Core views:

The performance fell short of expectations, mainly due to the decline in material gross margin. The company released its 2024 mid-year report. 24H1 achieved revenue of 10.15 billion yuan, +20.7% year over year; net profit to mother of 2.096 billion yuan, -4.97% year over year; net profit after deducting non-return to mother 2.094 billion yuan, +1.02% year over year. Looking at Q2 alone, revenue was 5.64 billion yuan, +17.3% year over year; net profit to mother was 1.03 billion yuan, or -22.2% year over year; net profit without return to mother was 0.992 billion yuan, or -17.2% year over year. Q2 The overall gross profit margin was 31.8%, and the decline in industry beta has begun to be transmitted from orders to performance.

The price of crucible dropped significantly, and the net interest rate fell to 42%. The lower-than-expected performance was mainly due to a rapid decline in material gross margin. 24H1 material gross profit margin was 40.15%, a year-on-year decrease of 14.5 pcts. According to the company's interim report, Ningxia Xinjing's revenue in the first half of the year was 1.66 billion yuan, +22.1% year-on-year, and net profit was 0.69 billion yuan, +1.5% year-on-year. Due to the end of the tight supply and demand pattern of quartz sand, the current price of crucible has dropped significantly. The net interest rate for crucibles is 42%, down 8 pcts from the previous year, but it remains at a relatively high level.

The gross margin of equipment declined steadily and slightly, and contract liabilities began to decline. The gross profit margin of 24H1 equipment was 37.4%, -2.7 pct year on year. The overall decline in orders in the first half of the year was significant, and the company maintained relatively stable equipment profitability in the face of adversity. Currently, the company's contract debt is 8.37 billion yuan, a decrease of 2.35 billion yuan compared to the end of last year, and the downward impact of the cycle is already showing. As the photovoltaic industry continues to clear production capacity, the semiconductor equipment industry gradually ushered in marginal recovery, and the bottom inflection point is expected to gradually approach.

Profit forecasting and investment advice. We expect the company's 2024-2026 net profit to be 5.115/6.133/7.156 billion yuan, and EPS of 3.91/4.68/5.46 yuan/share. Referring to comparable company valuations, the company was given 8 times PE in 2024, corresponding to a reasonable value of 31.24 yuan/share, maintaining a “buy” rating.

Risk warning. Demand for photovoltaics and semiconductor equipment fell short of expectations; the semiconductor localization process fell short of expectations; silicon carbide penetration fell short of expectations.