The company announced results for the third quarter: Q3 revenue of 1.421 billion yuan, -60.01%/-11.31% month-on-month, net profit to mother -0.429 billion yuan, year-on-year decline, and month-on-month loss reduction. Q3 Net profit to mother decreased month-on-month, mainly due to the company's strong ability to control costs, mitigating the negative impact of low silicon prices on profitability.

24Q3 gross margin/net margin reached 9.17%/-30.19%, +32.74/+32.27pct month-on-month. In terms of cash flow, the 24Q3 company's net cash flow from operating activities was -0.936 billion yuan, +47.93% month-on-month. We speculate that it was mainly due to a month-on-month decline in production and sales, reducing the adverse effects of loss-making sales on the company's operating activities. The company has sufficient capital reserves. As of the end of September '24, the balance of bank deposits and notes receivable was $4.18 billion.

We are optimistic that the company has a stable position as a leading silicon material, has significant cost and technical advantages, and maintains a “buy” rating.

24Q3 silicon business continues to be under pressure, lowering annual production expectations

24Q3 achieved 0.0436 million tons of polysilicon production, in line with the company's previous expectations (0.043-0.046 million tons), a decrease of 32.90%, sales volume of 0.0421 million tons, a 2.28% drop, a production and sales rate of 96.6%, an increase of 30.3 pct, and good operating efficiency. As the mismatch between supply and demand in the silicon market has not improved, the company's sales price continued to fall. The sales price of the 24Q3 unit was 33.62 yuan/kg (excluding tax), a decrease of 9.36%. Combined with the company's discontinuation of production of some old devices, unit fixed costs increased, and losses in the polysilicon business increased. 24Q3 unit profit - 15.21 yuan/kg, a drop of 71.86%. The company expects 24Q4 production to be 0.031-0.034 million tons, and continues to revise the annual production forecast for '24 to 0.2-0.21 million tons (the previous forecast was 0.21-0.22 million tons).

Technology drives cost reduction and efficiency, and the proportion of N-type silicon materials has increased

The company implemented measures such as optimizing the cold hydrogenation fluidized bed process, upgrading the intelligent control system for reduction furnaces, and developing efficient purification technology for chlorosilane to achieve cost reduction and efficiency. The unit cash cost of 24Q3 polysilicon was 38.93 yuan/kg, a decrease of 3.06%. The company's silicon quality is in the leading position in the industry. The share of N-type silicon production and sales increased. In 24Q3, N-type silicon production/sales accounted for 75%/79%, an increase of 2/5 pct over the previous month.

The policy shift signal is gradually becoming clear. Leading companies are expected to take the lead in benefiting. Considering the CPIA's recent statements to prevent “internal rolling” vicious competition, the six ministries and commissions jointly issued the “Guiding Opinions on Vigorously Implementing Renewable Energy Replacement Activities” on October 30, which proposed a number of specific demand-side measures. We judge that the policy shift signal has gradually become clear. Considering the company's stable silicon leading position and high product quality, we are expected to take the lead in benefiting from the price rebound in the industry chain. We have raised the company's polysilicon sales volume and gross margin assumptions. We have raised the company's polysilicon sales volume and gross margin assumptions. The net profit for 24-26 is expected to be- 1.46/2.698/2.839 billion yuan (previous value -1.112/2.347/2.522 billion yuan), the year-on-year growth rate was -125.33%/284.81%/5.23%, and the corresponding EPS was -0.68/1.26/1.32 yuan. Comparatively, the company's 25-year Wind unanimously expected an average PE value of 26.3 times. Considering the company's stable position as a leading silicone material, discontinued production of some old devices to improve production efficiency, and gave the company 30 times PE in 25 years. The corresponding target price was 37.8 yuan (previous value 19.62 yuan), maintaining a “buy” rating.

Risk warning: Terminal demand falls short of expectations, company production capacity falls short of expectations, company shipments and profits fall short of expectations.