Key investment points

The imbalance between supply and demand puts pressure on performance and phased pressure on profitability

With 2024Q1-Q3, the company achieved operating income of 6.005 billion yuan, a year-on-year decrease of 53.37%, and realized net profit to mother of -1.099 billion yuan, which changed profit from profit to loss, achieved a gross sales margin of 4.18%, a year-on-year decrease of 41.70 pcts, and achieved a net sales margin of -18.31%. Affected by the mismatch between supply and demand in January-September, polysilicon prices continued to decline, leading to a decline in the company's revenue and profit levels. With 2024Q3, the company achieved operating income of 1.421 billion yuan, a year-on-year decrease of 60.01%, a month-on-month decrease of 11.31%, and realized net profit of -0.429 billion yuan, a year-on-year change from profit to loss and a month-on-month loss reduction, achieving a gross sales margin of 9.17%, an increase of 32.74 pct month-on-month, and a net sales interest rate of -30.19%, an increase of 32.27pct.

Production regulation ensures balance between production and marketing, and flexible production scheduling improves operational efficiency

2024Q3, the pace of release of new production capacity in the silicon industry has slowed significantly, but the situation where supply exceeds demand in the market has not fundamentally improved, and market competition has intensified. Facing the severe industry situation, the company relied on the comprehensive strength of product quality, brand reputation and sales strategies to establish an efficient and flexible production regulation mechanism to ensure a close link between production and sales. 2024Q3's polysilicon production reached 0.044 million tons (0.033 million tons of N-type polysilicon, accounting for 75.1%), polysilicon sales reached 0.042 million tons (0.033 million tons of N-type polysilicon, accounting for 79.4%), and the production and sales rate reached 96.6%, an increase of 30.3 pct over the previous month, showing good market adaptability and operational efficiency. The company expects Q4 polysilicon production to be 0.031-0.034 million tons, or 0.2-0.21 million tons for the whole year.

Cost control has narrowed the scale of losses, and sufficient cash reserve companies have stabilized and reached 2024Q3. By optimizing production processes, improving production efficiency, and reducing energy consumption, etc., the company effectively controlled production costs, mitigated the negative impact of market price fluctuations on the company's profitability, and narrowed the scale of losses. The unit cost of 2024Q3 was 48.83 yuan/kg, up 6.3% from the previous month, due to the discontinuation of production of some old devices, a month-on-month decrease in production, and an increase in fixed cost per unit; the unit cash cost was 38.93 yuan/kg, a decrease of 3.1% month-on-month, due to the increase in production efficiency of the devices in production. At the same time, the company continues to maintain healthy and steady financial performance, with no interest-bearing liabilities. Abundant cash reserves have provided a solid foundation for the company to move through the cycle.

Profit forecasting and valuation

Maintain profit forecasts and maintain a “buy” rating. The company is a leading domestic silicon material, with significant cost advantages and outstanding technical advantages in semiconductors and N-type silicon materials. There are many favorable expectations such as recent PV supply-side meetings and calls from associations. The silicon sector is expected to usher in an improvement in the supply and demand pattern. As a leading company in the silicon sector, the company has outstanding technical and cost advantages, and the financial situation is stable and healthy. We maintain the company's profit forecast for 2024-2026. We expect the company's net profit to be -1.37, 1.17, and 1.56 billion yuan respectively. The corresponding EPS is -0.64, 0.54, and 0.73 yuan, respectively.

Risk warning: risk of high concentration of customers and suppliers; risk of declining gross margin; risk of impairment of fixed assets and projects under construction.