Incident 1: On April 27, the company released its 2022 annual report. During the reporting period, it achieved total revenue of 21,909 billion yuan, an increase of 100.72% over the previous year; realized net profit of 3,033 billion yuan, an increase of 77.23% over the previous year; and realized net profit of 2,543 billion yuan, an increase of 77.35% over the previous year.

Incident 2: On April 27, the company released its report for the first quarter of 2023. It achieved revenue of 3,513 million yuan during the reporting period, a year-on-year decrease of 38.09%; realized net profit of 677 million yuan, an increase of 3.36% over the previous year; and realized net profit of 545 million yuan after deducting non-return mother's net profit, an increase of 4.84% over the previous year.

The company's performance in 2022 was impressive, and monocrystalline silicon profit restoration opened up room for the company to grow. The company's leading monocrystalline silicon position continued to be stable in 2022. Among the various business segments, special photovoltaic equipment, semiconductor equipment, general grinding machines, and monocrystalline silicon achieved revenue of 59 million yuan, 54 million yuan, 25 million yuan, and 21,615 million yuan respectively, achieving gross profit margins of 27.81%, 44.14%, 18.91%, and 21.41% respectively. The monocrystalline silicon sector showed impressive performance. The production and sales of the company's various product segments are divided. In 2022, the company's production of special photovoltaic equipment, semiconductor equipment, general grinding machines, and monocrystalline silicon was 264 units, 49 units, 205 units, 69,400 tons, respectively. The year-on-year ratio was -39.59%, +308.33%, -34.29%, +40.46%; sales were 64 units, 36 units, 173 units, and 70 million tons, respectively. Among them, sales of special photovoltaic equipment, general grinders, and monocrystalline silicon were -37.25%, -40.14%, and +53.73%, respectively. In 2022, the company shipped 31.18 GW of monocrystalline silicon wafers, an increase of 79.09% over the 17.41 GW of monocrystalline silicon wafers shipped in 2021. Furthermore, in 2022, the average annual prices of monocrystalline 182 and monocrystalline 210 silicon wafers were 6.90 yuan/sheet and 9.12 yuan/sheet respectively, +25.9% and +22.6%, respectively. The rise in the price of the company's monocrystalline silicon wafers combined with the double increase in production and sales led to an increase in the performance of the company's monocrystalline silicon sector, and the company's leading edge in monocrystalline silicon is expected to continue to consolidate as the scale expands.

As the price of the company's raw materials fell in Q1 2023, the sales price of the company's products fell year on year, and the company's operating income fell 38.09% year on year. The prosperity of the photovoltaic industry is expected to be maintained in 2023, and silicon wafer profits are expected to continue to increase, opening up room for the company's future growth.

The production capacity of monocrystalline silicon continues to expand, and the upstream and downstream integrated layout of the photovoltaic industry chain continues to be promoted. In 2019, the company expanded from the equipment business to the photovoltaic monocrystalline silicon field, forming a “two-wheel drive” business pattern of “high-end equipment+core materials”. By the end of 2022, the company had a monocrystalline silicon production capacity of 35 GW, and the company's monocrystalline silicon production capacity continued to expand. In February 2022, the company invested in a project with an annual output of 150,000 tons of high-purity industrial silicon and 100,000 tons of high-purity crystalline silicon; in August 2022, it invested in the construction of the Xuzhou New Energy Industrial Park. In addition, the company's 150,000-ton industrial silicon and 100,000-ton polysilicon project and Xuzhou battery project are expected to be put into operation in 2023Q2. The company continues to strengthen the upstream and downstream layout of the photovoltaic industry chain, and has formed an industrial chain system including silicon, monocrystalline silicon wafers, solar cells, and solar modules. The advantages of integration are expected to be gradually highlighted.

R&D drives iterative product upgrades, and the synergies in the business sector are remarkable. In the field of equipment manufacturing, the company has the production capacity of a complete set of equipment required for silicon wafer processing, from silicon rods/ingots to silicon wafer processing, which can provide sufficient choice space for downstream silicon wafer manufacturers to build production lines. In addition, the company's high-hardness and brittle special equipment business mainly focuses on the processing field of high-hard and brittle materials. The products of the company's photovoltaic monocrystalline silicon production business are monocrystalline square bars and silicon wafers, and the synergistic effect between the two is remarkable. By the end of 2022, the company's monocrystalline silicon slice production capacity of 25 GW per year had reached production. Its cutting yield and slicing cost were all advantageous. The company relied on the technical advantages of its own equipment business to significantly improve the profitability of the company's monocrystalline silicon business. After the construction of the project is completed, the Xuzhou industrial base will form a “slice+battery” business pattern to promote the development of the company's integrated pattern.

Investment advice: The company is a leader in the monocrystalline silicon industry. The upstream and downstream layout is deeply integrated vertically to achieve supply chain resource integration. We are optimistic about the future growth momentum of the company. The company is expected to achieve revenue of 29.819 billion yuan, 36.409 billion yuan and 49.334 billion yuan respectively in 2023-2025, and the net profit returned to the mother was 4.362 billion yuan, 5.462 billion yuan and 6.552 billion yuan respectively, up 43.8%, 25.2% and 19.9% year-on-year.

The corresponding EPS is 10.62, 13.30, and 15.95, respectively, and the PE multiples corresponding to the current stock price are 7.9X, 6.3X, and 5.3X, respectively, giving an “increase in holdings” rating.

Risk warning: capacity expansion falls short of expectations; industry competition intensifies; downstream demand falls short of expectations; risk of fluctuations in raw material prices, etc.