Key points of investment
Incident: The company released its 2024 quarterly report. The company's 2024Q1 revenue was about 3,644 billion yuan, up 135.38% year on year; net profit to mother was 176 million yuan, up 103.71% year on year; net profit after deducting non-return to mother was 194 million yuan, up 143.45% year on year. The results exceeded expectations.
The N-type shipping industry is leading, and profits are gradually realized. 2024Q1 sold about 570 tons of silver paste, doubling year-on-year, with a year-on-year decrease of about 3%; of these, N-type silver paste sold 493 tons, accounting for 87%, an increase of 7 pcts over the previous year.
The gross margin of 2024Q1 is about 10.65%. Due to the increase in the price of silver paste, the gross margin decreased by 0.46 pct. The estimated processing fee (gross profit per kg) was about 681 yuan/kg, benefiting from the improvement of the N-shaped structure and the gradual introduction of LECO, which increased 21 yuan/kg over month. The 24Q1 VAT credit contributed $60 million in other revenue, but changes in fair value affected $0.3 billion in profit (futures and silver leasing losses). Currently, the P-type processing fee is about 350 yuan/kg, which is expected to be almost unprofitable; TopCon's processing fee is 650 yuan/kg, contributing to the main profit. Looking at 24, the company expects to ship about 2500-3000 tons, of which TopCon accounts for 80% +, and LECO silver paste continues to support profits.
LECO's profits are gradually reflected, and R&D continues to be invested. LECO can improve TPC battery efficiency by 0.2pct+. Downstream battery manufacturers have strong consensus to transform LECO equipment, and 2024Q1 has basically been introduced. The company's LECO silver paste has an early layout and shipments are gradually increasing. Currently, LECO has a premium of 200+ yuan/kg compared to conventional TPC silver paste, supporting silver paste profits in 2024. The company continued to expand R&D investment. The 2024Q1 R&D cost was 110 million, an increase of 201%; the 2024Q1 R&D cost rate was 3.1%, +0.7 pct/-1.1 pct compared to the same period last month. In terms of technical reserves, TPC's full silver paste share is in a leading position; HJT low temperature silver paste and silver coated copper paste have been shipped on a large scale; IBC paste has been continuously improved and iterated to achieve continuous supply. At the same time, we are actively deploying ultra-low temperature curing slurries for perovskite/crystalline silicon laminates.
Investment rating: We maintain the 2024-2025 profit forecast and add the 2026 profit forecast. We expect the company's 2024-2026 net profit of 6.5/8.2/990 million, an increase of 69%/25%/21%, corresponding to the current PE 11/8/7 times. Considering that the company is a leading domestic TopCon silver paste company, the share of TopCon shipments will continue to increase in 2024. We will give 18xPE 2024, with a target price of 84 yuan, maintaining the “buy” rating.
Risk warning: Raw materials rose more than expected, demand growth fell short of expectations, competition intensified, etc.