Incident: The company recently announced its first-quarter results. It achieved operating revenue of about 1.22 billion yuan in the first quarter of 2023, an increase of 57.2% over the previous year. During the same period, it achieved net profit of 10.11 million yuan, a year-on-year decrease of 47.86%, and net profit of non-Gumo was reduced by 0.06 million yuan, a year-on-year decrease of 56.34%.

Revenue from PV glass production increased dramatically, and low prices+high raw materials squeezed profit space. Affected by the launch of 22H2's photovoltaic glass production capacity, the company's 23Q1 revenue increased sharply year on year, while the prices of photovoltaic glass and float glass fell during the same period (with the average price of float glass falling 21.28% year on year), and raw material prices were high (23Q1 national heavy soda ash market price increased 9.25% year on year), so the current performance did not increase with revenue.

The gross margin of the 23Q1 company was 9.37%. Compared with the same period last year, the cost rate for the period fell 1.17 pct, and the cost rate for the period was 6.99%. Compared with the same period last year, the management rate and R&D fee rate decreased by 0.44pct and 0.41pct compared to the same period last year. As a state-owned enterprise in Henan Province, the company has continuously improved employee efficiency in recent years, and enterprise management and operation efficiency has continued to improve. Earlier, the company issued an announcement stating that the company will invest in the construction of three quartz sand silicon-based material treatment projects totaling 750,000 tons/year in Anyang, Xuchang and Jiaozuo. In 2023, the company will continue to promote the process of self-supply of raw materials, and the raw material cost rate is expected to be further reduced. At the same time, after the Yuanxing 500t/a soda ash project is put into operation, the price of 23H2 soda ash is expected to decline further due to changes in the supply and demand pattern, which in turn will further reduce production costs.

In 23Q1, the company had a net outflow of operating cash, and the growth rate of receivables was slower than the growth rate of revenue. The company's revenue ratio in 23Q1 was 0.81, a decrease of about 0.19 compared to the same period last year. The net operating cash outflow during the same period was 351 million yuan, mainly due to a sharp increase of 70.8% in the company's expenses to purchase goods and pay for labor services over the same period last year. In 23Q1, the company's accounts receivable and notes receivable increased 133% year over year. Among them, notes receivable increased 286% year over year, accounts receivable increased 106% year over year, and prepaid accounts increased 65% year over year.

The first phase of the pharmaceutical glass project was successfully put into operation, and photothermal glass may meet the high demand. In 2023, the company still mainly produces and operates photovoltaic and photothermal glass, while expanding glass products in new fields. In March 2023, the National Energy Administration issued a document stating that it will strive to achieve 3 GW of new annual projects for photothermal power generation during the 14th Five-Year Plan period, while the cumulative installed scale of photothermal power plants by the end of 2022 was only 588 MW (about 0.6 GW), of which 50 MW was added in 2022. Therefore, the installed scale of photothermal power plants from 2023 to 2025 is expected to increase dramatically, which in turn will drive a sharp increase in demand for photothermal glass. The company is expected to fully benefit as an enterprise that achieves mass production and supply of photothermal glass. In April 2023, the first phase of the company's 5,000 ton borosilicate pharmaceutical glass kiln was successfully put into operation. The commissioning of the new kiln can further optimize the company's product structure.

Investment advice: Considering the further expansion of the company's annual shipping scale, raw material costs are expected to decline. We adjusted the net profit of 2023/2024/2025 to 239/33/397 million yuan, corresponding to EPS 0.22/0.30/0.36 yuan, PE valuation of 26.11/18.92/15.76 to maintain the “buy” rating.

Risk warning: The price of photovoltaic glass was further reduced due to changes in the supply and demand structure; the scale of construction of photothermal power plants fell short of expectations; and the decline in raw material costs fell short of expectations.