Incidents:
The company released its report for the first quarter of 2024. 2024Q1 achieved operating income of 1,420 million yuan, a year-on-year increase of 12.76%; realized net profit of 212 million yuan, a year-on-year decrease of 36.71%; net profit after deducting non-return to mother was 187 million yuan, a year-on-year decrease of 42.68%, which is in line with overall expectations.
Company reviews:
The overall price of the photovoltaic industry chain is declining, and the company's performance is under pressure in the short term. In the first quarter of this year, the company's chip foundry and diamond wire business all remained ahead of the industry's operating rate. PV equipment was delivered steadily, and the production and sales scale of various businesses increased dramatically over the same period last year. However, due to fluctuations in demand in the photovoltaic industry, the overall price of the industrial chain declined, the prices of the company's products such as diamond wire and silicon wafers dropped sharply, and the company's net profit was affected.
Production capacity of slicing+diamond wire has been steadily expanding, and intelligent manufacturing has helped improve efficiency and reduce costs. Slicing: According to the company's official account information, on March 25, 2024, the 100 millionth silicon wafer was officially launched at the Yibin Slicing Base. Since the first film went offline on January 9, the Yibin (Phase I) 25GW photovoltaic large silicon wafer project has continued to climb. It is expected to achieve full production and operation by the end of June. At that time, the company's slicing production capacity will reach 63 GW (Leshan 11GW+ Yancheng 22GW+Anyang 5GW+ Yibin Phase 1 25GW). From slicing to sorting, the company's slicing factory uses automated solutions such as automated sticking and automated slicing to achieve intelligent connectivity and automated operation of the entire process from order submission to final delivery. It is committed to building an efficient silicon wafer production base with advanced technology, high level of intelligence and optimal cost. King Kong Line: The company's current production capacity is 60 million kilometers per year. The Huguan Phase I 40 million kilometer project is currently in the equipment commissioning stage, and production capacity will gradually be contributed. By the end of 2024, the company's King Kong Wire production capacity will reach 100 million kilometers, helping to increase the company's market share of the King Kong Wire business.
Short-term profitability is under pressure, mainly due to industry fluctuations causing the price of the company's main products to drop. According to the company's quarterly report, 1) Profitability: 2024Q1's gross profit margin was 32.39%, year-on-year -10.73pct, and -2.65pct month-on-month; net profit margin was 14.91%, -11.65pct year on year, +0.29pct month-on-month. The company's profitability was under pressure, mainly due to large fluctuations in demand in the photovoltaic industry since the fourth quarter of 2023, prices of silicon wafers and diamond wires have dropped sharply, compounded by adverse factors such as fluctuations in the operating rate of the industry. 2) Expense side: 2024Q1 sales/management/R&D/finance cost rates were 3.05%/8.24%/5.78%/0.50%, respectively, +1.24/+3.23/-0.06/-0.12pct, respectively.
Maintain profit forecasts and maintain a “buy” rating. The decline in the company's performance in the first quarter of this year was mainly due to price drops in silicon wafers and other products due to fluctuations in the photovoltaic industry. We maintain our profit forecast. We expect net profit to be 9.76/13.85/18.16 billion yuan for 2024-26. The current stock price (2024/4/23) corresponds to 2024-26 PE 10/7/5X, respectively. Considering that the company's slicing capacity is leading in the industry and the scale of production capacity is expanding in an orderly manner, profitability is expected to recover in the future as industry demand recovers and the company's scale effect is reflected, and the purchase rating will be maintained.
Risk warning: risk of industry demand falling short of expectations; risk of sharp fluctuations in product prices; risk of high customer concentration.