Main points of investment

Event: on June 25, Dale Xincai announced the 2023 stock option incentive plan (draft). The plan grants no more than 34 people, including middle managers and core technical (business) backbones, as well as other people that the board of directors thinks should be motivated. the number of stock options to be granted is 2.28 million, accounting for about 1.01% of the company's total share capital at the time of the announcement of the draft plan. The exercise price of the granted stock option is 16.57 yuan per share, and the grant is an one-time grant with no reserved rights and interests.

Higher assessment requirements, showing long-term confidence: the incentive plan assessment year is 2023-2024, once in each fiscal year, and the assessment goal is the first exercise period: the net profit in 2023 will reach 260 million yuan or the operating income in 2023 will increase by 100% over 2022; the second exercise period: the net profit in 2024 will reach 500 million yuan or the operating income in 2024 will increase by 250% over 2022. According to the assessment target, the company's operating income CAGR is 58.11% and net profit CAGR is 134.46% in 2022-2024. We believe that this assessment target is challenging, demonstrates the company's confidence in medium-and long-term performance growth, and is expected to further improve the company's long-term incentive mechanism to ensure development.

The production capacity of the diamond line is expanding rapidly, and there is much room for unit cost reduction. Since the end of 2022, the company's capacity expansion plan has landed steadily, although Q1 has had a periodic adverse impact on the demand of downstream silicon wafer enterprises due to the superimposed effects of many factors, such as the Spring Festival holiday, the epidemic situation and the sharp fluctuation of silicon prices. in turn, it affects the underutilization of the company's capacity, but since February, the company's operating rate began to increase rapidly, entering full production in the second half of March, and shipments reached more than 2.5 million kilometers in April. It has reached an all-time high, with full orders in May. The follow-up capacity improvement plan is being implemented and is expected to reach 6 million km / month when it is completed in June. In the future, the company will re-plan the next stage of production expansion according to the market development trend and space, and the total production capacity is expected to reach 1000 +. According to our May 30 company depth report, the company's diamond line unit cost has decreased from 60.58 yuan / km in 21 years to 27.92 yuan / km in 22 years, but there is still much room for cost reduction from the leading enterprises in the industry. with the gradual launch of the company's production capacity, coupled with the comprehensive promotion and application of "20-line machine" equipment to improve man-machine efficiency and production efficiency, scale effect will gradually appear and profitability will be greatly improved.

Investment suggestion: considering the rapid release of the company's production capacity and the continued high demand in the downstream photovoltaic industry, the company has more reserves in future trends such as tungsten wire and diamond lines, and comprehensively consider the company's equity incentive objectives. We raised the company's performance forecast for 2023-2025. After the upward revision, we forecast that the operating income from 2023 to 2025 will be 16.27,23.89 and 2.883 billion yuan respectively, with year-on-year growth rates of 153.1%, 46.9% and 20.7%, respectively. The net profit of homing mother will be 2.91 pm 415,482 million yuan, EPS 1.25,1.85,2.14 yuan respectively, corresponding to the stock price on June 30. The corresponding PE valuations are respectively 15.2, 10.3, and 8.9 times, maintaining the buy-B recommendation.

Risk tips: increased competition in the industry; tungsten wire R & D and production is not as expected; raw material prices fluctuate sharply; the prosperity of the photovoltaic industry is declining.