Core views

The company released its 2024 quarterly report. During the reporting period, the company's revenue was 2,953 billion yuan, and net profit to mother was 76 million yuan. During the reporting period, the company shipped about 550 tons of silver paste, of which N-type silver paste accounted for about 60%, and LECO silver paste accounted for about 20%; the company expects to ship 800-900 tons of silver paste in Q2, and is expected to ship about 3,000 tons throughout the year, an increase of 50% over the previous year. Due to the rapid increase in the share of N-type silver paste, the Q1 company's comprehensive gross profit margin and net interest rate were 8.25% and 2.57%, respectively, up 1.53 and 2.52 pct month-on-month, respectively. As the share of the company TopCon and LECO silver paste continues to increase, the company's silver paste profit is expected to rise steadily. The company acquired a silver powder subsidiary to integrate silver powder. It is expected that the silver powder production capacity will reach 30-40 tons/month by the end of the year, which will help ensure supply chain safety, reduce the cost of silver powder, and help cooperate with the company to develop special silver powder to improve slurry efficiency. Thailand's production capacity of 600 tons/year has been implemented, which will help increase the company's overseas market share.

occurrences

The company released its 2024 quarterly report. During the reporting period, the company's revenue was 2,953 billion yuan, up 65.57% year on year, up 2.14% month on month; net profit to mother was 76 million yuan, down 38.80% year on year, up 5826.51% month on month.

Brief review

The share of the company's N-type silver paste increased rapidly during the reporting period, and shipments are expected to grow rapidly throughout the year. Q1 The company shipped about 550 tons of silver paste, of which type N accounts for about 60% and LECO silver paste accounts for about 20%. Since March, the company's silver paste shipments have grown rapidly. Among them, shipments in March have reached 230 tons, and are expected to increase 20% month-on-month in April. The company expects to ship 800-900 tons in Q2, of which N-type silver paste will account for about 80% in the future, and the share of HJT silver paste will also increase slightly. The company expects a yearly shipment target of 3,000 tons, corresponding to a year-on-year growth rate of about 50%.

The share of N-type silver paste increased, leading to significant month-on-month improvements in Q1 company's gross profit margin and net profit margin.

The Q1 company's comprehensive gross profit margin and net profit margin were 8.25% and 2.57%, respectively, up 1.53 and 2.52 pct, respectively. This was mainly due to the rapid increase in the share of the company TopCon and LECO silver paste during the reporting period + the high calculation of asset impairment losses in Q4 last year, which dragged down performance + last year's Q4PERC silver paste price war. As the share of the company's TopCon and LECO silver paste continues to increase, the company's silver paste profit is expected to rise steadily.

The acquisition of silver powder subsidiaries achieved silver powder integration, and the company's silver paste products iterated into a new era. The company acquired Jiangsu Lianyin during the year, and now it has changed its name to Jiangsu Juyouyin. It is committed to fully localizing electronic grade silver powder for photovoltaic cell silver paste. It has begun construction of a 3,000-ton electronic-grade silver powder production line, which is expected to be put into operation in Q4. The production capacity is expected to reach 30-40 tons/month by the end of the year, and it is expected to achieve kiloton level shipments in 2025. The company's integration of silver powder helps ensure supply chain safety, reduce the cost of silver powder, and help cooperate with the company to develop special silver powder to improve slurry efficiency.

Domestic and foreign production capacity is gradually being implemented, and the global layout is progressing steadily. The company completed the construction of 600 tons of production capacity in Thailand at the end of 2023 to supply Southeast Asian production capacity nearby to meet the delivery needs of international customers and increase market share in overseas regions. Currently, in principle, the Thai factory is only responsible for physical mixing and packaging, and processing costs will obviously perform well.

Although operating cash flow continues to be negative, the company has strict management of notes receivable and accounts, and the cash flow turnover is normal.

The cash flow from the company's operating activities is negative all year round. It is mainly due to the fact that upstream silver powder/silver ingot purchases require cash payments, while downstream customers have an account period of about 1-2 months plus notes of about 3 months, and silver is a precious metal. Therefore, as the scale of the company's operations expands, the cash outflow from operating activities also continues to expand;

Although the company can recover cash through bill discounting, due to the relevant provisions of accounting standards, cash inflows from bank acceptance notes held by the company are successively included in the financing cash flow, causing the company's operating cash flow to continue to be negative. The company has strict management of bills receivable and account periods, and only accepts bank acceptance drafts for notes, so credit risk is manageable.

Investment advice: Silver paste is a rare step in the photovoltaic industry chain, and the company is an industry leader that won the overall victory in the last round of PERC battery silver paste technology iteration. Currently, the industry is once again in a critical period of technological iteration. With its talent and technical reserve advantages, the company is expected to have a stable position in the industry. The company's net profit for 2024-2026 is expected to be 614, 7.09, and 831 million yuan, respectively, with year-on-year growth rates of 38.87%, 15.54%, and 17.14%, respectively. Earnings per share are 3.71, 4.28, and 5.02 yuan, respectively. PE corresponding to the closing market value on April 30 is 14.9, 12.9, and 11.01 times, respectively.

Risk warning: 1. Competition in the industry is intensifying. In the silver paste process, due to low capital expenditure, rapid production expansion, and high production capacity flexibility, if new silver paste technology spreads rapidly, silver paste processing costs may drop rapidly; 2. There is a risk that raw material costs will fluctuate drastically. The main raw materials of silver paste are silver powder and silver ingots. If the price of silver fluctuates greatly in a short period of time, it may affect the company's gross profit margin. Referring to the company's cost structure in 2022, the average cost of silver paste is 4,373 yuan/kg, of which the direct material cost is 4,360.4 yuan/kg, accounting for more than 99% of the cost, mainly silver powder and silver ingots. If the cost of silver powder and silver ingots rises 10%, the company's gross margin of silver paste in 2022 will drop from 11.3% to 2.5%; 3. The risk of a rapid decline in silver paste unit consumption for photovoltaic cells. Currently, the silver paste single consumption of N-type batteries is significantly higher than that of P-type batteries. Currently, the silver consumption (front) of mainstream P-type batteries is 5.8-7.5 mg/W, TopCon silver consumption is about 13 mg/W, and HJT batteries are around 20 mg/W. Therefore, we expect that the increase in the penetration rate of N-type batteries will drive an increase in silver paste unit consumption, but if the silver paste unit consumption of N-type batteries declines rapidly, the silver paste industry's market space growth rate may fall short of expectations, affecting the company's silver silver paste shipments; 4. Demand in the photovoltaic industry falls short of expectations. We forecast the company's shipments based on demand in the PV industry maintaining a 20%-30% growth rate in the next few years. If demand in the PV industry falls short of expectations, the company's silver paste shipments may also fall below our forecast value; 5. There is a risk that operating cash flow will continue to be negative. Since the customer payment period is longer than the raw material procurement payment cycle, the operating capital requirements will continue to expand as the company's business scale expands, which may cause the company's operating cash flow to continue to be negative; 6. The company received a regulatory letter on June 9, 2023, reminding them to pay attention to related risks.