After ten years of sharpening one sword, first-principle genes helped GCL Technology go through multiple cycles, and granular silica+silane gas+perovskite create new growth momentum. GCL successfully produced standard silane gas in 2012 and acquired SunEdison in 2017. The total production capacity of granular silicon is expected to reach 0.48 million tons in 2024.

It mainly answers market concerns from several dimensions:

The leftmost cost is already an industry consensus. How do you understand FBR's alpha from a technical perspective?

(1) The granular silicon barrier is not only about patent protection. The underlying logic is aerodynamics. The core is precise control of raw material (etching) gas flow rate, temperature, mixing ratio, and temperature to seek large-scale mass production and optimal cost solutions. Complicated processes and structured management create technical barriers. (2) Judging from the underlying principle, the low birthrate longevity advantage is the first driving force driving the silicon technology revolution; the hydrogen jump is only a matter of time. The gap between the 100% granular silicon breakage rate and rod-shaped silicon in the GCL pilot line was controlled within 1 pct, which has basically been solved. The life span of fewer silicon materials mainly depends on the content of 18 kinds of metal impurities. By reducing crushing, granular silicon achieves a higher lifetime with fewer seeds at a lower cost. The GCL test line (100% granular silicon) increases the yield of silicon by about 3 kg/d compared to rod silicon.

Under the downward silicon cycle, how to understand the 2024H2 industry and GCL's marginal inflection point? (1) From the beta perspective of the industry, silicon prices have bottomed out and inventories have reached their peak. Silicon materials are expected to be successfully removed from storage in August/September. We are optimistic about the recovery of silicon prices brought about by the increase in silicon wafer production schedules during the traditional peak season in Q4.

(2) The solution to the problem of high and low seed life+hydrogen jump has made granular silicon the mainstream product. According to SMM, granular silicon N-type products are currently discounted by 2-3 yuan compared to the same dense material. We believe that granular silicon is expected to narrow the discount, driven by quality advantages, and at the same time, the decline in lining and other costs due to technological change is expected to drive the company's Q4 profit marginal inflection point.

More than just crossing the cycle, what other points did silicon go offshore, silane gas, and perovskite exceed expectations?

(1) In the context of the mismatch between supply and demand, overseas polysilicon continues to have a premium. According to Infolink, the average price of overseas dense materials was 21.5 US dollars/kg in 2024/6/20, far higher than domestic polysilicon (39.0 yuan/kg). GCL's UAE polysilicon production capacity will be concentrated in 2025/2026, and net profit per ton is expected to far exceed that of the domestic market. (2) Silane gas is a by-product of granular silicon. GCL's total production capacity exceeds 0.6 million tons. With production capacity investment and cost reduction, scenarios such as silicon-carbon anodes are expected to cross an economic inflection point, and demand and profits can be expected for a long time.

Profit forecast: Granular silicon drives the company's performance growth. We expect the company to achieve operating income of 129.6/179.0/ 24.84 billion yuan in 2024-2026, and net profit to mother of -20.0/5.83/4.26 billion yuan, respectively. Taking into account the characteristics of the cyclical industry, it was given a PB valuation of 1.0 times its net assets per share in 2024E, corresponding to a target price of HK$1.62, covered for the first time, and given a “buy” rating.

Risk warning: Silicon material falls short of expected risk; profit forecast and valuation model fall short of expected risk