Incidents:

The company released the 2023 semi-annual report. 2023H1, the company achieved operating income of 1,455 million yuan, a year-on-year increase of 150.19%, a year-on-year increase of 408 million yuan, a year-on-year increase of 342.85%, after deducting non-return net profit of 395 million yuan, a year-on-year increase of 331.66%, a gross profit margin of 36.00%, a year-on-year increase of 9.58 pct, and a net interest rate of 28.04%, an increase of 12.2 pct over the previous year. At 2023Q2, the company achieved operating income of 818 million yuan, an increase of 161.61% over the previous year, and net profit of 236 million yuan, an increase of 389.04% over the previous year.

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The photovoltaic industry is booming, and the volume and price of quartz crucibles have risen sharply. Quartz crucibles are essential consumables for silicon wafer crystallization. The high boom in the downstream photovoltaic industry led to a rapid increase in demand for quartz crucibles. In the first half of 2023, demand in China's photovoltaic industry grew rapidly. Among them, in the silicon wafer sector, the national output exceeded 253.4 GW from January to June, an increase of 65.8% over the previous year. With the advantages of quartz crucible products, the company has achieved remarkable results. The number of orders for quartz crucibles has increased dramatically, which has led to a sharp increase in the company's business performance. 23Q2 revenue increased by 28.62% over the previous year. At the same time, in addition to being limited by the tight supply of upstream high-purity quartz sand and the continuous rise in the price of high-quality quartz crucibles, the company's product structure has been continuously optimized. In 2021, 2022, and January-January 2023, the sales volume of quartz crucibles above 28 inches was 40.06%, 70.61%, and 88.22%, respectively. The increase in the share of large-size quartz crucibles is expected to further increase the gross margin level of the company's quartz crucible products. 23Q2 gross margin increased 2.98 pct to 37.31% month-on-month.

Fund-raising projects expand production capacity and deeply bind downstream customers. The company is a leading domestic quartz crucible manufacturer and is one of the few domestic manufacturers capable of mass-producing large-size quartz crucibles.

At present, the production capacity of the company's quartz crucible business is basically saturated. In the past three years, the capacity utilization rate is close to 100%, which is close to the production capacity ceiling. Through this fund-raising project, the company will build a new 36-inch solar quartz crucible and a 28-inch semiconductor-grade quartz crucible production line to support the core customer TCL Zhonghuan 50GW (G12) solar-grade monocrystalline silicon material smart factory project. The rest of the production capacity will be supplied to well-known manufacturers such as Ningxia GCL and Shuangliang Energy. After the project is completed, the company's large-size quartz crucible production capacity will be further increased, which will help the company further consolidate its market share.

Profit forecast: As a leading photovoltaic crucible company, the company is expected to fully benefit from the expansion of downstream demand in the future and further enhance its market position. We expect the company to achieve net profit of 9.02/12.38/ 15.16 yuan in 2023-2025, corresponding to a PE of 11/8/7 times. A PE valuation of 12 times the profit in 2024 was given, and the target price was 77.2 yuan. It was covered for the first time, and a “buy” rating was given.

Risk warning: downstream demand falls short of expectations, profit forecasts and valuation judgments fall short of expectations.