The rapid price drop for silicon materials in June affected profit expression in the second quarter

Impact of silicon price reduction and depreciation on performance: Overall revenue for the first half of the year was RMB 20.95 billion (same below), up 41.8% year on year. The increase was mainly due to the release of granular silicon products in Leshan and Baotou; comprehensive gross margin decreased by 6 percentage points to 41.9% year on year, mainly due to falling polysilicon prices during the period; net profit and profit decreased 21.9% year on year to 5.52 billion yuan, 2Q23's revenue for the single quarter was about 9.76 billion yuan, down 13% year on month, profit of about 1.43 billion yuan. Decreased by 65%, and in June, Xuzhou's rod-shaped silicon production capacity was reduced by about 8 100 million yuan impact.

Granular silicon production capacity has climbed the slope and production process optimization effects are remarkable: in the first half of the year, the company produced approximately 11,000 tons of polysilicon, 101,000 tons of export sales, and an average price of 124 yuan per kilogram excluding tax, of which 82,000 tons of granulated silicon were produced and 65,000 tons were sold abroad. The production cost at the Leshan base had dropped to 35.7 yuan per kilogram by July, which is at a leading level in the industry. The effective production capacity of granulated silicon at the three bases has reached 280,000 tons, and the market share has risen to more than 15%. After the Hohhot project is put into operation in the fourth quarter, the total production capacity of granulated silicon will reach 400,000 tons. At the same time, in the future, single-module production capacity is expected to increase from the current 20,000 kilowatts to 60,000 tons, greatly improving the efficiency of modular construction, and is expected to reduce unit production capacity investment by 30%.

Quality continues to improve, and N-type application shortcomings have improved: At present, the proportion of total metal impurities in the company's mass production of granular silicon with a total metal content of less than 0.5 ppbw has reached 70%, and is expected to increase to 85% in the short term. The attenuation rate of the N-type monocrystalline granular rod head has also been superior to that of dense material products during the same period, which is sufficient to meet the requirements of type N materials. At the same time, the company continued to make improvements in the optimization of N-type application shortcomings of granular silicon, and its turgidity control capability was clearly improved. As of July, it had achieved a 140% increase in granular silicon products with a turbulence of less than 120 NTU compared to the beginning of the year, which is expected to gradually resolve the negative effects of excessive powder content during high-ratio dosing.

Lower the target price to HK$2.65 to maintain the purchase rating: Although the overall price of polycrystalline silicon will remain in the low price range, we are still optimistic about the continued refinement of granulated silicon in cost control and quality improvement to achieve a gradual increase in the proportion of N-type products, taking into account the company's revenue and profit forecasts for 2023-2025 to reflect the distribution of granulated silicon production volume and the display of low cost advantages. The company's net profit for 2023-2025 is estimated to be 77/66/69 billion (previous value: $77/66/69 billion) 7/155/15.9 billion yuan), downgraded for the next 12 months The target price is HK$2.65, maintaining the purchase rating in response to the predicted price-earnings ratio of 8.0/9.4/9.0 times 2023-2025.

Risk Reminder: Production is not as advanced as expected