Incident: The company released its 2023 annual report. During the reporting period, it achieved revenue of 3.43 billion yuan, YoY +392.7%, net profit of 2.43 billion yuan, YoY +742.5%, net profit of 2.4 billion yuan, and YoY +730.2% after deducting non-attributable net profit. Among them, Q2 achieved revenue, net profit attributable to income, and 1.59 billion yuan, respectively, of $2.21 billion, 16.01 billion, and 1.59 billion yuan, respectively, compared to +405.9%, 700.4%, and 701.7%, respectively, and +80.8%, 96.1%, and 97.2%, respectively.

The high profitability of high-purity quartz sand continues to be realized, and production capacity construction continues to advance to strengthen growth potential. During the reporting period, the company's photovoltaic business revenue was about 2.99 billion yuan, YoY +732.0%. 1) Sales volume: It is estimated that 23Q2 achieved export sales volume exceeding 10,000 tons, which was basically the same as the previous month. It is expected that the 60,000-ton high-purity quartz sand project planned by the company will be put into operation in 23H2, which is expected to drive continued high sales volume and further increase market share. 2) Price: It is estimated that the average price of 23 Q2 exceeds 180,000 per ton. Considering that the price of quartz sand was concentrated in April-May, we judge that the current average price at the moment is higher than the average price in Q2. According to the SMM Photovoltaic Vision website, the price of inner layer sand was 390,000-44,000/ton in mid-August, and the price was still slightly higher. We believe that the high-purity quartz sand industry has high barriers in terms of mineral sources and purification, that supply-side constraints are strong, and that the boom cycle is expected to lengthen. 3) Unit profit: It is estimated that the net profit per ton of quartz sand in 23Q2 exceeds 140,000. We judge that the net profit per ton is currently higher. 4) Product structure: The company is actively promoting product structure optimization. It is expected that the proportion of the company's middle layer sand will continue to increase, while the unit price of middle layer sand is higher, and it is hoped that the company's overall average price will be further increased. 5) Mineral sources: The company's quartz ore supply is stable and reserves are sufficient.

The company's quartz ore comes from a wide range of sources, and has stable supply at home and abroad, such as Africa, South America and many parts of the country, and is not only dependent on mineral resources imported from India. Furthermore, according to the 2023 annual report data, the book balance of the company's raw material inventory is about 330 million yuan. We estimate that the company's stocks of mines can be used for more than 1 year for the company to operate and produce normally. At the same time, it is not ruled out that the company's industrial chain will be extended upstream to further guarantee the supply of mineral resources.

Semiconductor quartz materials have maintained a high growth rate, and the optoelectronics business has successfully transformed. 1) Semiconductor quartz materials: 23H1 semiconductor products achieved revenue of about 210 million dollars, YOY +90.8%. The company has now passed certification in the field of TEL diffusion and etching, as well as certification in the LAM etching process, and has made phased progress in US material certification. The company is speeding up the construction of a 6,000-ton/year electronic project. According to SSE interaction, the project has already been completed and partially completed, which is expected to support a high increase in sales volume. In addition, the company is actively promoting the optimization of semiconductor quartz material product structures. Under continuous technological improvements and scale effects, the profitability of major semiconductor quartz materials products is expected to continue to increase. 2) Optoelectronics business: During the reporting period, the company's optoelectronic products successfully completed structural transformation. Through vigorous implementation of new product development and process innovation, the technical level and production capacity of quartz precision processing were rapidly improved, and the share of new business increased dramatically, achieving steady growth in performance.

Investment advice: We expect the company's net profit to be 66.1/106.6/13.15 billion in 23-25 (maintaining the original profit forecast), corresponding to the current stock price PE of 4.7/2.9/2.4 times. Considering the high boom in the high-purity quartz sand business, the company's sales volume continues to increase, and it is expected that semiconductor quartz materials will continue to expand in volume and maintain the “increase in holdings” rating.

Risk warning: demand falls short of expectations; new industry capacity exceeds expectations; company capacity investment falls short of expectations; risk of technological change; sharp rise in raw material prices.