Description of the event

The company disclosed its semi-annual report: operating income was about 3.434 billion yuan, an increase of 392.71% over the previous year; net attributable profit was about 2,431 billion yuan, an increase of 742.52% over the previous year.

Incident comments

23Q2 performance nearly doubled month-on-month. The company's 2023H1 revenue was about 3.434 billion yuan, an increase of 392.71% over the previous year; net attributable profit was about 2,431 billion yuan, an increase of 742.52% over the previous year. The sharp increase in performance still comes from the contribution of photovoltaic quartz sand.

In a single quarter, 2023Q2's revenue was 2,211 billion yuan, up 405.9% year on year; net attributable profit was 16.01 billion yuan, up 700.36% year on year. The single-quarter performance basically doubled compared to 23Q1, and the performance further exceeded expectations. The core driving factor came from continued high flexible delivery on the price side.

The industrial chain is running smoothly. The downstream of the quartz sand is the crucible plant, and the downstream of the crucible plant is the crystallization plant. Further, the price of silicon materials has dropped, giving crystal factories more room to accept the price of auxiliary materials such as quartz-crucibles, etc., so the price transmission logic of sand-pot is also smoother.

Capacity release provides resiliency in 2024. The company's new production capacity of 60,000 tons of quartz sand is expected to be put into operation in the second half of '23. The exact actual production output and product structure need to be determined in conjunction with market demand and the company's production strategy; however, we judge that the company's sales volume in 2024 is expected to increase significantly as a result, and it can usher in high flexibility even without price increases.

The high barrier of quartz sand remains unchanged. We emphasize that the high barrier logic of crucible sand remains unchanged. 2023 is the company's highlight moment, and this highlight moment has good resilience, can be extended and continued until 2024 to 2025 (2023 is more price elasticity, and the next 2 years are more quantitative expansion elasticity based on high prices); based on this, understanding the company with a cyclical mindset may be somewhat underestimated.

The semiconductor sector is the next growth point. The application of quartz materials in the semiconductor industry is mainly in diffusion and etching processes in wafer production. The quartz components used in the etching process mainly include quartz rings, quartz protective covers, etc., and quartz components used in diffusion processes mainly include quartz boats, quartz furnace tubes, quartz baffles, and casings. According to estimates, for every 100 million US dollars of electronic information products produced, an average of 500,000 US dollars worth of high-purity quartz materials will be consumed. Currently, the company's market share in semiconductor quartz materials is relatively low, and it is still in the early stages of development. With the further expansion of the company's market share of quartz materials for the semiconductor industry, quartz materials for the semiconductor industry will become an important growth point for the company in the future.

The estimated performance for 2023-2024 is 6.2 to 9.4 billion dollars, corresponding to PE 5.2 and 3.5 times, and purchase ratings.

Risk warning

1. Other enterprises in the same industry expand production through technological innovation;

2. The company's production capacity is progressing slowly.