Core views
On May 10, GCL Technology announced its results for the first quarter of 2024. 2024Q1 achieved revenue of approximately 5.47 billion yuan and profits attributable to owners of about 33 million yuan. The output of 2024Q1 granular silicon is about 65,500 tons, and the shipment volume is about 65,200 tons (of which internal sales are about 3,300 tons). Production and sales were basically balanced in the first quarter, and the average external sales price was about 55 yuan/kg (tax included).
The downturn in silicon and silicon wafer prices is the main reason for the year-on-year decline in performance. According to PVInfoLink data, the price of 2024Q1 silicon and silicon wafers both declined significantly compared to 2023Q1 and 2023Q4, and the price in a downward channel was the main reason for the company's profit decline in 2024Q1. Also, due to losses in the company's silicon wafer business in the first quarter, the overall profit level was lowered.
The price gap between granular silicon and rod-shaped silicon narrowed rapidly, and the price difference performance in the first quarter was better than expected. According to the historical data of the Silicon Industry Branch, the price difference between 2024Q1 granular silicon and rod-shaped silicon remained around 10 yuan/kg, but the average price of GCL granular silicon Q1 including tax was about 55 yuan/kg. The average tax-inclusive price of Youshang rod-shaped silicon during the same period was about 62 yuan/kg, and the price difference between granular silicon and rod-shaped silicon Q1 actually performed better than expected. According to data from the Silicon Industry Branch and SMM, the price of silicon materials continued to fall after April, and the price difference between granular silicon and rod-shaped silicon quickly narrowed to about 3.5 yuan/kg (May 10 data). We believe that against the backdrop of a rapid decline in silicon prices, the price difference quickly narrows, and downstream reactions are highly recognized by granular silicon.
There is still room for reduction in the cost of granular silicon. The company's production capacity in the Hohhot region is still climbing, so the cost in the first quarter was not the best performance. It is expected that the cost will be further reduced after production is completed in the second half of the year.
R&D continues to invest heavily, and product quality is improving rapidly. The company invested more than 400 million yuan in R&D in 2024Q1, far exceeding that of friends and merchants. The main investment directions include clean materials, silane, silicon-carbon anode materials, CCZ, and perovskite single bonds and laminates in granular silicon production. The quality of the company's granular silicon products also improved dramatically in the first quarter. In March 2024, the turbidity level of granular silicon basically dropped to less than 120 NTU, accounting for 75% less than 100 NTU production (the proportion of <120 NTU products disclosed in the annual report was close to 95%, and the proportion of <100 NTU products reached 70%). The proportion of products with 5-element total metal impurities ≤ 0.5 increased from less than 80% in January to more than 90%, and the proportion of 18 yuan total metal impurities ≤1 products increased from 52% to 60.5% in January. We believe that continuous high-intensity investment in R&D is the foundation for rapid improvement in product quality. At the same time, as production capacity gradually reaches production, the proportion of high-quality granular silicon is expected to continue to increase.
Investment advice
The company's revenue for 2024-2026 is estimated to be 27.817 billion yuan, 34.685 billion yuan, and 42.336 billion yuan, respectively, -17%, +25%, and +22% year-on-year respectively. Net profit attributable to mother was RMB 2,663 billion, RMB 3,793 billion, and RMB 4.935 billion, respectively, +6%, +42%, and +30% year-on-year. The current stock price corresponds to PE at 14, 10, and 8 times, respectively. Maintain a “buy” rating.
Risk warning
Downstream demand falls short of expectations, market competition intensifies, perovskite research and development progress falls short of expectations, and customer concentration is high.