Core views

The company released its 2024 Q1 results, with net profit attributable to mother during the reporting period of RMB 0.3 billion. Q1 The company's net profit declined sharply year-on-year, mainly due to falling prices of silicon materials and silicon wafers, followed by a decline in the company's silicon production capacity and R&D expenses. Looking ahead, the factors that have dragged down the company's Q1 performance have begun to improve. On the price side, due to the rapid improvement in the quality of granular silicon, the price gap with rod-shaped silicon has continued to narrow recently. On the cost side, solutions have been found and Xinhuanji underground is about to enter the climbing period for half a year, and it is expected that there is still room for improvement in costs. Currently, competition in the silicon industry is intensifying, and the long-term trend in the L-shaped bottom range is clear. The industry will enter a knockout competition for cost. Meanwhile, granular silicon currently has a rapid increase in market recognition, significant cost advantages, and the certainty of getting out of the low point of the current silicon cycle is the strongest.

occurrences

The company released its results for the first quarter of 2024. During the reporting period, the profit attributable to the company's unaudited owners was approximately RMB 0.33 billion, and the unaudited revenue was approximately RMB 5.47 billion.

Brief review

Q1 The company's net profit declined sharply year-on-year, mainly due to falling prices of silicon materials and silicon wafers, followed by a decline in the company's silicon production capacity and R&D expenses.

On the price side, referring to PVInfoLink data, the average price of Q1 silicon materials and silicon wafers including tax was 67,000 yuan/ton and 2 yuan/piece, respectively, down 67% and 64% year-on-year, respectively, with a sharp drop of 67% and 64%, respectively.

Due to the large drop in silicon wafer prices, the company's silicon wafer business lost money;

On the cost side, on the one hand, Q1's 120,000 tons of additional production capacity in Hohhot, Inner Mongolia is in a climbing period, causing the overall operating rate of Q1 silicon production capacity to be low; on the other hand, fluctuations in electricity supply affect the service life of granular silicon fluidized bed clean materials, which also have a certain impact on the operating rate;

On the R&D cost side, Q1 increased R&D support for clean material alternatives, combined with R&D investment in single perovskite batteries and laminated, CCz, silane, and silicon-carbon anode materials. Q1's R&D expenses exceeded RMB 400 million.

Looking ahead, the factors that dragged down the company's Q1 performance began to improve:

On the price side, due to the rapid increase in the current turbidity and impurity levels of granular silicon (the announcement revealed that the current turbidity has basically dropped to less than 120 NTU, and the proportion of products with 5 element metal impurities ≤ 0.5 ppbw exceeds 90%), in particular, the number of bars drawn in a single pot increases after the life span of the quartz crucible is extended, and the life span of the last few rods after using granular silicon is better, which can reduce customers' non-silicon costs, so the price difference between granular silicon and rod-shaped silicon has continued to narrow recently;

On the cost side, on the one hand, the company introduced a new clean materials system in March. Even if electricity fluctuations affect the future, the impact on the service life of clean materials will decrease; on the other hand, the Xinhuan base is expected to fully achieve production in the second half of the year.

As production capacity utilization increases, it is expected that there is room for further reduction in the cost of granular silicon, and the cost and quality advantages are remarkable.

Investment advice: Competition in the silicon industry has intensified. The current price level has already touched the cash costs of the vast majority of silicon companies in the industry. The long-term trend in the bottom L-shaped range is clear, and the industry will enter a knockout race to compete for costs. Meanwhile, granular silicon currently has rapid market recognition and significant cost advantages, and the certainty of getting out of the low point of the current silicon cycle is the strongest. The company's net profit for 2024-2026 is estimated to be 15.01, 30.78, and 4.258 billion yuan, respectively, with year-on-year growth rates of -40.22%, 105.09%, and 38.36%, respectively. Earnings per share are 0.06, 0.11, and 0.16 yuan, respectively. PE corresponding to the closing market value on May 19 is 22.23, 10.84, and 7.83 times, respectively.

Risk warning: 1. Risk of loss in the silicon material and silicon wafer business during the year due to increased competition in the industry. Since 2023, silicon production capacity has been released rapidly, leading to a rapid drop in the price of silicon materials and silicon wafers. The overall profit of the silicon industry is under pressure, and there may even be an extreme situation where the entire industry loses money in the short term. As a granular silicon supplier, there is still a risk of loss of performance during the year; 2. There is a risk that the company's operating rate will be affected by fluctuations in electricity supply. Since the second half of 2023, all of the company's bases have been affected by fluctuations in electricity supply to varying degrees, resulting in lower operating rates and lower costs than expected. If subsequent fluctuations in power supply persist + the effects and supply of the company's clean materials fall short of expectations, it may cause the company's granular silicon production and cost to fall short of expectations.