Key points of investment

2023Q4 production, sales and prices declined month-on-month. Net profit due to 2023 increased 23.63% year on year. In 2023, the company achieved revenue of 848 million yuan, up 31.96% year on year; net profit to mother was 112 million yuan, up 23.63% year on year; net profit after deducting non-return to mother was 110 million yuan, up 23.57% year on year. 2023Q4, affected by short-term fluctuations in the photovoltaic industry and competitive factors in the industry, production, sales and prices declined sharply from month to month, which had a certain impact on the company's performance. 2023Q4's revenue was 113 million yuan, net profit attributable to mother - 54 million yuan, net profit not attributable to mother - 57 million yuan.

The expansion of diamond wire production is driving large-scale cost reduction, and tungsten wire R&D and sales are promoting rapid production capacity. By the end of 2023, the company's diamond wire production capacity had reached 6 million kilometers/month, doubling the year-on-year increase. At present, the company has achieved comprehensive promotion and application of industry-leading “20-line machine” equipment, and overall production efficiency has been greatly improved. In 2024, the company will continue to further increase production capacity to 8 million kilometers/month through equipment technology improvements. In terms of products, the company continues to advance the thinning process. The mainstream product specification of the company's carbon steel wire and diamond wire has evolved to 33/34 μm, the smallest product specification is 30 μm, the mainstream product specification for tungsten wire is 30 μm, and the smallest product specification is 27 μm. The company began to lay out self-manufacturing of tungsten wire busbars. In 2023, the full chain production of tungsten wire busbars from tungsten powder to tungsten bars has been completed. Silicon-sliced tungsten wire busbars are actively undergoing customer verification and large-scale production equipment investment and training stages, and it is expected to achieve a monthly supply capacity of one million kilometers.

Focusing on the key materials of the “light, hydrogen, and storage” layout, the new business layout is expected to further open up growth space. The company's tungsten wire rope products have been certified by more customers and batch orders have increased rapidly; the high-purity quartz sand project obtained by the company through new acquisitions is currently stepping up the verification of medium and inner layer sand; the main products launched by the subsidiary Changsha Daihua have been certified and applied by the original semiconductor, sapphire, and consumer electronics customers. In the field of hydrogen energy, the company plans to take a 35% stake in Yushang New Energy, entering fields such as hydrogen fuel cells, liquid flow batteries, and hydrogen production from electrolyzed water. The products that have the conditions for industrialization are high-performance carbon-based composite bipolar plates for hydrogen fuel cells.

Profit forecasting and valuation

The profit forecast was lowered and a “gain in wealth” rating was given. The company is an established leading company in photovoltaic diamond wire. Production capacity expansion increases the proportion of superimposed tungsten wire, and at the same time, the new quartz sand business is expected to expand. Considering the demand situation in the photovoltaic industry and the acceleration of competition in the industry, we lowered our 2024-2025 profit forecast and added the 2026 profit forecast. We expect the company's net profit to be 1.51, 2.80, and 389 million yuan respectively in 2024-2026 (net profit to mother for 2024-2025 was 5.13 million yuan and 712 million yuan), up 33.92%, 85.68%, and 38.95% year-on-year respectively. The corresponding EPS is 0.54, 1.00, and 1.39 yuan/share, corresponding to PE, respectively It's 21, 11, 8 times.

Risk warning

Demand for PV installations fell short of expectations; competition in the industry intensified; and the penetration rate of tungsten filament wire increased less than expected.