure for the company to implement the second main business. With the landing of the project, the company will cut into the semiconductor industry from semiconductor materials, semiconductor equipment and consumables. Compared with the highly competitive traditional photovoltaic modules, the semiconductor business has fewer domestic players and higher industry barriers, so it will be an important increment outside the traditional main business of the company if it can be implemented smoothly. In addition, since both semiconductor business and photovoltaic business belong to the silicon industry chain and have certain technological connectivity, the extension to the semiconductor field can also be regarded as a natural extension of the company's traditional main business. the company can combine the previous accumulated experience in the silicon industry chain with the second main business.

With the vigorous development of the domestic semiconductor industry, there is a large gap between supply and demand of silicon wafers. With the gradual development of new demand for 5G, Internet of things, automotive electronics and other new demand, the demand for silicon wafers continues to heat up. Data show that in 2017 and 2018, the global demand for 12-inch wafers was 5.5 million and 5.7 million wafers per month, respectively. It is expected to exceed 7.5 million wafers per month in 2020, with an annual compound growth rate of more than 9.7% (without taking into account some Chinese customers). As the recycled wafer market is highly compatible with the semiconductor silicon wafer market, it is expected to usher in higher demand elasticity along with the silicon wafer. In addition, compared with the formal process silicon wafer, the recycled wafer is only used for the control and reuse of the wafer, and its resistivity, impurity content and defect quantity requirements are not as stringent as the process silicon wafer, so the R & D cycle is relatively short. it is a realistic and feasible domestic race track.

With the heating up of the demand for silicon wafers, we are also optimistic about the market prospect of semiconductor crystal drawing furnaces and their parts which are closely related to silicon wafers. In the five major processes of silicon wafer production (crystal drawing, forming, polishing, measurement, epitaxy), pulling single crystal is the most critical step, and the crystal drawing furnace and its parts required in this step are the core equipment that determine the quality of semiconductor silicon wafers. At present, almost all suppliers are monopolized by foreign countries. From a technical point of view, compared with other semiconductor equipment (lithography machine, etching machine, PVD, CVD), it is found that the domestic replacement of crystal drawing furnace and its parts (C-Si deep processing in this fund-raising project) is more feasible and more in line with the company's current situation.

Profit forecast and investment rating: cover for the first time and give an overweight rating. As an industry veteran specializing in the production and sales of photovoltaic battery chips and components, Xiexin Integration's main source of income in the past few years was mainly customers in the domestic market, facing the pressure of a long payback cycle and the failure of government subsidies to be put in place in a timely manner. as a result, the performance fluctuates greatly. Since 2018, the domestic photovoltaic market has continued to weaken, and the overseas market has made steady progress. The company has actively opened up overseas markets with certain growth and achieved good results. It is believed that with the steady implementation of the company's "photovoltaic internationalization" strategy, the payback cycle and performance stability of its main photovoltaic industry will be improved. At the same time, the business of semiconductor materials and equipment parts will be a bright spot for the company to look forward to in the future. after the events of ZTE and Jinhua, the localization of semiconductor core materials will be the key trend in the next few years. Xiexin integration in this context to cut into the semiconductor race track, not only in line with the needs of their own strategic transformation, but also in line with the national industrial development trend.

As there is still some uncertainty in the implementation of the fund-raising project, based on the principle of prudence, regardless of the contribution of the semiconductor investment project to the company's performance, the company is expected to achieve net profit of 0.20,0.35 and 45 million yuan respectively from 2018 to 2020, corresponding to 711.16 and 552.69 times of PE1243.66 from 2018 to 2020. Give the company an overweight rating.

Risk tips: 1) increased competition in photovoltaic modules; 2) the implementation of fund-raising projects is not as expected; 3) semiconductor demand is not as expected; 4) semiconductor product research and development progress is not as expected; 5) semiconductor customer verification is not as expected.