Losses from the sale of rod-shaped silicon assets affected performance: The company achieved net profit of 2.51 billion yuan (same below), slightly higher than the median earnings forecast of 2.45 billion yuan, with a loss of 3.01 billion yuan in the second half of the year. After excluding the impact of the sale of Gones' shares in rod-shaped silicon assets confirmed a loss of 3.9 billion yuan, a year-on-month decrease of 84%, mainly due to the sharp drop in polysilicon and silicon wafer prices. The company's polysilicon production and shipment volume last year was 23.2 or 226,000 tons, lower than our expectations by 4%/3%. Mainly due to insufficient supply of electricity and clean materials, production was slower than expected. The average sales price of polysilicon last year was 84,000 yuan/ton, of which 53,500 yuan (98% granular silicon) in the second half of the year was 1% higher than our expectations, down 57% from month to month. In the second half of the year, revenue from photovoltaic materials was 12.7 billion yuan, down 39% from the previous month, and the gross profit margin was 22.6%, higher than our expectations by 1 percentage point, and down 19.3 percentage points from month to month.

The quality and production capacity of granular silicon continued to improve: The quality of the company's granular silicon was further improved. The proportion of products with N-type dense materials increased from 43% in the 2nd quarter to 75% in the 4th quarter. Some bases are already close to 90%. At the same time, the proportion of products with low turbidity has also increased rapidly, and the yield problems of N-type customers have been effectively improved. The average production cost of granular silicon last year was 27% lower than at the end of 2022, and the Baotou base was as low as 35,900 yuan/ton in the fourth quarter. At the end of last year, the company has an effective production capacity of 340,000 tons of granular silicon. The Hohhot project will be put into operation by June this year. The first 60,000 ton module with lower cost will be put into operation in Xuzhou this year. The stock project will also increase production capacity through technical improvements. Production capacity will increase to 480,000 tons by the end of this year. The Middle East project is expected to start construction this year.

Perovskite is progressing rapidly: the mass production conversion efficiency of large single-junction perovskite components from Kunshan GCL, the company's holding subsidiary, rapidly increased from 18% in November last year to 19% in March this year. It is far ahead in the industry, and the industry's first GW grade production line will be built before the end of the year.

Optimistic about the cost advantage of granular silicon and maintain purchases: We believe that the cost of the company's granular silicon is the lowest in the industry. Since last year, electricity prices in the country's main polysilicon production areas have risen markedly, and the cost advantage of granular silicon with lower electricity consumption has expanded. As quality improves, the sales discount of granular silicon compared to N-type rod-shaped silicon is also expected to narrow, and the profit advantage is obvious. At the same time, perovskite and other businesses are expected to become new growth points. The company announced the 2024-26 repurchase/dividend plan, which is beneficial to the valuation increase. Currently, GCL's price-earnings ratio in 2024 is 43% compared to Daquan Energy (688303 CH) listed on A-shares. Based on (1) GCL's cost per ton is significantly lower (2) and that GCL's 2024/25 ROE should be 1-2 percentage points higher than Daquan Energy, we believe the discount should be narrower. We raised our target price to HK$1.67 (previously HK$1.56) based on 13 times the 2024 price-earnings ratio (32% compared to Daejeon Energy's discount) to maintain the purchase.