Key points of investment
Incident: Q1 results exceeded expectations, and net interest rates rose month-on-month. In Q1 2024, the company achieved operating income of 3,644 billion yuan, +135.38% year on year; realized net profit of 176 million yuan, +103.71% year on year; realized net profit of 94 million yuan without return to mother, an increase of 143.45% year on year. In terms of profitability, the company achieved a gross profit margin of 10.65% in Q1, which was -0.46 pct month-on-month due to rising silver prices; net profit margin was 4.76%, +2.17 pct month-on-month.
LECO's advantage is obvious, and silver paste shipments continue to rise. The company shipped 569.94 tons of silver paste in Q1 in 2024, +96.84% year-on-year. Q1 is a traditional low season for PV installations, and it is expected that future companies' shipments will still have room to increase. Benefiting from the company's LECO silver paste advantages, the shipment ratio of N-type slurry continues to rise. Q1 shipped 493.17 tons of Topcon's complete set of products, accounting for 86.53% of silver paste shipments.
Technological leadership continues to be consolidated. LECO technology has broken the Topcon silver aluminum paste system developed by various manufacturers in the past and raised industry barriers and technical thresholds. The company relies on years of R&D accumulation in LECO silver paste to form a first-mover advantage. Q1 performance revenue and profitability rank first in the industry. Subsequent companies will continue to cooperate with leading manufacturers to advance the direction of ultra-high square resistance, the possibility of SE return, and LECO on the back. It is expected that the technical advantages of the LECO platform will be further deepened. In addition, subsequent line extensions such as ultra-thin Poly and BC are also being developed, and HJT silver coated copper paste with 30% silver content is being verified downstream with customers.
The integration of raw materials promotes cost reduction and efficiency. LECO paste greatly reduces the dependence on aluminum contact ability and enhances the requirements for the ability of the glass powder system to accurately control etching. The company has long developed and produced glass powder in-house, and has an industry-leading understanding of glass powder formulations. Furthermore, the company's silver nitrate project is expected to be put into operation by the end of 2024, which is expected to reduce costs and increase efficiency by improving understanding of silver.
Investment advice: As TopCon's leading silver paste, LECO's technical advantages continue to be highlighted. At the same time, given the current high level of silver prices, which will have a big impact on revenue, the company's profit forecast for 2024-2026 has been raised. The company is expected to achieve operating income of 143.85/171.65/18.941 billion yuan in 2024-2026, +49.80%/+19.32%/+10.35% (the original forecast values for 2024-2026 were 128.70/154.88/17.594 billion yuan, respectively), and the company's net profit to mother in 2024-2026 was 6.25/7.78/907 million yuan respectively (the original forecast values for 2024-2026 were 5.84/7.79/9.07 respectively), corresponding to the current P/E 12.44x/10.0x/8.57x, maintaining the “buy” rating.
Risk warning: (1) risk of fluctuations in global PV installations; (2) risk of introducing new technology; (3) risk of increased industry competition; (4) risk of credit impairment and cash flow; (5) risk of fluctuations in silver prices.