Incident Overview
Gaosec Co., Ltd. released its 2023 annual report on March 26, 2024: the company achieved operating income of 6.184 billion yuan in 2023, up 73.19% year on year; net profit to mother was 1,461 billion yuan, up 85.28% year on year; gross profit margin was 42.49%, up 0.98 pct year on year, and net profit margin 23.63%, up 1.54 pct year on year. The actual net profit for 2023 is in the middle of the forecast range.
Revenue for the fourth quarter of 2023 was 1,973 billion yuan, up 42.97% year on year, up 16.80% month on month; net profit to mother was 288 million yuan, down 19.99% year on year, down 37.14% month on month; gross profit margin for the fourth quarter was 35.04%, and net profit margin was 14.62%.
The equipment, consumables, slicing, and innovation business grew rapidly, with significant cost reduction and efficiency gains by business. In 2023, photovoltaic cutting equipment achieved operating income of 2,877 billion yuan, up 95.16% year on year, accounting for 46.5%, gross profit margin of 32.19%, a year-on-year decrease of 1.01 pct; photovoltaic cutting consumables achieved revenue of 1,162 billion yuan, up 38.36% year on year, accounting for 18.8%, gross profit margin of 58.55%; the silicon wafer cutting processing service business achieved a total operating revenue of 1,719 billion yuan, same The year-on-year increase was 84.99%, accounting for 27.8%, and the gross profit margin was 43.01%, a year-on-year decrease of 2.44pct; the revenue from the innovative business was 255 million yuan, up 60.71% year-on-year, accounting for 4.1%, and the gross profit margin was 56.63%, up 2.22pct year-on-year. Relying on continuous cost reduction and efficiency, the company's gross margin of the King Kong Line has increased dramatically, and the gross margin of other businesses has remained stable.
Equipment orders have increased, and the scale of production capacity has increased dramatically
1) Cutting equipment: The company quickly updated and iterated a variety of equipment products, including GC-700X slicer, GC-700XL slicer, GC-800XP slicer, GC-800X slicer, GC-MK202R double loop cutter, GC-GP950L grinding and polishing all-in-one machine, etc., and the market share is stable at the top. As of December 31, 2023, the company's on-hand orders for photovoltaic cutting equipment products amounted to 2.26 billion yuan, an increase of 53.32% over the previous year.
2) Diamond wire: Fine-wire iteration continues to lead the way. Mass sales of 36 μm, 34 μm and 32 μm linear high-carbon steel wire diamond wire have been achieved, and batch testing of 30 μm linear high-carbon steel wire diamond wire has been achieved.
In 2023, the company's annual production of King Kong wire was about 56 million kilometers, an increase of 65.57% over the previous year, and the annual export sales were about 38 million kilometers, an increase of 51.08% over the previous year. The “Huguan (Phase I) Project with an annual output of 40 million kilometers of King Kong Line” is under construction, and production capacity is expected to be released in the first half of 2024. At the end of 2023, the company's diamond wire production capacity reached 60 million kilometers. After all production capacity in Huguan (Phase I) was released, the company's diamond wire production capacity could reach more than 100 million kilometers.
3) Slicing foundry: Achieve rapid release of production capacity and orders. By the end of 2023, the production capacity scale reached 38 GW, and the annual effective shipment was about 25.5 GW, leading the industry in cutting yield and delivery rate. The “Yibin (Phase I) 25GW PV Large Silicon Wafer Project” has entered the preparation stage. It is expected to reach production in the first half of 2024. The production capacity of the company's silicon wafer cutting and processing services is expected to reach 63 GW by the end of 2024.
The company has established long-term slicing foundry business partnerships with companies such as Tongwei Co., Ltd., Beijing Yuntong, Shuangliang Energy, Meike Co., Ltd., Yingfa Rui Energy, Sunshine Energy, Huayao Optoelectronics, and Runyang Solar. Continuing to reduce costs and increase efficiency through technological progress, the company has maintained strong profit resilience despite adverse factors such as large fluctuations in silicon wafer prices and fluctuations in the operating rate of the industry.
4) Innovative business: Continuing to expand new cutting scenarios. The company's upgraded 8-inch silicon carbide diamond wire slicer has been verified and approved by leading customers in the industry and has formed batch orders; orders for magnetic equipment have increased dramatically, and the market share has increased rapidly. As of December 31, 2023, the total amount of in-hand orders for the company's innovative business equipment products was 100 million yuan, an increase of 36.99% over the previous year.
Investment advice
Considering the overall profit pressure of the silicon wafer industry, the profitability of the company's chip foundry business is yet to be repaired. Out of prudential considerations, we slightly lowered the company's profit forecast, predicting that the company's 2024-2026 revenue will be 80.98/102.86/12.431 billion yuan, respectively (the value before 2024-2025 was 87.46/10.896 billion yuan), and net profit due to mother was 13.96/16.72/19.72 billion yuan, respectively (the value before 2024-2025 was 1,788/2,197 billion yuan), The current diluted EPS with a total share capital of 339 million shares is 4.12/4.93/5.82 yuan. The company's current stock price is 7/6/5 times the PE ratio of the predicted EPS for 2024-2026, respectively. Considering the company's high market share of cutting equipment and consumables, and the closed-loop advantage of the company's technology brings flexibility in slicing foundry and the performance flexibility of innovative businesses, it maintains a “buy” rating.