Q2 Short-term business pressure

According to the company's announcement, in the first half of '24, the company's revenue was 8.863 billion yuan, down 57.7%, and net profit to mother was 1.48 billion yuan, down 126.8%; of these, Q2 revenue was 3.393 billion yuan, down 38%, and net profit to mother was 1.513 billion yuan, down 4683.6%. The profit change was mainly due to a sharp drop in silicon prices and inventory impairment losses. 1H24's average foreign sales price (excluding tax) was 40.3 yuan/kg, same decrease of 76.3%. Considering the mismatch between supply and demand of silicon, prices have dropped sharply. It is expected that the industry will clear up and prices will rise steadily in 25 years. We lowered the sales volume and price assumptions of the silicon business and lowered the company's EPS to -0.08/0.07/0.15 yuan in 24/25/26 (previous value 0.09/0.12/0.13 yuan). Referring to Wind's consistent expectations, it is comparable to the company's 12.5 times PE in 25 years. Considering the continuous release of the company's granular silicon production capacity, the cost control capacity is strong. The cost control capacity is strong. The company is given 18x PE in 25 years, corresponding to the target price HK$1.39 (RMB: HKD = 1:1.1), maintaining a “buy” rating.

Release of silicon production capacity and continuous optimization of cash costs

1H24 achieved foreign sales of 0.1206 million tons of polysilicon, an increase of 87.4%. It is in the first tier of the industry. It has achieved an effective production capacity of 0.42 million tons of granular silicon, and the 0.06 million ton modular project was put into production in the second half of the year.

Production line optimization is expected to be completed in September, and the cash cost is expected to be reduced to less than 30 yuan/kg in Q4. Currently, the inventory level is less than 2 weeks, far below the industry inventory level. The visibility of orders is high. Long orders account for more than 85% of the company's full production capacity in 24-26 years. As long orders due are obtained on a rolling basis, we are optimistic that the company's operating rate will increase after the technical reform is completed, further increasing its market share.

The company focuses on R&D, and the quality of granular silicon has improved significantly

The company actively promoted advanced technology research and development. The 1H24 R&D cost rate exceeded 8%, an increase of 3.8 pct. Quality control capabilities were improved. In July '24, the proportion of metal 5 elements ≤ 0.5 ppbw/metal 18 elements ≤ 1 ppbw rose to 95.8%/77.8%, respectively, and the proportion of turbidity ≤ 120 NTU/turbidity ≤ 100 NTU products rose to 99.9%/90.4%, respectively. The strength of granular silicon products has increased. 1H24's N-type ratio has exceeded 96%, and all leading customers have entered the pure investment stage.

The perovskite industrialization process is expected to accelerate

Technically, the conversion efficiency of single-junction 1m*2m large perovskite modules reached 19.04%, entering the fast track of industrialization; the efficiency of 369mm*555mm laminated modules exceeded 27.34%, a record high. In terms of production capacity, GCL Optoelectronics plans to build a 2GW grade perovskite production line in Kunshan. It is expected that the entire GW class mass production line will be completed by the end of this year, and the first multi-layer module demonstration power station will be built. The scale of the demonstration power plant is expected to reach tens of megawatts in 25 years, establishing the company's leading position in the perovskite commercialization process.

Risk warning: Silicon price fluctuations exceed expectations; downstream demand falls short of expectations, etc.