According to a report by Bocom Intl, due to a significant drop in the prices of polysilicon and silicon wafers, it is expected that GCL Tech (03800.HK) will face considerable profit pressure in the short term and will have a loss of approximately 200 million RMB in the next quarter. The company's first-quarter net profit was only 33 million RMB, lower than the bank's expectations. However, the current utilization rate of granular silicon production capacity has risen to 80% to 90%, and the company expects to reach full production in the third quarter, with a total cost expected to drop below 40,000 RMB per tonne. In addition, the company signed a cooperation agreement with the sovereign fund of the United Arab Emirates in May to explore building a factory in the local area, which is expected to commence construction this year.

The bank mentioned that the recent plunge in polysilicon prices has caused severe losses across the entire industry, but the profit advantage of granular silicon has become more apparent after the discount narrowed. Under the pressure of losses and inventory, the national output in May has declined by 4% month-on-month, and the Silicon Industry Branch expects to see a significant monthly decline of 20% in June, which may lead to destocking. The bank expects that the current severe loss situation in the industry will be difficult to sustain, and the price of polysilicon has hit bottom and will rebound in the third quarter.

In addition, the bank believes that due to the product price falling more than expected, the profit forecast for GCL Tech has been lowered. Under the pressure of bottom-cycle performance, based on a market cap of 3.55 billion RMB for the polysilicon business and 5 billion RMB valuation for new businesses such as calcium titanium ore and silane gas, taking into account primary market and peer-listed companies, the bank gave a total valuation of 40.5 billion RMB and lowered the target price of GCL Tech from 1.67 RMB to 1.62 RMB. It is bullish about the long-term development prospects and continuing improvement of market share of the company, but after the recent surge in share price, the short-term attractiveness of valuation is limited, so the bank downgraded the rating from “buy” to “neutral”.