According to SMM PV Vision, as of May 27, the price of N-type polysilicon dropped to 42 yuan/kg. Maintenance manufacturers continued to increase over time. Leading companies have already cut production on a large scale, and polysilicon production is expected to drop sharply in June.
The falling price of silicon is putting pressure on performance, and the cost of contrarian expansion has a competitive advantage. Tongwei Co., Ltd. achieved annual revenue of 139.104 billion yuan in '23, -2.33% year-on-year, and net profit to mother of 13.574 billion yuan, or -47.25% year-on-year.
The pressure on the company's performance is mainly due to a sharp drop in prices in the industrial chain. The company's high-purity polysilicon industry and chemical business achieved revenue of 44.799 billion yuan in 2023, -27.57% year-on-year, and a gross profit margin of 53.26%. According to Antec statistics, the average price of monocrystalline dense materials dropped from 176,200 yuan/ton at the beginning of the year to 58,300 yuan/ton at the end of the year, a decrease of 66.91%. In the face of low silicon prices, the company chose to buck the trend and expand. By the end of 2023, the company had a production capacity of 450,000 tons of silicon, and it is expected that 400,000 tons of additional silicon production capacity will be put into operation in 2024. We believe that the main reason for the company's contrarian expansion in silicon materials is that the company's costs are ahead of the industry. In 2023, the company drove a number of consumption indicators to further decline, and the average production cost has dropped to 42,000 yuan/ton.
The integrated component production capacity layout is expected to increase the valuation. The company's solar cell and module business achieved operating revenue of 69.372 billion yuan, +29.60% year-on-year, and a gross profit margin of 12.77%. The company's sales volume of solar cells in 2023 was 80.66 GW (including personal use), +68.11% compared with the same period last year. As the original project is upgraded and additional production capacity is put into operation, it is expected that by the end of 2024, the company will have a production capacity of more than 100 GW of N-type batteries, and its competitive cost advantage will continue to increase. The component business achieved sales volume of 31.11 GW in 2023, an increase of 292.08% year over year.
With the gradual improvement of the company's integrated layout, we believe that the company's valuation is expected to receive a premium, changing the original valuation system from a pure cyclical perspective.
Investment advice: Considering the company's leading costs in the industry and strong management capabilities, the company is expected to achieve net profit of 30.39/68.20/10.949 billion yuan in 24-26 years, -77.6%/+124.4%/+60.6% year-on-year, and EPS of 0.67/1.51/2.43 yuan, respectively, giving it a “buy” rating.
Risk warning: The progress of production capacity commissioning falls short of expectations, and the level of industry competition exceeds expectations