Incidents:

On August 30, the company released its 2022 semi-annual report, achieving revenue of 263 million yuan, an increase of 28.87% over the previous year; achieving net profit of 91 million yuan, a decrease of 9.33% over the previous year; and achieving net profit of 87 million yuan after deducting non-return mother's net profit, a decrease of 9.91% over the previous year; comments:

The pandemic did not change the steady increase in revenue, and the sharp rise in raw material prices lowered profit levels. The company's H1 revenue in 2022 increased 28.87% year on year. Among them, Q2 achieved revenue of 121 million yuan, an increase of 1.17% over the previous year, and a decrease of 14.79% over the previous month. It was mainly affected by “passive delivery adjustments”, which lowered overall Q2 revenue. However, customer demand continued to increase, which ensured a steady increase in revenue. The company's net profit for the first half of the year was 91 million yuan, of which Q2 achieved net profit of 41 million yuan to the mother, down 32.71% year on year and 18% month on month. High-purity polysilicon, which is one of the company's main raw materials, was affected by factors such as supply and demand, and prices continued to rise in the first half of the year, which became the main factor that lowered the company's profits. At the same time, the sales/management/R&D/finance expense ratio in the first half of the year was 0.74%/7.77%/9.16%/-1.26%, respectively, down 0.07pct/-1.66pct/0.37pct/-2.01pct. Among them, the increase in management expenses was due to the company's implementation of equity incentives to pay for additional shares, and the overall cost rate increased by 3.23pct, which was a secondary factor in the decline in profit.

The three major product lines are getting better and more, and multiple part numbers are being verified. The company's products are based on silicon materials, and it has expanded horizontally into the three major businesses of large-diameter silicon materials, silicon components, and semiconductors. On the large-diameter silicon materials business side, the company optimized a number of long-crystal processes, improved equipment production efficiency, and continuously increased single-batch production and yield. In order to meet the growing demand in international and domestic markets, the company also carried out targeted upgrades to its main production equipment in a timely manner. On the silicon parts business side, focusing on “large-scale” and “high accuracy” to meet the higher customization requirements of advanced process etchers for silicon parts, mass production of silicon parts for 12-inch plasma etchers has been achieved. On the semiconductor large-size silicon wafer business side, the company's 8-inch test piece has entered the supply chain of several domestic IC manufacturers, initiated the evaluation and sampling of various types of silicon wafers; developed ultra-flat silicon surface polishing technology to meet the needs of downstream customers; and also launched 8-inch light-doped argon annealing films to meet specifications with customers and have the ability to replace overseas manufacturers.

Production capacity expansion is being carried out in an orderly manner to meet strong downstream demand. The equipment required for the company's fundraising project to produce 150,000 8-inch single-crystal silicon polishing pads per month has been ordered. The first phase has reached large-scale production of 50,000 pieces/month, and the subsequent order for silicon processing equipment with a monthly output of 100,000 pieces has been completed. It will go to the factory for installation and commissioning one after another, steadily expand the production capacity of large semiconductor silicon wafers, and prepare for batch orders after customer evaluation. The subsidiary Fujian Seiko is expanding its production scale in Quanzhou and Jinzhou to ensure a rapid rise in production capacity within the year.

Give it an “increase in holdings” rating. We are optimistic about the company's deep technology and production strength, further developing the market in the field of large domestic silicon wafers, and achieving rapid growth in revenue and profits. The company is expected to achieve revenue of 609/9.22/1,410 million yuan in 2022-2024 and net profit of 226/2.58/327 million yuan, corresponding to PE in 2022-2024 of 37.09x/32.46/25.62x, respectively.

Risk warning: Upstream raw material costs fluctuate, sales of large silicon wafers fell short of expectations, and valuations and profit forecasts fell short of expectations.