Key points of investment

Incident: The company released its semi-annual report for 2023. The company achieved total operating income of 430 million yuan, an increase of 55.80% over the previous year; net profit from Gimu was 87 million yuan, an increase of 111.01% over the previous year. At 2023Q2, the company achieved total operating income of 277 million yuan, an increase of 80.50%; net profit of 66 million yuan, an increase of 137.29%; the company's gross sales margin was 40.84%, an increase of 7.21 percentage points over the previous month; and a net sales interest rate of 23.89%, an increase of 10.09 percentage points over the previous year.

The acquisition of hydrogen energy and high-purity quartz sand labels and the layout is “integrated light, hydrogen, and storage”: The company plans to acquire new energy and Hunan Lihui new materials. The former is next to new energy, and its wholly-owned subsidiary, Hunan Gengchi New Energy Technology, has graphite composite bipolar plate production capacity. The latter, Hunan Lihui New Materials is mainly engaged in R&D, production and sales of high-purity quartz sand for quartz crucibles. This acquisition is another extension of the company in the new energy industry, which will help the company further develop new energy and new materials industry projects.

Diamond wire production capacity has been rapidly expanded, and economies of scale have been further improved. In the first half of the year, the company achieved operating income of 4.3 billion yuan, an increase of 55.80% over the same period of the previous year; realized net profit of 87.2946 million yuan, an increase of 111.01% over the same period last year. Both revenue and net profit increased significantly, mainly due to the rapid release of the company's production capacity and gradual increase in economies of scale. Since the end of 2022, the company's production capacity expansion plan has been implemented steadily. Since February, the company's operating rate has increased rapidly. The second half of March has entered a state of full production. Shipments have reached more than 2.5 million kilometers in April, which has reached a record high, and orders for May were full. The production capacity is expected to reach more than 4 million kilometers in July, and is expected to reach 6 million kilometers per month after all equipment commissioning is completed. In the future, the company will re-plan the next stage of production expansion plans based on market trends and space, and the total production capacity is expected to reach 1000+. According to our in-depth company report published on May 30, the unit cost of the company's diamond wire decreased from 60.58 yuan/km in '21 to 27.92 yuan/km in '22, but there is still a lot of room for cost reduction from leading companies in the industry. With the gradual deployment of the company's production capacity, and the comprehensive promotion and application of the “20 line machine” equipment to improve man-machine efficiency and production efficiency, the scale effect will gradually become apparent, and there is plenty of room for improvement in profitability.

Investment advice: Considering the rapid release of the company's production capacity and the continued high demand in the downstream photovoltaic industry, the company has a lot of reserves for future trends such as tungsten filament wire. We maintain our profit forecast. We expect the company's operating income from 2023 to 2025 to be 1,627 million, 23.89 billion yuan, and 2,883 billion yuan respectively, with year-on-year growth rates of 153.1%, 46.9%, and 20.7% respectively, net profit of 281/415/482 million yuan, EPS of 1.01, 1.49, and 1.73 yuan respectively, corresponding to the stock price on August 23, corresponding to the stock price on August 23. The corresponding PE valuation is 18.2/12.3/10.6 times, maintaining the buy-B proposal.

Risk warning: industry competition has intensified; tungsten wire R&D and production have fallen short of expectations; raw material prices have fluctuated greatly; the prosperity of the photovoltaic industry has declined;