Recently, the company released its semi-annual report for 2023. 23H1 had revenue of 20.946 billion yuan, +41.8% year on year, and net profit of 5.518 billion yuan, or -21.9% year on year. Among them, revenue for 2023Q2 was 975.59 billion yuan, +25.3%/-12.8% month-on-month; net profit for return was 1,428 billion yuan, or -64.6%/-65.1% month-on-month.
The decline in silicon prices has dragged down profits. 23H1's polysilicon business revenue was 11.118 billion yuan (+61.5% YoY), the average sales price of polysilicon (excluding tax) was 124.1 yuan/kg, and silicon revenue was 7.201 billion yuan (+14.8% YoY). The company's gross profit for the period was 8.778 billion yuan (+23.9% YoY). Net profit declined by 21.9%, mainly due to (1) the average price of silicon materials (monocrystalline compacts) falling from 176,200 yuan/ton (tax included) at the beginning of January 23 to 65,700 yuan/ton (tax included) at the end of June 23, which caused the company's overall gross margin to drop 6 percentage points to 41.9%; (2) the Xuzhou rod-shaped silicon project was discontinued, with depreciation of 802 million yuan; (3) R&D expenses increased 30.9% over the same period last year to 902 million yuan.
Granular silicon production and production capacity are growing rapidly. (1) 23H1. The company's polysilicon output is about 111,100 tons (+117.1% YoY), of which the company produces about 82,400 tons of granular silicon (+634.3% YoY) and about 28,700 tons of rod-shaped silicon. 23H1's polycrystalline output accounts for about 18.33% of domestic polysilicon production (the country's polysilicon production was about 606,000 tons in the first half of the year), and its leading position in the industry is stable. (2) By the end of the first half of the year, granulated silicon production capacity had increased rapidly from 140,000 tons at the end of '22 to 240,000 tons. It is estimated that with the full production of the 100,000 ton project in Hohhot at the end of the year, the company's granular silicon production capacity is expected to reach 400,000 tons.
The production cost of granular silicon continues to drop. Benefiting from the increase in granular silicon production and the decline in the price of silicon raw materials in the upstream industry, in June 2023, the average manufacturing cost of granulated silicon fell by 41% compared to the end of the previous year. The production cost of the Leshan GCL granular silicon project in July had dropped from 46.19 yuan/kg in the first quarter to 35.68 yuan/kg. Continued reduction in the cost of granular silicon will help companies gain a competitive advantage in the fierce competition in the industry.
The quality of granulated silicon continues to improve. Currently, the proportion of the company's products with a total metal impurity content of less than 0.5 ppbw of granulated silicon is 70%. They have been used in batches for N-type products, accounting for more than 20% of the N-type share of domestic suppliers, and market recognition of granular silicon continues to rise. Currently, the company is focusing on solving the powder content problem of granular silicon products. The turbidity control ability of granular silicon may be significantly improved by the end of the year, thus completely making up for the shortcomings in granular silicon application.
Profit forecast and valuation: We expect the company's polysilicon production to reach 26/32/400,000 tons in 23-25, respectively, and net profit of 79.87/62.25/7.945 billion yuan, corresponding to EPS of 0.30/0.23/0.29 yuan, respectively. As the industry is currently still in a period of adjustment, we lowered the company's target price to HK$2.0 and gave it a “buy” investment rating, corresponding to PE 8.1 X in 2024.
Risk warning: The scale of new PV installations fell short of expectations; the price adjustment for polycrystalline silicon materials exceeded expectations; granulated silicon production capacity fell short of expectations; CCZ technology research and development and promotion fell short of expectations.