Incident: The company released its 2022 annual report on March 18. The company achieved revenue of 539 million yuan for the full year of 2022, an increase of 7.09% over the previous year; achieved net profit of 158 million yuan, a decrease of 28.44% over the previous year; and realized net profit of 155 million yuan, a year-on-year decrease of 28.59%. On a quarterly basis, the company achieved revenue of 148 million yuan in Q4 2022, an increase of 16.13% over the previous year, an increase of 19.34% over the previous year; it achieved net profit of 23 million yuan, a decrease of 48.13% over the previous year, a decrease of 53.49% over the previous year; and realized net profit of 25 million yuan after deduction of the non-return mother, a decrease of 39.21% over the previous year and a decrease of 47.30% over the previous year.

The scale of production capacity continues to lead, and the sales structure is optimized. In 2022 as a whole, the company achieved an increase of 36 million yuan in revenue compared to 2021. The company's performance improved steadily in 2022, mainly due to the stable production situation of the company's large-diameter silicon products and steady expansion of production capacity; second, the product structure continued to be optimized and upgraded, and the revenue share of products above 16 inches with high profit margins rose to 28.95%, and gross margin was 70.63%. In terms of expenses, the company's sales, management, and R&D expenses rates for the full year of 2022 were 0.09%/7.30%/7.30%, respectively, and the year-on-year changes were 8.05/11.63/-26.16, respectively. The reason for the change in company expenses in 2022: First, the company's new business silicon components and fixed assets related to large semiconductor silicon wafers entered the depreciation period; second, there was a high demand for evaluation and certification of new products during the year. R&D expenses and management expenses were invested in advance, and R&D expenses were 39 million yuan.

The production capacity of high-yield silicon wafers has been steadily expanded, and 8-inch polished silicon wafers have reached a large-scale production state: the company's three major businesses of large-diameter silicon materials, silicon components, and semiconductor large-size silicon wafers continue to advance. In 2022, the company's large-diameter polysilicon materials and manufactured products have been certified by some customers and achieved stable delivery, with a production capacity of about 500 tons/year at the end of 2022; the silicon component products developed by the company in cooperation with the original domestic etcher equipment manufacturer are suitable for 12-inch plasma etchers, and more than ten part numbers have been certified and delivered in small batches; the company's large-size semiconductor silicon wafers have been shipped regularly to a Japanese customer. All of the production equipment required for the “8-inch light-blended low-defect polishing silicon wafer project” has been ordered. Of these, the equipment for the first phase of 50,000 pieces/month has reached large-scale production, and the equipment ordered in the second phase of 100,000 pieces/month has entered the market one after another to carry out installation and commissioning work. The company is deeply involved in the semiconductor field, expanding production capacity in the semiconductor field through fund-raising projects, improving the quality and production of the company's semiconductor silicon wafer products, and continuously meeting the needs of downstream customers. The company's products are mainly sold to the Chinese market. With the rise of domestic plasma etcher equipment manufacturers and integrated circuit manufacturers, the company will gain more room for growth and stronger growth momentum.

There is a clear trend in the localization of integrated circuits, and demand for automotive electronics is strong: currently, the world's major economies are moving towards “localizing chip manufacturing”, countries are competing to launch local integrated circuit manufacturing capacity, and the scale and growth rate of global integrated circuit manufacturing capacity has increased relatively. According to data released by SEMI, global semiconductor chip shipments in 2022 were 14.7 billion square inches, an increase of 3.9% over the previous year; total sales reached 13.831 billion US dollars, an increase of 9.5% over the previous year. According to the company's independent research data, it is estimated that in the next 3-5 years, the localization rate of the domestic silicon parts market will gradually reach more than 50%. Considering the current international political and economic situation, this process is expected to accelerate. According to the operating performance report released by TSMC in January 2023, judging from annual growth, the three major technology platforms for high-performance computing, the Internet of Things, and automotive electronics increased 59%, 47%, and 74% year-on-year. Production capacity shortfall due to continued growth in automotive electronics demand is expected to continue until 2023.

The company continues to develop new businesses for silicon components and semiconductors, and plays a unique role in building supply chain security in mainland China. The company's performance is expected to benefit from the rapid development of domestic manufacturers and maintain steady growth.

First coverage, giving a “buy” rating: The company's main business is R&D, production and sales of monocrystalline silicon materials, silicon components, semiconductor-grade large-size silicon wafers and their application products. The main products are large-diameter monocrystalline silicon materials, silicon components, and large-size silicon wafers. At present, the company is rooted in an international semiconductor supply chain with a strict division of labor. In the field of large-diameter silicon materials, with years of technology accumulation and market development, the company has a clear competitive advantage in terms of product cost, yield, parameter consistency and production capacity scale. Market segment share continues to rise, and its market position and market influence are constantly increasing. Benefiting from the trend of localization of chip manufacturing and strong demand in the downstream sector, the company's net profit for 2023-2025 is estimated to be 197 million yuan, 239 million yuan, and 287 million yuan respectively; EPS is 1.23 yuan, 1.49 yuan, and 1.80 yuan respectively; PE is 41X, 34X, and 28X respectively.

Risk warning: customer and supplier concentration risk, market development and competition risk, raw material price fluctuation risk, macroeconomic risk