Key points of investment
The company is a leading quartz consumables company, and the semiconductor business is expected to achieve rapid growth. Quartz Co., Ltd. is a leading manufacturer in the domestic quartz materials industry. With the company's continuous breakthroughs in product development and downstream certification, the semiconductor business is developing rapidly. In 2020-2022, the company achieved total revenue of 6.46, 9.61 and 2.04 billion yuan, with year-on-year increases of 3.73%, 48.81% and 108.62%, respectively; net profit to mother was 1.88, 2.81, and 1,052 billion yuan, up 15.31%, 49.37% and 274.48%, respectively. The main driving factor for the company's revenue and profit growth in recent years is the rapid development of the photovoltaic and semiconductor industry, which has stimulated the increase in demand for high-purity quartz materials. At the same time, the company has relied on its leading edge in core technology in related fields to accelerate localization substitution and market development, and actively promote production capacity expansion. 2023Q1-Q3, the company's revenue was 5.09 billion yuan, up 378.27% year on year; net profit to mother was 4.207 billion yuan, up 638.32% year on year.
There is broad scope for replacing semiconductor stone produced in the UK. There are certification+ product barriers in every step. High-purity quartz is a key consumable material for semiconductor manufacturing. It is used in oxidation, etching, diffusion, and cleaning processes in semiconductor manufacturing, and technical barriers are high. At the same time, the semiconductor market space is vast. The global semiconductor product market size in 2020-2022 was US$4404, 5559, and 573.5 billion US dollars respectively, up 6.82%, 26.23%, and 3.17% year on year. The global size of quartz products is expected to reach about 39 billion yuan in 2024, an increase of 13.12% year on year. Demand for semiconductor quartz products is strong, driven by the boom in the downstream semiconductor business. Currently, downstream certification of domestic quartz consumables companies continues to advance. This process has strong certification and product barriers, and Quartz shares are leading the certification process in companies such as TEL and LAM. At the same time, domestic sources of high-quality quartz sand are scarce. Only a few companies in the world, such as UniMIN, TQC, and Quartz Co., Ltd., can achieve large-scale mass production. Quartz shares continue to advance the certification process of quartz sand, and it is expected that domestic production will be replaced in the future.
The advantages of self-supply in the product+certification+industry chain are outstanding. The profitability of the semiconductor business continues to improve, and the product matrix of semiconductor quartz products is rich. At the same time, the company's certification process is leading in the industry. The semiconductor quartz tube, rod, and ingot materials passed TEL diffusion certification in 2019 and their etching certification in 2021; in 2020, the company's quartz cylinders passed Lam etched quartz certification. At the same time, by supplying its own high-purity quartz sand, the company effectively reduces the production cost of quartz products, enhances supply chain advantages, breaks through upstream bottlenecks, and is expected to be the first to achieve domestic replacement in the semiconductor quartz consumables field.
Profit forecasting and valuation
Maintain profit forecasts and maintain a “buy” rating. The company is a leading company for high-purity quartz sand and quartz products, benefiting from the high demand for photovoltaics and rapid growth. We expect net profit to be 62.8 billion yuan, 120.2, and 15.00 billion yuan respectively for 2023-2025, corresponding EPS of 17.37, 33.27, and 41.52 yuan/share, respectively, and corresponding PE of 5, 3, and 2 times, respectively. We selected Oujing Technology and Tianyi Shangjia, a consumables company in the photovoltaic sector. Semiconductor quartz products supplier Philip Huawei is a comparable company. Comparable companies' average PE in 2023-2025 was 19, 13, and 10 times, respectively. As a leading company for high-purity quartz sand, the company's semiconductor business is developing rapidly, and the photovoltaic business remains highly profitable. It is expected that rapid expansion will push the company's profitability to exceed expectations and maintain a “buy” rating.
Risk warning
The risk of macroeconomic fluctuations, the risk that the company's new production capacity will fall short of expectations, and the risk that semiconductor business expansion will fall short of expectations.