After passing Tokyo Electronics High temperature Certification in 2019, the company has gradually supplied products to leading semiconductor manufacturers at home and abroad. The company's semiconductor business revenue still grew by 90% in the first half of 2023 despite low industry demand, indicating that the company's semiconductor products are gradually entering the downstream stage of large-scale procurement. We believe that the company's semiconductor business is expected to maintain more than 50% compound growth in the next two years, and the photovoltaic high purity sand price is expected to remain high in 2024. We believe that the company's value is expected to be revalued and the company's "buy" rating is maintained.

High purity quartz is a key auxiliary material for semiconductors, with a market space of 24 billion yuan in 2022. In semiconductor integrated circuits, quartz products have excellent properties such as high temperature resistance, corrosion resistance and low expansion, which can not be replaced. Quartz products also have the properties of consumables and play a key role in bearing and isolation. It involves most of the processes of semiconductor wafer manufacturing and has a wide range of influence. According to the annual report of quartz shares and Cade quartz prospectus, for every 100 million US dollars of electronic information products, the average consumption of high-end quartz materials is about 600000 US dollars. We estimate that the global market space for semiconductor quartz products will be about 24 billion yuan in 2022.

All aspects of the industry have high barriers. Once the impurities, stability and other factors of quartz materials affect the chip production, the cost of making mistakes is higher, so the upstream, middle and downstream links have higher requirements for semiconductor quartz materials. As for upstream quartz sand, Spruce Pine basically monopolizes the high-end semiconductor high-purity sand market due to its excellent mineral resource endowment; in the middle reaches of the production process, electric fusion, gas fusion and synthesis technology have their own advantages and disadvantages, and different application links need to accumulate different process technologies; downstream certification link is more stringent, and the certification cycle is as long as 3-5 years, only through certification can enter the supply chain procurement catalogue.

At the bottom of the semiconductor cycle, high-end demand increases and domestic substitution opportunities increase. The current cycle of semiconductors has continued to decline since the second quarter of 2022. According to previous rules, the industry cycle is expected to hit bottom in the second half of this year at the earliest, and the inflection point may gradually appear. As the semiconductor process becomes more and more advanced, the stability requirements of semiconductor quartz materials in high temperature and other special environments are also improved; the size of silicon wafers continues to expand, and it is more difficult to control the processing accuracy of large-size quartz materials. on the whole, the demand for high-end semiconductor quartz products continues to rise. At present, due to the early start of foreign manufacturers and advanced technology, the high-end semiconductor quartz market is mainly monopolized by foreign investors. We estimate that the market share of domestic enterprises is only about 10%, and the domestic substitution potential is huge. With quartz shares, Philippine, Cade quartz and other enterprises gradually passed the certification of domestic and foreign manufacturers, domestic enterprises are catching up.

Quartz shares: the business ushered in the volume stage, the medium-and long-term growth trend is clear. The company has mastered the technology of electric fusion, gas fusion and continuous melting, and successfully passed the certification of Tokyo electronic high temperature diffusion link in 2019, becoming the third company in the world and the only one in China that has passed the semiconductor high temperature certification. it has also passed the certification of other leading manufacturers at home and abroad. While demand remained sluggish in the first half of 2023, the company's semiconductor business revenue still increased by 90% compared with the same period last year, indicating that the company's semiconductor products are gradually moving from small batch procurement to large-scale volume. The superposition company's 6000-ton electronic-grade quartz project is expected to reach full production in 2023. We judge that the company's semiconductor business revenue will approach 2 billion yuan in 2025, with a compound growth rate of more than 50%. In addition, the company has accumulated rich technical experience in the purification of high purity sand, and the semiconductor sand produced has opened the certification link. once the certification is passed, it is expected to effectively solve another major sticking point in China's semiconductor industry. and reduce their own raw material cost pressure, enhance the competitiveness of the company's products.

Risk factors: photovoltaic demand is not as expected; the company's new capacity production progress is not as expected; competition in the supply side of the industry is intensified; semiconductor business expansion is not as expected.

Earnings forecast, valuation and rating: as the company's semiconductor business continues to grow rapidly and the price of photovoltaic high pure sand is expected to remain high in 2024, we believe that the company's current market capitalization is expected to be revalued. We maintain the company's 2023-2025 EPS forecast of 15.45 USD 28.36 max 35.97 yuan. Combined with the comparable company's PE and the company's historical PE valuation, we give the company 10x PE in 2023, give the target price 155RMB, maintain the target price 155RMB, and maintain the company's "buy" rating.