Why choose photovoltaic silver paste: In the N-type era, the amount of silver paste increased rapidly, and technical barriers continued to rise. 1) The cost of silver paste accounts for about 40% of the non-silicon cost of batteries, and is a key material affecting battery efficiency and cost. With the increase in demand for photovoltaics and the increase in unit consumption of N-type batteries, the global demand for photovoltaic silver paste is expected to be 8031/9200/10172 tons in 2024-2026, up 32%/15%/11% year on year; 2) Increased technical barriers such as paste formulation difficulty and process control accuracy will drive up silver paste processing costs. We expect the processing cost of N-type high temperature silver paste/HJT silver paste to be 500/850 yuan/kg in 2024, which is a significant increase compared with PERC silver paste.

Why choose polymeric materials: The leading position of PV silver paste is stable, and the multi-business layout creates the second growth pole. The company is the leader in photovoltaic silver paste. In 2023, the company's PV silver paste shipment volume was 2002.96 tons, making it the first company in industry history to ship more than 2,000 tons of photovoltaic silver paste per year. According to the investor Q&A platform, the company currently has a market share of 40% of the front silver paste market, 30% of the back silver paste market, and a market share of more than 50% for the main grid, continuing to maintain its leading position in the photovoltaic silver paste industry. We believe that the company's stable market share mainly comes from three advantages: 1) Comprehensive silver paste category layout and rapid product iteration. TopCon successfully achieved mass production of several new series of products such as LECO sintered silver paste, and the share of 24Q1 shipments increased to nearly 60%; HJT low-temperature pure silver series products and silver-wrapped copper paste products blossomed on both sides, and 50% or less silver-containing products achieved small-scale mass production; xBC and perovskite medium- to high-temperature slurries and ultra-low temperature slurries have also made important technological progress; 2) Upstream layout silver powder can be expected to reduce costs, and downstream binding leaders are the first to benefit from N-type battery emissions; 3) Leading peers in capital and cost control, with strong R&D capabilities. As the proportion of the company's N-type silver paste continues to increase and the integrated layout is gradually improved, the company's leading position is expected to continue to be consolidated.

Focusing on the fields of new energy, consumer electronics, automotive electronics and optical devices, the company successfully developed products such as a novel positioning adhesive for 0BB photovoltaic module packaging, LTCC conductive paste, and functional glue systems for optical modules, and successfully entered the supply chain of leading enterprises in the electronic components industry in 2023. In addition, the company plans to invest 300 million yuan to build a R&D center to develop nano-grade powder materials needed in MLCC, lithium-ion batteries, semiconductors, etc. With deep R&D accumulation, the company's non-photovoltaic business is expected to expand rapidly from 2024.

Profit forecasts, valuations, and ratings

We expect that in 2024-2026, the company will achieve operating income of 189/212/22.9 billion yuan, +84%/+12%/+8%, respectively; net profit to mother of 7/9/10 billion yuan, +69%/+21%/+11%, corresponding EPS of 4.51/5.46/6.07 yuan, respectively. The target price will be 67.70 yuan for 15XPE in 2024. The first coverage will be given a “buy” rating.

Risk warning

Raw material prices have risen more than expected; market competition has intensified; and there is a risk that silver consumption will continue to decline.