3Q24 results slightly lower than market expectations

The company announced its 2024 three-quarter report results: 1-3Q24, revenue of 14.478 billion yuan, +7.55% year-on-year; net profit to mother of 2.96 billion yuan, -15.76% year-on-year. Single 3Q24, revenue was 4.331 billion yuan, -14.34% YoY; net profit to mother was 0.864 billion yuan, or -33.96% YoY. The performance was slightly lower than market expectations, mainly due to short-term pressure on the profits of downstream customers, leading to a drop in consumables prices and a squeeze on profits.

Development trends

Revenue declined, and gross margin was supported month-on-month. The 3Q24 company's revenue fell 14.34% year on year. We judge that it was mainly due to a sharp drop in crucible prices. 3Q24 gross profit margin 32.2%, -8.7pct year on year, +0.5pct month-on-month. The year-on-year decline was mainly due to a decline in crucible profitability. There was a certain delay in the transmission of quartz sand prices to the crucible cost side. Profitability may improve in the future as quartz sand prices decline and the cost side improves; sales/management/R&D/finance expense ratio 0.4%/3.32%/5.94%/-0.32%, +0.09/+0.26pct; net profit margin 19.9%, y-5.93pct, month-on-month 1.7 pct.

The amount of impairment decreased month-on-month, and operating cash flow improved month-on-month. The company's 3Q24 accrued asset impairment loss/credit impairment losses of 0.011/0.04 billion yuan, accounting for 0.25%/0.91% of revenue. This is a large-scale reduction compared to 0.096/0.071 billion yuan calculated in Q2. We judge that the company has calculated more impairment in the early stages based on more prudent financial guidelines. 3Q24 operating cash flow was 0.591 billion yuan, -14.88% year-on-year, and +258.90% month-on-month. We judge that the company has increased its repayment efforts and strictly controlled risks.

New orders have bottomed out, and contract liabilities and inventories have declined. The company's inventory at the end of 3Q24 was 12.545 billion yuan, -19.73% year over year; contract debt was 6.585 billion yuan, or -40.79% year over year. We judge that the company successfully delivered and fulfilled the orders in progress, while new orders declined due to downstream production expansion.

Follow the new technology of stacking grids and developments in the field of semiconductors. According to Shichuang Energy's announcement, the company has strategic cooperation with Shichuang and Tongwei to promote the technological development and mass production of stacked grid components. It is recommended to pay attention to the progress of subsequent mass production introduction and the company's orders. Meanwhile, according to the public results conference, the company recently won the bid for 6 12-inch monocrystalline furnaces and 3 side polishers from Shanghai Silicon. We are optimistic about the company's continued refinement and expansion in the semiconductor field, which has become a new growth curve.

Profit forecasting and valuation

We lowered our 2024 net profit by 22.4% to 3.793 billion yuan, and basically kept the profit forecast for 2025 unchanged. The current stock price maintained an industry rating of 9.1 times the price-earnings ratio in 2025, but due to the upward trend in the industry valuation center, we raised our target price by 17.1% to 41.00 yuan, and switched to 2025, corresponding 10.1 times the 2025 price-earnings ratio. There is 10.4% room for an upward trend compared to the current stock price.

risks

There is a risk of technology iteration, and the downstream production expansion progress is lower than expected.