Incident: The company announced its three-quarter report for 2023. During the reporting period, net profit to mother, and net profit without return to mother were 17.67, 2.36, and 218 million, respectively, +169.19%, +90.84%, and +85.93%, respectively, and 2023Q3 achieved revenue, net profit attributable to mother, and 7.95, 1.05, and 98 million, respectively, compared with +213.55%, +105.46%, and +20.27%, +22.0+ 19.51%

Photovoltaic auxiliary materials: Thermal field prices may have bottomed out; the quantity of quartz crucibles can be expected to rise rapidly. In terms of carbon and carbon heat fields: Over the past 22 years, with the rapid increase in the industry's production capacity, prices have gradually dropped from 800,000 yuan/ton during the peak period to 200,000 +/ton. Prices below 300,000 yuan have hit or even fallen below the cost line of second- and third-tier enterprises. The industry's backward production capacity has gradually been cleared, and the competitive pattern of the industry has gradually improved. According to the Financial Federation, as the desire of downstream silicon wafer manufacturers to expand production increased, Q4 silicon wafer production capacity increased +17% month-on-month, or 25% year-on-year. Under the rise of new demand in the hot field, some hot field companies generally increased their bid prices by about 10-15% in tenders from leading silicon wafer manufacturers, and the upward trend in hot field prices is quite clear. As a rising star in the photovoltaic thermal field industry, the production capacity of carbon carbon thermal field products reached 5,500 tons as of October 23. With latecomer advantages, the company's carbon and carbon production line has achieved large-scale deposition equipment, continuous high temperature equipment, intelligent key processes, automated process connections, and greatly improved the manufacturing efficiency of thermal field components. As a leading carbon-carbon thermal field company leading in both scale and cost, it will fully benefit from the bottom up in thermal field prices. In terms of quartz crucibles: While the relationship between supply and demand is still tense, the price of high-purity quartz sand has continued to rise since the beginning of the year, driving the price of quartz crucibles to rise. The company entered the industry through mergers and acquisitions in November '22. As of October 26, the subsidiary Xinyiyang had completed and put into operation 8 production lines. The subsidiary Tianqi Yiyang has completed the installation of 10 production lines and entered the trial production process; the automated production line has completed partial verification and is expected to be fully put into use in the second quarter of 2024. In order to stabilize the supply resources of high-purity quartz sand, the company has signed a long-term procurement framework agreement with Sibelco of the United States. The two parties have agreed that from 2024 to 2028, the company will purchase a total of 7,817 tons of quartz sand from Sibelco. The quartz crucible boom is booming. With the company's production capacity construction and raw material insurance and supply, the quartz crucible business volume can be expected to rise well.

Rail transit gate: The bottom accumulates energy to consolidate its share, and the leading position is further strengthened. China Railway Group data shows that in 23Q3, the country's railways sent 1.15 billion passengers, an increase of 11.6% over the same period in 2019 before the epidemic. We expect the number of high-speed rail operations across the country to at least return to pre-epidemic levels in 23Q3, and should increase significantly compared to '22. As a leading enterprise in the rail transit brake industry, the company has fully benefited from the recovery in demand for brakes brought about by increased operating volume, but as the number of entrants into the industry continues to increase, competition is becoming more intense, and the price side is under greater pressure. Combined with the profit performance of competitor Boshen Co., Ltd., we judge that although production and sales have improved markedly, profits should be under pressure. The company continued to broaden the scope of product certification and consolidate its market position at the bottom of China Railway Group's third batch of EMU brake pads.

The lithium battery anode and carbon ceramic plate business is actively expanding. In terms of lithium battery anodes, the company's products have now been successfully developed and tested by many leading anode material manufacturers, and some customers have already passed sample trials and entered the pilot phase. In terms of carbon ceramic discs, the company has established carbon ceramic brake disc project partnerships with 21 car OEMs and supply chain customers, obtained a target for mass production of carbon ceramic discs for key models from a leading new energy vehicle company, and has begun small-batch and multi-batch sample supply; the company's high-performance carbon ceramic brake disc project in Jiangyou Industrial Park in Sichuan has now completed plant construction, and the oversized deposition equipment required for brake disc production has been installed, commissioned and put into use. The prefabricated intelligent acupuncture equipment and continuous siliconization furnace have been installed and commissioned one after another, and have respectively entered the small-batch trial production and small-batch process trial production stages, improving the utilization rate of raw materials and production efficiency.

The company's core logic: 1) The supply and demand pattern of the carbon-carbon composite industry is relaxed, and the company uses low-cost, large-size products and production capacity growth in the leading industry to seize steady and high level of profit growth; 2) Entering the high-boom quartz crucible field, the structural advantages of large products and raw material supply capacity together guarantee that the new business contributes to high profitability and elasticity; 3) The rail transit gate industry is stable and will definitively benefit from 23 years of railway passenger traffic restoration; 4) The carbon ceramic brake disc market is expected to go from 0 to 1, and the company relies on technology and cost advantages to explore the first bucket of gold; Investment advice: The company's quarterly performance in '23 is in line with expectations, but considering the implementation of high-purity quartz sand to consolidate raw material supply capacity, we raised the company's performance forecast, mainly improving the 24-25 quartz crucible sales assumption. We expect the company's net profit to be 4.51, 8.09, and 1,024 million, respectively (previous values were 4.36, 6.19, and 802 million), corresponding to the current stock price, 23.7, 13.2, and 10.4 times PE in 23-25, respectively. Maintain the company's rating as “increase in wealth.”

Risk warning: Thermal field capacity expansion exceeds expectations; travel recovery falls short of expectations; supply risk of high-purity quartz sand; PV installation falls short of expectations; deviations in market space estimation; untimely reference information updates; penetration rate of carbon ceramic brake discs and lithium battery anodes falls short of expectations, etc.