Incident: The company released its three-quarter report for 2023. During the reporting period, it achieved revenue of 5.90 billion yuan, YoY +378.3%, realized net profit attributable to mother of 4.21 billion yuan, YoY +638.3%, and realized net profit deducted from non-mother of 4.19 billion yuan, YoY +637.2%. Among them, Q3 achieved revenue, net profit to mother, and net profit deducted for non-net profit of 2.47 billion, 1.78 billion yuan, and 1.79 billion respectively. The year-on-year ratio was +359.5%, 531.4%, and 540.9%, respectively, and +11.5%, 10.3%, and 12.3%, respectively.

The high purity quartz sands boom continues, and profits have reached new highs. 1) Sales volume: It is estimated that in 23Q3, the export sales volume was about 10,000 tons, which was basically the same from month to month. The 60,000-ton high-purity quartz sand project planned by the company is expected to be put into operation in 23H2, and is expected to be released one after another from 23Q4 to 24H1, driving up sales growth and further increasing market share. 2) Price: The average price of 23Q3 is estimated to be over 200,000 per ton. According to the SMM Photovoltaic Vision official account, as of October 27, the prices for high purity quartz sand inner, middle, and outer sand (including tax) were 390,000/ton, 190,000/ton, and 70,000/ton, respectively, and continued to maintain the boom.

We believe that the high-purity quartz sand industry has high barriers in terms of mineral resources and purification, supply side constraints are strong, and the boom cycle is expected to lengthen. 3) Unit profit: It is estimated that the net profit of 23Q3 tons of quartz sand has risen to about 170,000. 4) Product structure:

The company is actively promoting product structure optimization. It is expected that the share of middle layer sand will continue to increase, while the unit price of middle layer sand is higher, which is expected to further increase the company's overall average price. 5) Mining source: The company's quartz ore supply is stable, the reserves are sufficient, and there is a wide range of quartz ore sources, and there is stable supply at home and abroad. We judge that at present, the company's mineral resources can fully meet the normal production of new production lines, and it is not ruled out that the company's industrial chain will extend upstream to further guarantee the supply of mineral sources.

Semiconductor quartz materials have maintained high growth, and the optoelectronics business is growing steadily. 1) Semiconductor quartz materials: The company has now passed certification in the field of TEL diffusion and etching, as well as certification in the LAM etching process, and the certification of suitable materials in the US has made phased progress. The company is speeding up the construction of the 6,000 tons/year electronic-grade project. According to the Shanghai Securities e-Interaction, the project has already been completed and partially produced, which is expected to support a high increase in sales. In addition, the company is actively promoting the optimization of semiconductor quartz material product structure. With continuous technology improvement and scale effects, the profitability of the main semiconductor quartz material products is expected to continue to increase.

2) Optoelectronics business: The company's optoelectronic products have completed structural transformation. Through vigorous implementation of new product development and process innovation, the technical level and production capacity of quartz precision processing have been rapidly improved, and the share of new business has increased dramatically, and is expected to maintain steady growth.

Dividends were reported for the first time, and the dividend rate for the whole year is expected to be impressive. On September 25, the company announced the 2023 semi-annual profit distribution plan. It plans to distribute cash dividends of 13 yuan (tax included) for every 10 shares, for a total of 4.7 billion yuan (tax included), with a dividend payment rate of 11.16% and a dividend rate of 1.22%. This dividend is the first time since the company went public. If the dividend payment rate of previous years is maintained throughout the year, the dividend rate for the whole year is impressive.

Investment advice: We expect the company's net profit to be 66.1/106.6/13.15 billion in 23-25 (maintaining the original profit forecast), corresponding to the current PE share price of 5.0/3.1/2.5. Considering the boom in the high-purity quartz sand business, the company's sales volume continues to increase, and semiconductor quartz materials are expected to continue to be released and maintain the “increase” rating.

Risk warning: demand falls short of expectations; the industry's new production capacity exceeds expectations; the company's production capacity investment falls short of expectations; risk of technological change; and raw material prices have risen sharply.