2Q24 Deduction of non-performance is in line with our expectations

The company announced 1H24 results: revenue of 7.587 billion yuan, YoY +118%; net profit of 0.233 billion yuan YoY, +14.9%, net profit of 0.35 billion yuan, +154.2% YoY, 2Q24 revenue of 3.94 billion yuan, +104.6% YoY, +8.2% month-on-month, net profit 0.057 billion yuan YoY, +67.5% YoY net profit Billions of yuan, +169% year over year, -19.9% month on month. After deducting non-performance, we are in line with our expectations. In the first half of 2024, the company's photovoltaic conductive silver paste sold 1132.05 tons, compared with +76.09%. Among them, the full range of silver paste products for N-type TopCon batteries sold 988.03 tons, or +277%, accounting for a rapid increase in the company's total sales volume of PV silver paste products to 87.28%. Currently, the company's TopCon market share is around 40%, and is in a leading position in the industry. The company guides the range of 2000-2,500 tons of silver paste shipments in 2024.

Depreciation of accounts receivable and fluctuations in silver prices had an impact on 1H24's net profit before tax of approximately 0.23 billion yuan. Bad debt receivables lost $0.07 billion. The company determines the recovery risk based on the customer's overdue date and collection situation, of which more than 69 million yuan was calculated individually. In the future, the company plans to take various measures to collect. If the recovery amount is greater than the amount calculated, it will be recovered. Return on investment - 0.1 billion yuan. Among them, silver futures hedged a loss of 0.08 billion yuan due to position adjustments in June. Loss of $57 million due to changes in fair value. Among them, silver futures surged profits of more than 17 million yuan, silver leasing surged losses of more than 60 million yuan, and losses calculated on fund investments of 15 million yuan. Profit and loss from changes in fair value and investment income are mainly generated by fluctuations in silver points.

Development trends

The company's operating cash flow improved in the first half of the year. The company's net cash flow from 1H24 operating activities was 0.638 billion yuan, a significant improvement over -0.49 billion yuan in the same period last year. We think it is mainly due to the company's restructuring of customers and focusing on serving high-quality customers. The company dynamically monitors and sorts out customer credit periods and overdue dates. At the same time, the company purchased some silver powder through a supply chain company, and the payment period for this part was extended. As of mid-2024, the company's balance ratio was 81.9%, with cash capital of 2.24 billion yuan, short-term loans of 2.466 billion yuan, long-term bonds maturing within one year of 0.027 billion yuan, and no long-term liabilities. After deducting bank guarantees, etc. occupied by some low-risk businesses, the debt ratio is 70% +. In terms of capital expenditure, it is mainly upstream expansion, fixed asset investment is about 0.1 billion yuan+, and capital expenditure is relatively manageable. Promote upstream layout and enhance supply chain stability and product competitiveness. The company expects the 5,000 ton silver nitrate project in Shandong to be put into operation by the end of 2024, corresponding to the conversion of more than 3,000 tons of silver powder. We believe it is beneficial to ensure the safety and stability of the company's supply chain, reduce the company's costs, and increase the competitiveness of the company's paste products.

Profit forecasting and valuation

Taking into account impairment and non-loss in the first half of the year, the 2024 net profit forecast was lowered by 12.6% to 0.57 billion yuan, maintaining the 2025 net profit forecast of 0.76 billion yuan. Maintaining an outperforming industry rating, due to declining industry valuations, we lowered our target price by 35% to 42 yuan, corresponding to 10.4/7.7 times P/E in 2024/2025, with 22% upside compared to the current stock price. The current stock price corresponds to 8.5/6.3 times P/E for 2024/2025.

risks

Downstream customer repayment risks, non-financial losses due to fluctuations in bank points, and declining processing fees due to industry competition.