Report summary:
The artificial quartz faucet has its own high-end brand “Cykelon”. The company, formerly known as Guangzhou Serite, was founded in 2007. In 2009, it changed its name to Zhongqi Co., Ltd. and moved its headquarters to Gaoming, Foshan. In 2021, it became the first listed company in the field of artificial quartz. The company's traditional main business is artificial quartz slabs and countertops, and the 2023 plate/countertop business contributed 70%/30% of revenue respectively. Since 2022, profits have been pressured by the real estate installation cycle, and the decline narrowed in 2023.
Artificial quartz stone business: The competitive advantage is obvious, and there is room for long-term growth. Artificial quartz stone overcomes the shortcomings of natural stone such as stain resistance and radioactivity. It is a green building material with excellent properties. It is mainly used in kitchen countertops and has an alternative effect on traditional countertop materials. The artificial quartz stone market is scattered, and the company has a clear competitive advantage as a leader in the industry. Long-term stable cooperation with many leading downstream furniture manufacturers, plate sales rebounded steadily in 2023, and countertop sales continued to grow. Currently, the company is actively deploying new production capacity. The Hubei base is expected to provide 4.5 million square meters of plate production capacity and 165,000 meters of countertop production capacity after delivery; the Guangxi Luocheng project will supply its own quartz filler to guarantee supply and enhance profitability.
Silicon crystal new materials business: Leveraging the advantages of integration to create a new growth point for performance.
Silicon powder: a high-growth new material, the company is focusing on TFT and electronic and electrical fillers. The market size of silicon powder will be around 15 billion yuan in 2023, and the CAGR is expected to reach 17% by 2025. The company's Guangxi Luocheng project has a total production capacity of 60,000 tons of TFT powder, 40,000 tons of electronic and electrical filler powder and other quartz products. It is expected to be put into operation in 2024Q2, with an annual profit of over 100 million yuan after delivery.
High-purity quartz sand: Actively lay out domestic alternatives and explore the Luochengmai quartz mine. Demand in the middle and high-end high-purity quartz market has risen rapidly in recent years due to the high increase in photovoltaic installations. The market price of inner/medium/outer sand in quartz crucibles once rose to about 40/20/10 (10,000 yuan/ton). Currently, the price has dropped significantly, but there is still a large increase compared to 2022. The company used its own capital to build a 6,000-ton high-purity quartz production line in Hubei, and has a second phase plan to expand production by 8,000 tons. The company currently has the technology, process and equipment to produce the outer, middle and inner layers of high-purity quartz sand. The first phase of high-purity quartz in Hubei has been put into operation, and it is expected that 2024Q2 will stabilize production and achieve sales; part of the production line uses the highest quality part of the Luochengmai quartz mine, which is expected to fully excavate and achieve integrated benefits.
Maintain an “Overweight” rating. Considering the decline in high-purity quartz prices and the recovery in real estate chain demand falling short of expectations, the profit forecast was lowered. Revenue from 2024 to 2026 is expected to be 11/16.20 billion yuan, up 64%/45%/20% year on year, and net profit to mother is 1.6/2.7/360 million yuan (2024/2025 forecast value was 200/30 million yuan), up 102%/69%/32% year on year, corresponding PE is 20/12/9 times.
Risk warning: macroeconomic risks, downstream demand falling short of expectations, performance falling short of expectations, etc.