Key points of investment

Core logic

The company is an established leading photovoltaic diamond wire company. New production capacity combined with increased penetration rate of tungsten wire is expected to drive the company's performance to exceed expectations.

Logic that exceeds expectations

(1) Shipments exceeded expectations

1. Market expectations: The company's market share remains relatively stable. Basis for judgment: The historical competition pattern of the Diamond Line link is relatively stable.

2. We predict that as the company's new production capacity reaches production capacity and increases its share among downstream customers, the shipment volume is expected to exceed expectations.

3. Driving factors: (1) New customer development, leading silicon wafers gradually increase supply chain openness. The company is expected to gain a certain share, and silicon wafers such as Hongyuan, Gaojing, and Beijing Express expand production on a large scale. The company has strong product advantages in new forces, and its share is expected to increase further; (2) New product introduction, the company's tungsten wire products have an advantage in R&D and mass production progress, and are expected to benefit from the overall trend of industry thinning and promote market share growth.

4. Inspection indicators: monthly shipment volume of the company's diamond wire products; the pace of tungsten wire promotion.

5. Catalyst: Silicon wafer production capacity expansion accelerates; thinning trend accelerates.

(2) Profitability exceeds expectations

1. Market expectations: The gross margin of the company's Diamond Wire products is stable. Basis for judgment: The industry pattern is relatively stable, and the gross margin and net interest rates of leading companies remain stable.

2. We predict that the company's new production capacity will have a significant scale effect after delivery, and profitability is expected to increase.

3. Driving factors: (1) Production capacity doubles and production efficiency increases. After the company's technical reform project reached production in June 2023, the company's monthly production capacity increased from 3 million km to 6 million km. At the same time, production equipment technology was improved (from 5 lines on a stand-alone machine to 20 lines on a stand-alone machine), and production efficiency increased dramatically; (2) The proportion of high-profitability tungsten wire products increased. Currently, the unit price of tungsten wire products is about 2 times that of carbon steel wire, under the same conditions as carbon steel wire., the amount of profit per unit has increased dramatically.

4. Test indicators: Diamond wire price and gross margin level.

5. Catalyst: Accelerate the introduction of tungsten wire diamond wire products.

Profit forecasting and valuation

Covered for the first time, giving it a “buy” rating. The company is an established leading PV diamond wire company, benefiting from the expansion of its own production capacity and the increasing penetration rate of tungsten wire. The expansion of the company's production capacity combined with the increase in the share of high-value tungsten wire diamond wire has driven a sharp increase in the company's diamond wire product volume. We estimate that the company's net profit for 2023-2025 will be 3.02/5.04/704 billion yuan respectively, the corresponding EPS will be 1.34/2.24/3.13 yuan/share, respectively, and 17/10/7 times PE, respectively. We chose Meichang Co., Ltd., the leading photovoltaic cable company Dico Co., Ltd., Polyhe Materials, and Yubang New Materials, as comparable companies in the same industry. In 2023-2025, the average PE of comparable companies in the same industry was 23/16/12 times. Considering the company's performance growth and a certain margin of safety, we gave the company 16 times PE in 2024 and a target stock price of 35.84 yuan/share, corresponding to the current market value, with 57% room for growth.

Risk warning

PV installation demand fell short of expectations; market competition intensified; the penetration rate of tungsten wire fell short of expectations.