Event

The company issued an annual performance forecast of 2022, which is expected to achieve a net profit of 90 million-96 million yuan in 2022 and 88 million-94 million yuan after deducting non-return net profit, so as to turn losses into profits.

Comment

After deducting the amortization effect of equity incentive, the company's performance is in line with expectations. 2022Q4 awarded a total of 10.7 million restricted shares to the incentive object for the first time, and the total amortization of equity incentive expenses was about 25.79 million yuan, which had a great impact on the performance. Previously, we expected the company to achieve a net profit of 120 million yuan in 2022. If the impact of equity incentive amortization expenses is not taken into account, the company's annual performance is basically in line with expectations.

The accelerated release of production capacity supports shipments, and the improvement of the level of technology drives profits upward. Benefiting from the continued high prosperity of the downstream photovoltaic industry, the market demand for diamond lines remains strong. In terms of production capacity, the second phase of the company's production expansion has been successfully completed as planned, and the production capacity has increased significantly. By the end of 2022, the company has put into equipment production capacity of 3 million km / month. 2023H1, the company expects to complete the capacity plan of expanding production to 6 million km / month, and the subsequent capacity expansion needs to build a new production base. The company will determine the follow-up production expansion plan according to the market demand and the progress of production expansion in the first half of the year. In terms of shipments, with the continuous enhancement of the quality and competitiveness of the company's products, full orders on hand, the rapid release of production capacity, the production and sales of major products increased significantly over the previous year, according to the agency research announcement data, the company shipped about 9 million km in the first three quarters, about 2 million km in October, and is expected to ship about 16 million km for the whole year. With the improvement of the epidemic situation, the progress of capacity release is expected to accelerate. With the steady progress of the superimposed production expansion plan, the company's product sales are expected to continue to increase. In terms of production technology, the company has completed the improvement of the technical level of production technology and equipment through technology research and development, and realized the comprehensive promotion and application of the industry's leading "20-line machine" equipment. The production efficiency of 20-line machine is 2.5 times that of 8-line machine, which can effectively reduce the reduction of product unit cost, raise gross profit margin and support the company's profitability.

Actively promote thinning R & D and layout, the company is expected to gain first-mover advantage. 1) in the field of carbon steel diamond wire, the current mainstream wire diameter of the industry is 35 μ m-40 μ m. At present, the mainstream specification of the company's carbon steel wire diamond wire diameter is 35um, which has increased to about 60%, and the smallest specification for small-scale applications reaches 33um. 2) in the field of tungsten diamond wire, the mainstream wire diameter is 30-32um 27um, and the company's shipments of tungsten diamond wire are increasing month by month. In the short term, although the production capacity and shipments are affected by the insufficient supply of tungsten wire, with the accelerated expansion of tungsten wire in the future, and the company actively deepening cooperation with tungsten and technical research and development, the problem of raw material supply of tungsten wire is expected to be gradually improved. On the demand side, downstream manufacturers are more willing to apply tungsten wire, so the opening of supply bottlenecks and technological breakthroughs are expected to support the release of tungsten wire shipments, and the company is expected to be the first to benefit from advance layout on the technology and upstream supply side.

Investment suggestion

Benefiting from the continuous high boom in the downstream photovoltaic industry, the rapid release of the company's production capacity and the improvement of gross profit margin driven by the improvement of the technology level, the company's profitability has improved, and its performance is expected to usher in a high growth phase.

We estimate that the company will achieve revenue of $726,000,000 and net profit of $0.93 million in 2024, based on the closing price of $39.85 on January 31 and 51.90X/14.78X/10.81X for 2022 PE in 2024, respectively, maintaining a "recommended" rating.

Risk hint

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