24Q3 results bottomed out: Profit losses attributable to shareholders in the first three quarters of 24 were about 2.97 billion yuan, and losses in a single quarter were about 1.49 billion yuan. The losses were mainly due to a sharp year-on-year decline in the average price of silicon materials and silicon wafers.

The profit attributable to shareholders of the company for the first three quarters was 0.033 billion yuan/-1.512 billion yuan/-1.492 billion yuan respectively, and the results in the single quarter have bottomed out and stabilized.

Stable production and sales of granular silicon in the first three quarters of 2024 were 0.1983 million tons/0.2073 million tons, respectively, and the production and shipment volume of granular silicon in the Q3 single quarter was 0.062 million tons/0.0809 million tons, respectively, up 17% and/ 20% year on year. Inventory accelerated removal, reflecting an increase in downstream customer acceptance of granular silicon. The average price of granular silicon in Q3 was 32.75 yuan/kg, down about 2.8 yuan/kg from Q2. The decline narrowed markedly.

Cash cost reduction is in line with expectations: Q3 still achieved a month-on-month decrease in cash costs (including R&D expenses) of 2 yuan/kg to 33.18 yuan/kg, mainly showing the effects of previous technical improvements. We expect that the granular silicon process still has room for continuous cost reduction in industrial silicon costs, energy consumption, and materials, and it is expected that cash costs will gradually be controlled at 30 yuan/kg.

Supply-side reforms are expected to be implemented: Recently, supply-side reforms in the silicon sector have been showing frequent signals, and expectations of industry self-regulation and production capacity restrictions have begun to ferment. We believe that self-regulatory production limits in the industry are conducive to short-term inventory removal and price restoration, and silicon companies are expected to achieve month-on-month improvements in operations starting in Q4; however, there are still differences in production capacity restrictions affecting the medium- to long-term pattern of the industry. Differences in costs and energy consumption curves clearly cause the definition of production limit standards (energy consumption standards or quota standards) to be clarified, but looking at previous production capacity restrictions and standard upgrades in other industries, low energy consumption, high quality and new technology are major trends, and leading companies are expected to fully benefit.

The target price was raised to HK$1.90 and the purchase rating was maintained: we are still optimistic about the continued cost reduction, quality improvement of granular silicon, and the gradual increase in the penetration rate of downstream applications. In the future, the average price of silicon is expected to remain in the range of 45-50 yuan/kg (tax included) in the context of industry self-regulation or capacity restriction policies, and the company's granular silicon will lead the industry in terms of unit profitability; however, due to the fact that industry inventories are still high in the short term, there is still pressure to rise in silicon prices. We will reduce the average price of silicon in the second half of the year and the company's 24H2 performance accordingly, and raise the central price of silicon for 25-26 years to reflect the improvement of the industry pattern. It is expected that the profit share of the company's shareholders in 2024-2026 will be -3.2/1/3 billion yuan. Up to HK$1.90, corresponding to the predicted net market ratio of 1.0 times in 2024 and 45/15 times in 2025-2026Forecast price-earnings ratio, maintaining the buy rating.

Risk warning: Production and operation progress falls short of expectations, industry supply contraction falls short of expectations