Incident Overview

Gaosec Co., Ltd. released its 2024 semi-annual report on August 29, 2024: the company achieved operating income of 2.646 billion yuan in the first half of 2024, up 4.96% year on year; net profit to mother was 0.273 billion yuan, down 61.80% year on year; gross profit margin was 26.19%, down 19.98 pct year on year (after adjusting last year's gross margin according to accounting policy changes), net profit margin was 10.31%, down 18.01 pct year on year. In the declining industrial chain boom cycle, the company's performance declined in the first half of 2024, but it still maintained a certain level of profit resilience.

Revenue for the second quarter of 2024 was 1.226 billion yuan, down 2.82% year on year and 13.65% month on month; net profit to mother was 0.061 billion yuan, down 83.91% year on year and 71.15% month on month; gross profit margin for the second quarter was 19.00%, down 31.4 pct year on year, down 13.39 pct month on month; net profit margin 4.98%, down 25.09 pct year on month, down 9.93 pct month on month.

Business profitability is strong, and the effect of reducing costs and increasing efficiency is remarkable

By business, the scale of photovoltaic equipment inspection continued to increase in the first half of 2024, with PV equipment revenue of 1.349 billion yuan, up 66.95% year on year, accounting for 50.99%, gross profit margin 24.03%; affected by the overall price decline in the PV industry chain, PV cutting consumables achieved operating income of 0.334 billion yuan, a year-on-year decrease of 51.67%, accounting for 12.61%, gross profit margin 24.12%; the silicon wafer cutting and processing service business achieved revenue of 0.75 billion yuan, a year-on-year decrease of 0.75 billion yuan, a year-on-year decrease 10.79%, accounting for 28.33%, gross profit margin 20.03%; innovative business revenue was 0.115 billion yuan, up 8.12% year on year, accounting for 4.35%, gross profit margin 50.33%.

The closed-loop advantage of technology continues to show, and profit resilience is strong

1) Cutting equipment: Although the scale of production expansion in the photovoltaic industry has shrunk drastically, early orders have been successfully executed. Relying on R&D and innovation, the company continues to launch equipment such as the GC-800XS slicer and GC-MM950 all-in-one grinding and polishing machine. Its competitiveness continues to improve, and its market share has steadily ranked first. As of June 30, 2024, the total amount of orders in hand for the company's photovoltaic cutting equipment products was 1.293 billion yuan. Overseas orders for photovoltaic equipment continued to be placed in the first half of 2024.

2) King Kong Wire: Relying on leading technology and cost advantages, King Kong Wire continued to maintain profit resilience during a period of sharp decline in prices. The company led the industry to launch 30 μm and 28 μm carbon wire types; introduced a cold drawing process for tungsten wire busbars to achieve a breakthrough in thinning tungsten wire. The leading industry introduced 21 μm linear tungsten wire, and achieved a rapid increase in the shipping scale of tungsten wire, and occupied a leading position in the industry. In the first half of 2024, the company's diamond wire shipment scale was about 29 million kilometers (including personal use), of which the tungsten diamond wire shipment scale was about 6 million kilometers (including personal use), and tungsten wire accounted for more than 20%.

3) Slicing OEM: In the first half of 2024, about 19GW was effectively shipped, and the “Yibin (Phase I) 25GW PV Large Silicon Wafer Project” reached full production conditions. By the end of June 2024, the production capacity of the company's silicon wafer cutting and processing services exceeded 60 GW. The company has established long-term silicon wafer cutting and processing service business partnerships with photovoltaic companies such as Tongwei Co., Ltd., Beijing Yuntong, Shuangliang Energy, Yingfa Rui Energy, etc.

Through technological progress, the company continued to reduce costs and increase efficiency, and achieved continuous growth in the scale of shipments despite adverse factors such as a sharp drop in silicon wafer prices and large fluctuations in the operating rate of the industry.

4) Innovative business: As of June 30, 2024, the total amount of orders in hand for the company's innovative business equipment products was 0.114 billion yuan. The company continues to diversify its innovative business categories, and overseas orders continue to break through: 8-inch semiconductor slicers have been sold overseas, and 12-inch semiconductor slicer prototypes have been launched; 6 inch and 8 inch silicon carbide diamond wire slicers have formed batch orders and achieved mass delivery; sapphire slicers occupy most of the market share in the industry, and new sapphire chamfering machines have been launched and orders have been formed; magnetic equipment has achieved overseas sales, and product influence continues to increase.

Investment advice

Considering the overall profit pressure of the silicon wafer chain, we lowered the company's profit forecast for 2024-2026 to be 5.819/5.908/7.453 billion yuan (7.378/9.236/11.156 billion yuan before adjustment), and net profit to mother of 0.476/0.654/0.883 billion yuan, respectively (1.059/1.406/1.714 before adjustment) billion yuan), the diluted EPS calculated using the current total share capital of 0.547 billion shares is 0.9/1.2/1.6 yuan. The company's current stock price is 12/8/6 times the PE ratio for the 2024-2026 forecast EPS, respectively. Considering the high market share of the company's cutting equipment, and the closed-loop advantages of the company's technology bring resilience to the foundry and consumables business, and the performance flexibility of innovative businesses, it maintains a “buy” rating.

Risk warning

1) The risk that the subsequent expansion of production in the photovoltaic industry falls short of expectations; 2) the risk of innovation due to technological iteration; 3) the risk of uncertainty in developing new business; 4) the risk of errors in measuring market space; 5) the risk that the information based on the research is not updated in a timely manner and does not fully reflect the company's latest situation.