Description of the event

The company released: 1. 2023 annual report: operating income of 3.13 billion yuan, up 118.25% year on year; attributable net profit of 654 million yuan, up 174.33% year on year; 2. 2024Q1 report: operating income of 340 million yuan, down 46.6% year on year, and attributable net profit of 0.2 billion yuan, down 87.4% year on year.

Incident comments

Downstream demand continues to grow at a relatively rapid pace. In 2023, the world added more than 390 GW of new PV installations, a record high. In 2023, China added 216.88GW of domestic PV installed capacity, an increase of 148.1% over the previous year. Production of polysilicon, silicon wafers, cells, and modules all increased by more than 64% year-on-year in 2023. At the same time, with the upgrading of downstream crystallization processes and the continuous increase in the proportion of large-size, N-type monocrystalline silicon wafers, downstream demand for large-size, high-quality quartz crucibles will continue to grow.

As far as the company is concerned, the company's revenue for quartz crucible products in 2023 was 2.1 billion yuan, up 178% year on year; revenue from PV supporting processing services was 900 million yuan, up 49% year on year. Specifically, the company sold 108,000 crucibles in 2023, a year-on-year decrease of 11%. In addition, by the end of 2023, the inventory of quartz crucibles was 58.77 million, an increase of 72.14% over the beginning of the period. The main reason was that N-type batteries gradually replaced P-type batteries in the photovoltaic industry, and the customer's crystal drawing technology also changed from P type to N type. During the transformation process, the customer's crucible usage parameters had to be adjusted accordingly. The company isolated, stored and conducted technical reviews on undelivered crucible products. Additionally, in 2023, the company accrued asset impairment losses of 73.56 million yuan. There was also a significant increase in inventory compared to the beginning of the period, mainly raw materials and commissioned processing materials. As a result, net profit attributable to the full year was 654 million yuan, an increase of 174.33% over the previous year.

Looking at the single quarter from 2023Q1 to 2024Q1, the company's revenue in the single quarter was 6.36, 8.18, 8.71, 804 million yuan, and 340 million yuan, respectively, with year-on-year growth rates of 137%, 162%, 144%, 62%, and -47% respectively. The 24Q1 revenue growth rate declined year on year, and there was also a month-on-month decline, mainly due to phased weakness on the downstream demand side. From a performance perspective, the single quarter results from 2023Q1 to 2024Q1 were 1.72, 2.36, 1.81, 0.65 million yuan, and 022 million yuan, respectively. The 24Q1 results also showed a significant decline (calculated asset impairment loss of 21.33 million yuan).

In February 2024, the company and Sibelco North America signed a procurement agreement for high-purity quartz sand as a raw material to guarantee the company's long-term stable supply of high-purity quartz sand raw materials. The total estimated purchase amount is 350 million US dollars, which guarantees production stability in the medium term to a certain extent.

The consumable properties of quartz sand and crucibles are supported, and the proportion of superimposed N types has increased, and the demand boom in the medium term can still be expected. Quartz sand and quartz crucible are auxiliary materials. They have a short life cycle and are typical expendable materials, so demand in the stock market can be expected; at the same time, considering the gradual release of N-type batteries, their consumption of crystal drawing crucibles will increase significantly, so the demand for quartz sand and crucibles is sustainable.

The expected 2024-2025 performance is 890 million and 1.23 billion, corresponding PE is 9.4 or 6.8 times, and the purchase rating.

Risk warning

1. The progress of production capacity construction is slow; 2. The supply of quartz sand is tight.