Event

The company released a semi-annual report that 2022H1 realized revenue of 280 million yuan, + 173.5% compared with the same period last year, and returned to its mother's net profit of 40 million yuan, reversing losses over the same period last year. Of this total, 2022Q2 achieved revenue of 150 million yuan, + 171.7% compared with the same period last year, and returned to its mother's net profit of 30 million yuan, reversing losses over the same period last year.

Comment

Full orders + capacity release led to a substantial increase in income, and economies of scale contributed to a rapid rise in profitability. 2022H1 realized revenue / return net profit of 280 million yuan (+ 173.5%) / 40 million yuan (reverse loss) respectively, of which Q2 realized revenue / return net profit of 150 million yuan (+ 171.7%) / 30 million yuan (reversal of loss) in a single quarter. The company's revenue and profits showed a substantial increase, mainly due to the increase in sales caused by full orders and capacity release in the first half of the year. There are two main reasons why the profit growth is much larger than the income: 1) in terms of gross profit margin, compared with the same period last year, the gross profit margin is much higher than that of the same period last year, which is mainly due to the release of ① with the release of production energy, the decrease of the cost of material consumption, the steady improvement of man-machine efficiency and quality, and the gradual appearance of scale effect; ② reduces the cost of raw materials by early price locking with suppliers or by increasing the self-made proportion of core raw materials. 2) in terms of expense rate, the sales / management / R & D / financial expense rate is respectively year-on-year-1.7pct/-8.1pct/-3.8pct/-7.4pct, and the total expense rate during the period is-21.0pct to 13.5% compared with the same period last year. This is mainly because sales, management and R & D expenses have increased with business expansion, but they are still lower than the increase in sales revenue. Financial expenses have reduced interest due to convertible debt conversion and redemption in the current period.

The number / amount of additional issuance plans has been adjusted, and the real controller is optimistic about the development prospect of full subscription. The company issued a targeted additional issuance plan in January 2022, and the announcement on August 27 adjusted the plan to adjust the number of shares issued and the total amount of funds raised, of which the number of shares issued was adjusted from 32 million shares to 29.89 million shares. the amount of funds raised was adjusted from 370 million yuan to 340 million yuan. Mr. Duan Zhiming, the actual controller, is optimistic about the development prospects of the company and intends to subscribe for the additional shares at a price of 11.43 yuan per share through Chengxiyi Technology. After the completion of the offering, the proportion of direct and indirect shareholding will rise from 20.40% to 36.11%, and the control over listed companies will be strengthened. After deducting the issuance expenses, the additional funds raised will be used to replenish the working capital and repay the interest-bearing liabilities so as to enhance the capital strength of the company. According to the data of China Photovoltaic Industry Association, it is expected that the average annual installed capacity of global photovoltaic will exceed 220GW during the 14th five-year Plan period. Leading photovoltaic manufacturing enterprises and emerging industry capital have invested resources to allocate silicon wafer capacity to meet the growing market demand of the photovoltaic industry. Facing the excellent development opportunity of the diamond line industry, the company is expected to effectively alleviate the financial pressure in the development process by replenishing liquidity, so as to seize the industry opportunity and meet the exuberant needs of customers.

The continuous expansion of production capacity is expected to increase rapidly throughout the year, and the thinning layout closely follows the iterative demand. The continuous growth of global photovoltaic installation has led to a rise in the demand for silicon wafers. As the main consumable material for silicon wafer cutting, the demand for diamond wire has increased greatly. Benefiting from the magnificent demeanor of the photovoltaic industry, the company has full orders on hand. At the same time, the company's production capacity shows a trend of increasing month by month, according to the data of institutional research and announcement, with the new equipment in place one after another, the company's thin-line production capacity is expected to gradually increase from 800000 km / month in January to 2 million km / month by the end of the year (releasable capacity). It is assumed that the capacity is linearly released at a uniform speed and full production is full. Shipments are expected to reach 16 million km in 2022 (only 3.36 million km for all diamond lines including fine lines in 2021). The company seizes the opportunity of the industry to greatly expand production, and is expected to rapidly increase its market share with the growth of downstream high-quality silicon wafer enterprises. In addition, the company's layout in the field of thinning has always kept up with the market demand for iterative product specifications. On the one hand, in the field of carbon steel diamond line, the current mainstream wire diameter of the industry is concentrated in 38 μ m ~ 42 μ m. The company continues to launch small wire diameter products to meet the needs of the industry. The sales proportion of 40 μ m / 38 μ m / 36 μ m is about 20%, 50%, 20%, and 35 μ m products are also available in bulk. On the other hand, in the field of tungsten wire diamond line, the company's products have achieved large-scale production and sales. With the construction and production of Xiamen tungsten industry and medium tungsten high-tech tungsten wire production capacity, the supply bottleneck is expected to open, and the tungsten wire diamond line may gradually infiltrate. The company is expected to benefit first by virtue of technology and customer reserves.

Investment suggestion

Consider: 1) the company's capacity expansion is faster than expected, and production capacity is expected to continue to increase in 2023; 2) the increase in gross profit margin caused by scale effect, the decline in expense rate is higher than expected, and profitability continues to increase significantly. We raise the company's profit forecast and expect revenue of 7.5 yuan, 14.4 billion yuan, 1.1 million yuan, 2.5 billion yuan, and 2.1 yuan per share, respectively, in 2024. According to the closing price of 34.86 yuan on August 26, it maintains the "recommended" rating corresponding to PE 39-17-12.

Risk hint

The landing of production capacity is not as expected; the competition in the industry is higher than expected; the sales of products are not as expected.