2023 results are largely in line with market expectations
The company announced its 2023 results: annual revenue +258% YoY to 7.18 billion yuan, net profit attributable to mother +379% YoY to 5.04 billion yuan, net profit not attributable to mother +405% YoY to 5.02 billion yuan. 4Q23 revenue was -48% month-on-month to 1.28 billion yuan, and net profit to mother was -53% month-on-month to 832 million yuan. The company's performance is basically in line with previous forecasts and market expectations.
The increase in the price of photovoltaic grade high-purity sand led to a high profit increase, and shipments were slightly lower than our expectations. In 2023, the company's revenue for photovoltaic grade high-purity sand was +387% to 5.91 billion yuan, of which external sales volume was -3% to 30,000 tons, and the unit price was +399% to 197,000 yuan/ton. On the one hand, the company's shipment volume was lower than our expectations, or mainly due to the low operating rate of 4Q23 PV downstream, and downstream crucible companies were not willing to stock up; on the other hand, the unit price of the company's products was slightly higher than our expectations, or due to a sharp increase in imported sand prices during the year: by the end of 2023, the public price of inner layer sand was 390,000 to 440,000 yuan/ton; the company adopted a flexible sales strategy to form a price advantage.
The profit margin of optical fiber semiconductor tubes and rods slightly exceeded our expectations, and the company actively laid out a second growth curve. In 2023, the company's comprehensive quartz tube revenue was +60% to 1.23 billion yuan, sales volume +23% to 102,000 tons, and unit price +19% to 121,000 yuan/ton. Optical fiber semiconductor tube rod revenue +35% year over year to 498 million yuan, gross margin +12.2ppt to 67% year over year, driving tube rod's comprehensive gross margin +4.2ppt to 55.7% year over year.
The fee rate decreased slightly year-on-year during the period, cash flow increased significantly, and the dividend ratio increased by 20ppt to 50.3% year-on-year. The company's expense ratio for the full year of 2023 decreased by 4.1ppt to 4.0% year on year, and the management fee ratio decreased by 3.0ppt to 1.4% year on year. We believe the main reason was the high increase in annual revenue and diluted expenses. In 2023, the company's net operating cash flow was +693% year-on-year to 3.84 billion yuan, and the dividend ratio increased by 20ppt to 50.3% year-on-year.
Development trends
The production of high-purity sand is gradually increasing, and there are still supply barriers to high-quality inner layer sand. By the end of March, the price of inner layer sand for quartz crucibles was 390,000 to 440,000 yuan/ton; the price of middle layer sand was 150,000 to 200,000 yuan/ton, and the price of outer sand was 50,000 to 120,000 yuan/ton. With the release of domestic and foreign production capacity, we determine that quartz sand will still face price reduction pressure, but the high-quality inner sand has supply barriers, and the pattern is relatively stable. In terms of quartz materials, the company focuses on efforts in the semiconductor field. We believe that as the number of internationally certified semiconductor quartz products continues to increase, the next step is to accelerate the expansion of semiconductor product production capacity.
Profit forecasting and valuation
We maintain the company's 2024e EPS at 15.2 yuan and introduced 2025e EPS at 15.7 yuan. The current stock price corresponds to 2024e/25e 6x/6x P/E. We maintained an industry performance rating. Considering subsequent product price reduction pressure and industry chain valuation correction, we lowered our target price by 19% to 122 yuan, corresponding to 2024e/25e 8x/8xP/E, implying 31% upward space.
risks
The new production capacity of high-purity quartz sand at home and abroad exceeded expectations, leading to a drop in prices, and demand for quartz tubes fell short of expectations.