Looking to the future, we expect the price of high-quality large-size quartz crucibles to remain high in 2024, and the signing of a five-year order for imported sand by the company will also support the expansion plan and ensure the excellent and stable quality of quartz crucibles. Carbon and carbon thermal field profits hit bottom or usher in a small rebound, at the same time, metallurgical brake sales will benefit from the recovery of travel demand. The company's performance is on an upward trend, maintaining a "buy" rating.

In the first three quarters of 2023, the results increased by 90.84% compared with the same period last year, of which the third quarter alone increased by 102.85%. The company announced its results for the third quarter of 2023, with operating income of 1.767 billion yuan, an increase of 169.19% over the same period last year, and net profit of 236 million yuan, up 90.84% from the same period last year. In the third quarter alone, the company's operating income was 795 million yuan, an increase of 213.55% over the same period last year, and its net profit reached 105 million yuan, an increase of 102.85% over the same period last year.

The five-year long list of imported sand has been successfully signed, and the supply capacity of high-quality quartz sand resources has been enhanced. The company announced that it had signed a long-term procurement framework agreement with Sibik, the United States, and the two sides agreed that the company would purchase a total of 7817 tons of quartz sand from Sibiko from 2024 to 2028. Sibiko Company benefits from its excellent resource endowment, and the quartz sand produced is a high-quality choice for the inner layer sand of high-quality and large-size quartz crucibles. The company has signed a 5-year order with Sibiko Company. it will help to support the company's future production expansion plan and ensure that the quality of quartz crucible remains excellent and stable.

The price of quartz crucible remained high in the third quarter, and new projects began to be put into production in the fourth quarter, which will contribute to the increase. We estimate that there is little month-on-month fluctuation in the production and sales of quartz crucibles in the third quarter of the company. Sichuan Jiangyou plans to build 20 quartz crucible production lines in 2023. At present, 10 production lines have been installed and entered the trial production process. In addition, the automatic production line has completed local verification and is carrying out full production preparation. The company is expected to be fully put into use in the second quarter of 2024, which will support the further growth of quartz crucible production and sales in the future. In terms of price, since June, the overall price of quartz crucible has been stable at a high level, of which the tax price of 36-inch crucible has reached more than 40,000 yuan. Looking to the future, as the production expansion progress of overseas high-purity sand is not as expected, and the supply of domestic small and medium-sized enterprises is still dominated by Chinese and foreign layered sand, we expect that high-quality and large-size quartz crucibles will maintain a tight supply and demand pattern, and prices are expected to remain stable at high levels.

Carbon-carbon thermal field business profits or slightly rebounded, lithium negative electrode entered the pilot stage. Over the past year, as leading companies continue to expand production, the price of carbon thermal field products continues to fall to more than 200,000 yuan / ton level. We estimate that the non-net interest rate deducted by leading companies has dropped to 10%. Second-and third-tier enterprises are basically in a state of not making money, industry profits have basically hit bottom, and the overall progress of production expansion has also slowed down. With the rebound of downstream operating rate and the commissioning of N-type silicon wafers, the price of carbon and carbon thermal field has warmed up since September. At present, the price of photovoltaic carbon / carbon thermal field has exceeded 300000 / ton, and the profit level has rebounded slightly compared with the previous month. In terms of production capacity, according to the company announcement, the company's 10 deposition furnaces with a diameter of more than 8 meters have been debugged and officially put into use, and the production capacity of carbon and carbon thermal field products has reached 5500 tons, which can meet the mass production of 36-inch or larger products. In addition, the company has carried out systematic research and development of thermal tooling for lithium cathode, which has been successfully developed and tried out in a number of head negative material manufacturers, and some customers have entered the pilot stage through the trial of sample parts. in the future, it is expected to gradually open the second growth curve.

Carbon ceramic brake plate steadily promote downstream customer cooperation. The company has established a carbon ceramic brake disc project partnership with 21 automobile mainframe manufacturers and supply chain customers, obtained the fixed point of the carbon ceramic disc production project of a key model of a new energy vehicle company, and has begun to supply small batches and multiple batches of samples. The company has obtained the qualification of qualified supplier of seven automobile enterprises and the qualification of trial supplier of one automobile company, and has signed a strategic cooperation agreement with two automobile mainframe factories, relying on its brand and platform, to carry out the research and development of the core components of high-performance carbon ceramic brake materials for commercial vehicles and special vehicles, and jointly promote the application of carbon ceramic brake discs in the field of commercial vehicles. Up to the third quarterly report of 2023, the company has obtained CCC certificates for 12 models of commercial vehicle linings, 564 models of passenger vehicle linings and 21 types of carbon ceramic plate linings, passed the IATF16949 system certification and obtained the IATF16949 compliance declaration.

Risk factors: the risk of bad debts of the company's accounts receivable; the risk of deteriorating competition in the industry; the risk of sharp fluctuations in raw material prices; the risk that photovoltaic demand is less than expected; the company's new capacity progress is not as expected.

Earnings forecasts, valuations and ratings: we expect metallurgical brakes in the company's traditional business to benefit from the recovery in travel demand, while new businesses such as carbon-carbon thermal field, quartz crucible and carbon ceramic disc will support continued growth in future performance.

Combined with the company's development plan and the changes of industry supply and demand, we maintain the company's EPS forecast of 0.80max 1.79 / 2.71 yuan in 2023 to 2025, combined with the company's normal historical PE trend of about 30x and comparable companies (Oujing Technology, Jinbo shares, etc.) are valued at about 10x, and considering the performance growth brought by the company's photovoltaic business and carbon ceramic brake plate, we think that the company's reasonable PE valuation in 2024 is 15x, corresponding to the target price of 26 yuan in 2024. Maintain the company's "buy" rating.