occurrences

On March 30, the company disclosed its 2023 annual report. In 23, it achieved revenue of 135 million yuan, -74.96% year over year; net profit to mother was -69.1098 million yuan, -143.70% year over year; net profit after deducting non-mother net profit of 71.5553 million yuan, -146.00% year over year.

Key points of investment

The semiconductor downturn cycle has put short-term pressure on performance. The company achieved operating revenue of 135 million yuan in 23 years, -74.96% year-on-year, mainly due to the downturn in the semiconductor industry cycle and a sharp decrease in orders from the company's downstream customers. On a quarterly basis, 23Q1/23Q2/23Q3/23Q4 achieved revenue of 5,214/2,670/4035/15.85 million yuan respectively. Quarterly fluctuations were mainly due to customer inventory adjustments, which in turn affected the company's shipping pace. By product, the company's large-diameter silicon materials/silicon components/silicon wafers achieved revenue of 8,355/3,764/8.26 million yuan respectively. Affected by the decline in the semiconductor cycle, the company's large-diameter silicon materials business revenue declined sharply year-on-year. The semiconductor large-size silicon wafer and silicon parts business is in the early stages, and revenue contribution is limited. The company achieved net profit of 69.1098 million yuan, or -143.70% compared with the same period, mainly due to 1) limited revenue contribution from the downturn of the cycle; 2) the company's fixed assets related to large-size semiconductor silicon wafers in '23 had large depreciation amounts, and the long evaluation and certification cycle of silicon wafer products. As a result, the average capacity utilization rate was limited, and the company lost 38.789 million yuan from work stoppage. Inventory digestion is slow, and the cost is relatively high, causing the inventory price drop to be prepared for 30.4237 million yuan. 3) The company maintains high investment in R&D, comprehensively considers the layout of new products, the improvement of existing product quality and economic benefits, and carries out R&D activities based on the specific and clear evaluation and certification requirements of downstream clients. It obtained 4 core technologies, 5 invention patents, and 18 utility model patents during the 23-year reporting period; it generated R&D expenses of 22.4656 million yuan in 23 years.

Large-diameter silicon material production expansion+product structure optimization and upgrading, waiting for the upward cycle to release performance. The company's large diameter silicon materials business segment covers all specifications from 14 inches to 22 inches in diameter, and is mainly sold to silicon parts processing plants in Japan, South Korea, etc., so it can also be called “large diameter silicon materials for integrated circuit etching.” The product has international competitiveness and is at the world's leading level in terms of technology, quality and production capacity, and is the company's main source of revenue. On the one hand, the production situation of the company's large-diameter silicon material products is stable. According to the number of direct customer orders and the growth rate of industry demand, the company expanded production capacity according to the plan. Among them, the production capacity of large-diameter polysilicon materials increased by about 2 times, continuing to maintain the global competitive advantage in production capacity in this market segment. The company's fund-raising project “Silicon Material Production Expansion Project for Integrated Circuit Etching Equipment” was invested as planned and is in the construction and equipment installation stages. The newly built monocrystalline and polycrystalline silicon material production lines for etching will meet the growing demand for downstream markets of different sizes. On the other hand, the company's large-diameter silicon product structure continued to be optimized and upgraded, and the revenue share of products above 16 inches with high profit margins increased further, from 28.95% in '22 to 39.01% in '23, which contributed greatly to maintaining a stable overall gross margin level of the business. Combining the above factors, as the cycle increases, the company's large diameter silicon materials are expected to release greater performance elasticity.

The high growth properties of silicon components are expected to open up the company's second growth curve. On the one hand, the silicon parts business is a silicon component product developed by the company in cooperation with the original domestic etching machine equipment manufacturer, which is suitable for 12-inch plasma etchers and can meet the constantly improving technical upgrade requirements of the original etching machine equipment; on the other hand, the company has obtained dozens of material numbers from several 12-inch integrated circuit manufacturers, and products that have completed evaluation certification, and the procurement share of integrated circuit manufacturers in the corresponding material numbers continues to increase. At the same time, the company has expanded its production scale in Quanzhou and Jinzhou, achieving a relatively rapid increase in production capacity. According to the company's independent research data, domestic 12-inch integrated circuit manufacturers currently have a production capacity of about 500,000 pieces/month, so it is reasonably estimated that the domestic silicon components market already has a market size of more than 1.8 billion yuan/year. Among them, the market demand for self-commissioned customized silicon components from domestic integrated circuit manufacturers is 1.5 billion yuan/year; in addition, the market demand for OEM silicon parts from original plasma etching machine manufacturers in China is 300 million yuan/year. It is expected that in the next 3-5 years, the localization rate of the domestic silicon components market will gradually reach more than 50% from the initial 5%. Considering the current international political and economic situation, this process is expected to accelerate. In '23, the company's silicon parts products doubled year-on-year, achieving revenue of 37.639 million yuan. Currently, the domestic market share is low, and there is great room for future growth; at the same time, the business achieved a gross profit margin of 36% in '23, which effectively complements the company's profits.

Investment advice

We expect the company to achieve revenue of 2.32/6.07/1,133 billion yuan in 2024/2025/2026, and net profit of 0.12/1.50/321 million yuan respectively. Considering inventory price reduction preparations and fund-raising depreciation, etc., we expect the company's 2024 performance to recover. The current stock price is 23/10 times PE corresponding to 2025/2026, respectively, maintaining a “buy” rating.

Risk warning

Customer concentration risk, supplier concentration risk, raw material price fluctuation risk, business fluctuation and decline risk, market development and competition risk, industry risk, macro-environmental risk, capital raising investment project construction risk, and additional depreciation and amortization risk affecting the company's profitability.