Incident: The company released its 2023 annual report. In 2023, the company achieved operating income of 6.184 billion yuan, an increase of 73.19% over the previous year; achieved net profit of 1,461 billion yuan, an increase of 85.28% over the previous year, which is in line with expectations as a whole. In the 2023Q4 quarter, the company achieved operating income of 1,973 billion yuan, up 42.97% year on year and 16.80% month on month; realized net profit of 288 million yuan, down 19.99% year on year and 37.14% month on month.
Company reviews:
The high increase in equipment revenue highlights competitiveness, and the production capacity of the consumables+OEM business is steadily expanding. According to the company's annual report, by business segment, in 2022, the company 1) PV cutting equipment: revenue was 2,877 billion yuan, +95.16% year over year. As of the end of 2023, orders in hand were 2,260 billion yuan, an increase of 53.32%. In 2023, the competitiveness of the company's equipment continued to improve, leading the market share in the industry, and production and sales were strong, achieving production/sales volume of 3972/3097 units respectively, an increase of 100.40%/104.56%; 2) Photovoltaic cutting consumables:
Revenue of 1,162 billion yuan, +38.36% year on year. The company's 2023 annual gold line achieved production/sales volume (excluding personal use) of about 5600/38 million kilometers, respectively, an increase of 65.57%/51.08% over the same period. Currently, the company has an annual production capacity of 60 million kilometers. As Huguan releases production capacity of 40 million kilometers, the company's diamond wire production capacity will exceed 100 million kilometers in 2024; 3) Silicon wafer foundry business:
Revenue of 1,719 billion yuan, +84.99% year on year. The scale of the foundry business expanded rapidly. At the end of 2023, the scale of slicing production reached 38 GW, and effective delivery in 2023. As Yibin Phase 1 25 GW reaches production in the first half of 2024, the company's production capacity will reach 63 GW; 4) Innovative businesses such as semiconductors: revenue of 255 million yuan, +60.71% year-on-year, with orders in the innovative business equipment category of 100 million yuan, an increase of 36.99%.
The industry fluctuates in the short term, and its own technical advantage+cost reduction and efficiency guarantee profitability. Affected by fluctuations in demand in the photovoltaic industry, 2023Q4's operating rate and product prices declined, but with its leading technical advantage and cost control capabilities, the company still achieved large-scale stable delivery of photovoltaic equipment, basic saturation of diamond wire capacity utilization, and maintained a high operating rate for silicon wafer cutting and processing services. From January to January 2024, the company's foundry and diamond wire businesses remained ahead of the industry's operating rate.
Prices of pressure-bearing silicon wafers have decreased and industry operating rates have fluctuated, and strong profit resilience has been maintained through continuous technological progress. According to the company's annual report, 1) Profitability: The company's gross profit margin in 2023 was 42.49%, +0.98pct year on year, net profit margin 23.63%, +1.54pcts year on year. By business segment, the gross profit margin of cutting equipment was 32.19%, -1.01 pcts; the gross profit margin of King Kong wire was 58.55%, +15.45 pcts year over year, with a sharp increase in gross margin mainly due to the company's continuous cost reduction and scale effect; the gross profit margin of the foundry business was 43.01%, -2.44pcts year over year. The gross profit margin of 2023Q4 in a single quarter was 35.04%, -9.18pct year on year, a net profit margin of 14.62%, and -11.50pct year on year. The decline in profitability was mainly due to falling silicon wafer prices in 2023Q4, compounded by adverse factors such as fluctuations in the operating rate of the industry. 2) Expense side: Sales/ Management/ R&D/ Finance expenses in 2022 were 2.41%/6.79%/6.29%/0.39%, respectively, -0.20/+0.10/-0.02/+0.08pcts year-on-year, respectively.
The profit forecast was lowered and the “buy” rating was maintained. Considering that short-term performance is affected by sharp fluctuations in the industry, we lowered our 24-25 profit forecast and added a 26-year profit forecast. We expect net profit to be 9.76/13.85/1,816 million yuan in 2024-26 (originally $2,02.67 billion in 24/25). The company's current stock price (2024/3/26) corresponds to 2024-26 PE 11/8/6X, respectively, with reference to the average PE of comparable companies 15/11/9X. Considering that the company's slicing capacity is leading in the industry and the scale of production capacity is expanding in an orderly manner, in the future, as industry demand recovers and the company's scale effect is reflected, profitability is expected to recover and maintain the purchase rating.
Risk warning: risk of high customer concentration; risk of industry demand falling short of expectations; risk of sharp fluctuations in product prices.