Looking forward to the future, since overseas production expansion has fallen short of expectations and domestic small and medium-sized enterprises still mainly supply middle and outer layer sand, it is expected that the price of inner layer sand will remain high in 2024. At the same time, the company's semiconductor business continues to expand, its product structure is continuously optimized, and its profitability continues to improve. The company's performance trend is upward, and the static PE valuation has been digested to around 5 to 6x, maintaining the “buy” rating.

Performance is expected to increase by 480% to 577% year-on-year for the third quarter of 2023. The company announced its performance forecast for the third quarter of 2023. It is expected to achieve net profit of 1,631 to 1,904 million yuan, up 480% to 577% year on year, and 1% to 18% month on month; after deducting non-net profit of 1,641 to 1,915 billion yuan, it is expected to increase 487% to 585% year on year, and 3% to 20% month on month.

The price of high-purity photovoltaic sand rose slightly, and the commissioning of new projects in the fourth quarter ushered in an increase. In terms of production and sales of high-purity photovoltaic sand, the company's production capacity is currently basically at full capacity. We estimate that production and sales volume in the third quarter will not fluctuate much from month to month. As the company's second phase of its 60,000-ton high-purity sand project is gradually put into operation in the fourth quarter of this year, it will support further growth in the company's high-purity sand production and sales volume. In terms of price, in the third quarter, as downstream operating rates rebounded and N-type silicon wafers were put into production, the supply and demand for high-quality quartz sand continued to be tight, and the price of inner layer sand was at a pace of slight slow rise. Looking forward to the future, since overseas production expansion has fallen short of expectations, and the supply of domestic small and medium-sized enterprises is still dominated by middle and outer layer sand, we expect that in 2024, the middle and inner layer sand gap will be mainly filled by Quartz Co., Ltd.'s Phase II project, and the price of middle and inner layer sand is expected to remain high in the future.

The semiconductor business has maintained rapid growth, and profit levels have increased. The company has mastered electrofusion, gas melting, and continuous melting technology. In 2019, it successfully passed the certification of the Tokyo Electronics High Temperature Diffusion Program, becoming the third in the world and the only domestic company to pass semiconductor high temperature certification. US Lam, AMAT, and domestic manufacturers have also passed certification one after another.

After small-batch procurement in previous years, the company's product quality and production stability have been continuously recognized by customers. In 2023, during the period when industry demand was sluggish, it still achieved rapid growth in semiconductor business revenue. In addition, the company's 6,000-ton electronic grade quartz project can be fully produced in 2023. We expect the company's semiconductor business revenue to maintain an increase of more than 50% in the future. At the same time, the sales share of the company's high-end semiconductor products continues to increase, the product structure is optimized, and profit levels are also expected to continue to rise.

Risk factors: Demand for photovoltaics and semiconductors falls short of expectations; the company's new production capacity and commissioning progress falls short of expectations; competition on the supply side of the industry intensifies; overseas production expansion exceeds expectations.

Profit forecast, valuation and rating: Considering that high-purity sand maintains tight supply and demand and the company's semiconductor business performance continues to grow, we maintain the company's EPS forecast of 15.45/28.36/35.97 yuan from 2023 to 2025. Considering that Oujing Technology, which is in the lower reaches of the industrial chain, had a PE valuation of around 10x in 2023 (based on Wind's unanimous expectations), we gave the company 10x PE in 2023, a target price of 155 yuan, and maintained the “buy” rating.