occurrences

On March 28, 2023, the company issued a major contract announcement and signed a “Long-term Procurement Framework Agreement for Electroplated Diamond Wire” with customer A, a well-known domestic photovoltaic company. The contract period is 2 years, and the total amount of the agreement is estimated at about 920 million yuan, accounting for 143% of the company's revenue in 2022.

reviews

Demand from downstream photovoltaic companies has increased, providing stable support for the company's shipments. The company is a diamond wire manufacturer. Diamond wire is an important auxiliary material in the production of photovoltaic silicon wafers. Benefiting from continued strong demand in the downstream photovoltaic industry, the company achieved a high increase in production capacity and sales in 2022. At the same time, the company's capacity expansion plan and progress in capacity release were also affected by the increase in downstream demand. This time, the company signed a framework agreement with downstream PV enterprise customers, which provided strong support for the company's future shipments. According to the company's investor relations activity records on March 21, 2023, the current price range of King Kong Line is 35-40 yuan/km. According to this price estimate, the amount of this 90,000 million framework agreement corresponds to 23-26.29 million kilometers of shipment volume. If the agreement implementation period is 2 years, the average annual shipment volume support for the company is 11.5 to 13.14 million kilometers. In 2022, the company's annual shipment volume is 13.1 million kilometers. In 2023, potential orders under this framework agreement alone are expected to contribute to the company's shipment volume equivalent to the full year of 2022 to support a high increase in the company's performance.

The company's production capacity continues to increase, supporting a high increase in shipments. Judging from the production capacity increase plan, the company's production capacity increased dramatically in 2022. Production capacity increased from 800,000 km/h in January 2022 to 3 million km/month in December 2022, and plans to increase production capacity to 6 million km/month in 2023H1.

Judging from the actual release of production capacity, according to investor relations activity records, the company was close to full production in March, that is, production capacity was released to close to 3 million kilometers per month. According to the company's 2022 capacity release and shipping schedule estimates, the actual production capacity released by the company can increase by 100,000 to 200,000 kilometers per month. According to this speed estimate, the gradual release of the company's production capacity can provide sufficient support for the expected shipment volume.

The fixed increase project is progressing in an orderly manner, and the conditions for ownership of equity incentives have been successfully met. In November 2022, the company submitted the relevant registration documents to the Securities Regulatory Commission. The capital raised will be used to supplement liquidity and repay interest-bearing liabilities. After issuance, the company's control will be further strengthened, relieving financial pressure and providing financial support for the company's future business development. In March 2023, the company updated financial data related to registration documents to 2022 according to regulations. In 2022, the company achieved operating income of 643 million yuan, an increase of 137.42% over the previous year; the net profit returned to the mother was 91 million yuan, an increase of 216.43% over the previous year. The high performance increase in 2022 promoted the successful achievement of the company's equity incentive vesting conditions. In March 2023, the company's 2021 restricted stock incentive plan granted some of the vesting conditions for the first vesting period. Among them, the performance evaluation conditions were that net profit in 2022 reached 30 million yuan or that 2022's operating income increased 30% compared to 2021. The company achieved a sharp increase in performance in 2022, exceeding the performance assessment target. According to the company's equity incentive plan, the second vesting period performance assessment target is net profit of 60 million yuan in 2023 or a 60% increase in revenue in 2023 compared to 2021. It is expected that the company will achieve a continuous increase in performance against the backdrop of strong downstream demand and abundant potential orders.

Investment advice

Benefiting from the continued high boom in the downstream photovoltaic industry, the rapid release of the company's production capacity, and the improvement in gross margin driven by improved technical standards, the company's profitability has increased, and its performance is expected to usher in a period of high growth.

We expect the company to achieve revenue of 1,582/25.08/2,916 million yuan in 2023/2024/2025, and net profit of 326/4.48/522 million yuan in 2023/2024/2025. Based on the closing price of 33.20 yuan on March 29, the corresponding PE for 2023/2024/2025 was 1,2775X/9.26X/7.96X respectively, maintaining the “recommended” rating.

Risk warning

Production capacity fell short of expectations; industry competition exceeded expectations; product sales fell short of expectations, etc.