Event: Daquan Energy released its 2023 half-yearly report.

The price of polysilicon fell sharply in the first half of 2023, and the company's operating income declined. According to the 2023 semi-annual performance report released by the company, the company achieved operating income of 9.325 billion yuan during the reporting period, down 42.93% from the same period last year; the net profit of returning to the mother was 4.426 billion yuan, down 53.53% from the same period last year, of which 4.425 billion yuan was deducted from the net profit of non-return, a decrease of 53.56% over the same period last year. It is mainly due to the release of new production capacity in the silicon market during the reporting period, affecting the sharp decline in polysilicon prices.

Polysilicon production capacity will continue to be released in 2023, and product quality will remain at a high level. During the reporting period, the company's corresponding polysilicon production capacity reached 79200 tons, an increase of 18.66% over the same period last year, accounting for 12.15% of the total domestic polysilicon output in the first half of 2023, ranking in the first echelon of the industry. The company expects to produce 5.5-57000 tons in the third quarter and 19.3-198000 tons for the whole year. At the same time, the company actively digests product inventory, 2023H1 sales volume of 76800 tons, polysilicon products production and marketing situation is good. In addition, the company relies on continuous R & D investment and technological innovation to ensure stable product quality, and the proportion of materials used in single crystal silicon wafers is at the domestic advanced level.

However, due to the industry periodic inventory consumption superimposed new capacity release, the domestic polysilicon supply has increased significantly, the company's polysilicon unit sales price (excluding tax) is 120.52 yuan / kg in the first half of 2023.

Low energy consumption and low material consumption maintain the company's cost advantage and have enough cash on hand to help the company through the cycle. In 2023, the unit cash cost of polysilicon in Q2 company is 44.13 yuan / kg, and the unit cost is 50.34 yuan / kg. During the reporting period, the company achieved a level of unit consumption of electricity, water consumption, steam and other energy through advanced quality and cost control, so that the company had a certain cost advantage in the first half of 2023. In the first half of 2023, the company's polysilicon unit cash cost was 45.05 yuan / kg, down 22.07% from the same period last year, and the unit cost was 51.36 yuan / kg, down 18.66% from the same period last year. In addition, the company at the end of the mid-term cash of 18.571 billion yuan, in the downward cycle "oxygen" sufficient, is expected to become a small number of silicon companies in the industry with the ability to cross the cycle.

The project of high purity semiconductor materials continues to advance, and the market of N-type silicon wafers continues to improve. One of the company's fund-raising projects, "annual output of 1000 tons of high-purity semiconductor material project", is planned to increase the production capacity of semiconductor-grade polysilicon by 1000 tons per year, which is expected to become a new profit growth point of the company. In addition, the company has achieved bulk supply of N-type silicon, and has been recognized by a number of downstream customers. The company expects that with the transition of the industry to the next generation of N-type technology, the sales premium of N-type polysilicon will expand, the demand will increase significantly, and the company is expected to enjoy the premium dividend.

Profit forecast: since the peak of silicon prices in 2022, silicon companies have made excess profits, Q2 began to accelerate the decline in silicon prices in 2023, and the gross profit margin of silicon enterprises returned to the rational range. The market expects an adequate supply of silicon and prices will remain low in the future, so we have lowered the company's overall profit forecast for 2023-2025. Under the reasonable gross margin range, we expect the company to achieve a return net profit of 53.92 billion yuan in 2023-2025, corresponding to the PE valuation of 15.7x/27.9x/27.8x, maintaining the "overweight" rating.

Risk hint: competition in the silicon industry intensifies; photovoltaic installation is not as expected.