Key points of investment:

Q2 Inventory impairment had a significant impact, and asset quality remained healthy. In 24H1, the company achieved operating income of 4.584 billion yuan, a year-on-year decrease of 50.84%, and net profit to mother of 0.67 billion yuan. 24Q2 achieved operating income of 1.602 billion yuan, a year-on-year decrease of 64.14%, net profit to mother of 1.001 billion yuan, and asset impairment loss of 0.781 billion yuan, mainly due to losses due to falling inventory prices. Cash payments were 9.912 billion yuan. In order to improve capital utilization efficiency, the company used idle funds to handle time deposits and structured deposits. Bank deposit balances declined. The project under construction was 9.565 billion yuan due to 0.1 billion yuan in Inner Mongolia Phase II The million-ton high-purity polysilicon project was completed in the first half of the year, causing the balance of projects under construction to rise.

Adjust production schedules in stages and actively participate in controlling polysilicon supply. In the first half of 2024, the company's share of N-type monocrystalline silicon wafer material production exceeded 70%. Inner Mongolia Phase II 0.1 million-ton high-purity polysilicon project was successfully put into operation. The company's overall production was stable, and the polysilicon output was 0.1272 million tons. In view of the current market environment and product price fluctuations, in order to better control costs, stabilize product prices, and reduce unnecessary cash consumption. The company adjusted the time window for the annual routine maintenance plan and adjusted the device production load in stages starting in the third quarter. The company expects to produce 4.3 -0.046 million tons of polysilicon in the third quarter, and the expected production forecast for the full year of 2024 is adjusted to 0.21-0.22 million tons. Continue to step up overseas market development efforts and actively seek overseas orders.

The price of silicon is already at the bottom, and depreciation pressure is expected to abate sharply. We believe that the current price of polysilicon is in the bottom zone, and the adverse effects of falling prices are expected to be eliminated. According to incomplete statistics released by the China Photovoltaic Industry Association, more than 0.3 million tons of polysilicon projects have been announced to be terminated (suspended) or postponed in the first half of 2024, and production capacity growth has clearly slowed. At the end of June 2024, the price of polysilicon gradually stabilized and entered the L-shaped grinding stage. According to the official account of the Silicon Industry Branch of the China Nonferrous Metals Industry Association, the price of N-type G10L monocrystalline silicon wafers rose 2.78% on August 29, and N-type G12R monocrystalline silicon wafers rose 0.8%. In the medium to long term, there is a clear trend of improving the supply and demand pattern of silicon wafers, which will provide some support for this round of price increases. We believe that the rise in silicon wafer prices will have a ripple effect on the industry chain.

Profit forecasting and investment advice. In 2024-2026, we expect the company's net assets per share to be 1.934/1.965/2.046 billion yuan, respectively, corresponding PB 0.91, 0.89, and 0.86 times, respectively. Referring to the average PB of comparable companies, we gave the company 1.2-1.4 times PB for 24 years, corresponding to a reasonable value range of 23.21-27.08 yuan. For the first time, coverage gave a “superior to the market” rating.

Risk warning: Industry demand is declining, competition is intensifying, policy changes, and the expansion of new technology falls short of expectations.