Key points of investment:

Sanfu Co., Ltd. is a leading trichlorohydrogen silicon company, with a domestic market share of 13%. Integration is the company's core competitiveness.

After listing, the company continued to expand its integrated industry while entering the high-value-added silicon-based electronic specialty gas field. Not only is the quality of its products comparable to Japan and the US, but it also has the potential for further industrial expansion.

Development of silicon-based electronic specialty gases based on silicon trichloride

Before listing in 2017, the company was mainly engaged in the production and sale of silicon trichloride. In order to achieve a closed loop in the industrial chain, it successively developed potassium-alkali plants and Mannheim potassium sulfate plants. Since its listing, the company has extended its industrial chain to silane coupling agents, fiber-grade silicon tetrachloride, and silicon-based electronic specialty gases.

There is a possibility that the supply and demand pattern of silicon trichloride will improve

On the supply side, companies related to silicon trichloride have all been listed in recent years, and production capacity has expanded on a large scale, so overall supply is relatively relaxed. Looking at the demand side, silane coupling agents are traditional downstream applications of silicon trichloride, and demand is rising steadily. The operation of new polycrystalline silicon devices and the addition of inspection and repair production equipment are impact variables of silicon trichloride. Our overall judgment is that the supply of silicon trichloride is relatively abundant, but there is still a possibility that the supply and demand pattern will improve.

Silicon-based electronic specialty gases are expected to become the second growth curve

Silicon-based electronic specialty gases are key gases in the preparation process of silicon epitaxial wafers and chips, and related industries are highly dependent on companies such as Shin-Etsu and Dow. The company has put into production 500 tons of electronic grade dichlorodihydrogen silicon and 1000 tons of electronic grade trichlorosilicon, and has begun construction of a 500 ton electronic grade silicon tetrachloride project. The electronic specialty gas business is expected to become the company's second growth curve.

Profit Forecasts, Valuations, and Ratings

Based on the above core assumptions, we expect the company's revenue for 2023-2025 to be 23.4/28.1/35.5 billion yuan, with a year-on-year growth rate of -12%/+20%/+24% respectively, net profit of 2.06/3.13/505 billion yuan, year-on-year growth rate of -73%/+52%/+61%, EPS of 0.54/0.82/1.32 yuan/share, and a 3-year CAGR of 57%. Given that the company's main business, trichlorosilicon, is expected to improve with demand, and electronic grade trichlorosilicone/dichlorodihydrogen silicone/silicon tetrachloride can benefit from import substitution, and referring to the average PE value of comparable companies in 24 years 16.5x, we gave the company a PE target value of 30 times in 2024, with a corresponding target price of 24.6 yuan, coverage for the first time, and a “buy” rating.

Risk warning: project progress falls short of expectations, risk of increased market competition, risk of weak industry demand, rising raw material prices