Dike Co., Ltd. is one of the leading companies in photovoltaic silver paste, and LECO is leading in silver paste technology. With the application and practice of laser-enhanced sintering processes in the TopCon field, LECO silver paste was gradually introduced, and the company continued to enjoy first-mover dividends with leading technology advantages, and its performance grew rapidly. In 2023, the company's revenue was 9.603 billion yuan, +154.94% year-on-year; net profit to mother was 386 million yuan, turning a year-on-year loss into a profit.

Benefiting from the penetration of N-type technology, the photovoltaic silver paste sector is expected to increase rapidly. (1) The N-type battery uses silver paste on both sides, and the unit consumption is significantly higher than that of the P type. According to the silver paste consumption per watt, PERC cell silver paste consumption is about 6-8 mg/W (excluding silver paste on the back); TopCon silver paste consumption is 10-13 mg/W; and HJT silver paste consumption is 16-20 mg/W. With the increase in new photovoltaic installations and the rapid penetration of N-type batteries such as TopCon, demand in the silver paste industry is expected to grow rapidly. We expect the total demand for PV silver paste in 2024 to be 7501 tons, +16%, of which Zhengyin will demand 7103 tons, +36% year over year; we expect the total PV silver paste market space in 2024 to be 43.8 billion yuan, +22% year over year, of which Zhengyin market space is 42.5 billion yuan, +35% year over year. (2) The process of N-type silver paste is more difficult, and the processing cost is higher than that of type P, which is expected to increase the profit center of silver paste. The price of photovoltaic silver paste products consists of silver point price+processing fee. The higher the processing cost, the stronger the profitability of the silver paste enterprise.

The processing cost of PERC silver paste in the first half of 2023 is about 450-500 yuan/kg, TopCon silver paste processing fee is more than 200 yuan/kg higher than PERC silver paste processing fee, and HJT silver paste processing fee is about 800-1000 yuan/kg. (3) The competitive pattern of the industry is concentrated. According to CPIA data, the three domestic companies Juhe, Dike, and Jingyin had a combined share of the global silver market in 2022. In 2023, the industry entered an N-type iteration period. Leading companies quickly achieved N-type slurry shipments with technological leadership, and the share of leading companies further increased. According to estimates, the three companies Juhe, Dike, and Jingyin will have a total share of about 80% of the global silver market in 2023.

Take the lead in introducing LECO silver paste on a large scale and enjoy the rapid growth of the first-mover dividend. (1) The company's silver paste shipments grew rapidly, and the proportion of N-type silver paste continued to increase. In 2023, the company achieved sales of 1713.62 tons of photovoltaic conductive silver paste, an increase of 138% over the previous year. Among them, silver paste products used in N-type TopCon batteries sold 1008.48 tons, accounting for 58.85% of total shipments. (2) LECO leads the technology industry and fully enjoys the first-mover dividend. With the large-scale application of laser-assisted sintering technology by downstream battery manufacturers, the company launched the DK72E series LECO special silver paste, which can improve overall efficiency by 0.3-0.5pct in the first stage. There is a premium for LECO's special silver paste processing fee. As a leading layout company, the company's share of N-type has increased rapidly, and it continues to enjoy the first-mover dividend. (3) Localization of silver powder helps reduce costs and lays out upstream to ensure supply chain security. In terms of localization of silver powder, the proportion of domestic powder for PERC slurry reached 80%; domestic powder for TopCon slurry accounted for about 50%. Looking at the upstream layout, the company is already planning to lay out upstream silver nitrate and metal powder in Dongying and Xinyi. Silver nitrate is expected to be put into operation in 2024. The metal powder layout plan is mainly nano-grade silver powder, silver-coated copper powder, and low-temperature paste metal powder.

Investment advice: The company LECO silver paste technology is leading, and N-type paste shipments are increasing rapidly. Benefiting from N-type technology iterative performance, it is expected to achieve rapid growth. We expect the company's net profit to be 588/718/829 million yuan in 2024-2026, respectively, and the current market value corresponding to PE is 12/10/9 times, respectively. Referring to comparable company estimates, the 2024 16x PE was given, corresponding to a target price of 93.57 yuan. It was covered for the first time, and a “recommended” rating was given.

Risk warning: PV demand falls short of expectations, the company's production capacity release falls short of expectations, competition intensifies risks.