Key points of investment

The company achieved revenue of 6.184 billion yuan (+73%) and net profit to mother of 1,461 billion yuan (+85%) in 2023. The performance exceeded expectations. Judging from the main business structure, the largest revenue source is still photovoltaic cutting equipment, which achieved revenue of 2,877 billion yuan (+95%) in '23, with a gross profit margin of 32%, which is basically stable. Silicon wafer foundry achieved revenue of 1,719 billion yuan (+85%), a gross profit margin of 43%, a slight decrease. Diamond Wire achieved revenue of 1,162 billion yuan (+38%), a gross profit margin of 59%, an increase of 15 pcts over '22. Looking at a single quarter, 23Q4 achieved revenue of 1,973 billion yuan (+43%) and realized net profit of 288 million yuan (-20%). Affected by the profitability of King Kong Wire and the OEM business, the revenue side reached a new high, but profitability declined.

Diamond wire: Accelerate production expansion plans; tungsten wire accounted for more than 20% in 24 years. In '23, the company's diamond wire shipments increased dramatically, reaching 56 million km for the whole year, up 66% year on year, and sales volume (after deducting personal use) 38 million km, up 51% year on year. Through technical reforms, the company optimized costs and achieved gross margin growth against the backdrop of a sharp drop in King Kong Line prices. At the end of 23, the company has a production capacity of 60 million km, and Huguan (Phase I) will release production capacity in the first half of 2024. At the same time, the company still has reserves for Huguan (Phase II) and (Phase III) projects, totaling 80 million km of potential production expansion plans to meet the future to further increase its market share. The company's advantage is the refinement and iteration of diamond wire. At present, it has formed batch sales of 32 and 34 μm wire and achieved batch testing of 30 μm wire. Currently, the company mainly uses tungsten wire for personal use, and is expected to account for more than 20% of tungsten wire shipments in 24.

Slicing service: leading the slicing efficiency industry, laying out a 50GW production expansion project in Yibin. In 2023, the company's foundry service business shipped about 25.5GW. It has established long-term cooperative relationships with customers such as Tongwei, Beijing Express, Shuangliang, Metco, Yingfa, etc., and already has mass production capacity of 120 μm, 110 μm and 100 μm silicon wafers. At the same time, it also launched 60 μm ultra-thin silicon wafer half-chip samples for the first time in the industry. In terms of production capacity, at the end of 2023, with the commissioning of bases such as Leshan and Jianhu, the company's slicing foundry production capacity reached 38 GW. Furthermore, the Yibin (Phase 1) 25GW project has entered the preparation stage. The chip foundry production capacity will reach 63 GW by the end of 24, and 25 GW in Yibin (Phase II) will also be promoted in due course, adding to the future expansion of production at the Leshan base. The company plans that the OEM production capacity will exceed 100GW.

Performance forecasts

We expect the company's net profit to be returned to mother in 2024-2026, respectively

10.13/13.11/1,609 billion yuan, corresponding to 2024-26, the company's PE was 10.14x/7.84x/6.39x, respectively. It was covered for the first time, giving it an “increase in weight” rating.

Risk warning:

PV installed demand fell short of expectations; capacity release progress fell short of expectations.