Incident Overview
On April 23, 2024, Gaosec Co., Ltd. released its report for the first quarter of 2024: the company achieved operating income of 1,420 million yuan in the first quarter of 2024, up 12.76% year on year and down 28.04% month on month; net profit to mother was 212 million yuan, down 36.71% year on year and 26.62% month on month. Although revenue increased in the first quarter, product prices fell and net profit declined due to the overall price decline in the PV industry chain. The company's net cash flow from operating activities in the first quarter was -392 million yuan.
Affected by falling prices in the photovoltaic industry, the company's gross margin for the first quarter of 2024 was 32.39%, down 10.73 pct year on year; net interest rate was 14.91%, down 11.65 pct year on year; the cost ratio for the period was 17.56%, up 4.3 pct year on year. Among them, the sales expense ratio was 3.05%, up 1.24 pct year on year; the management expense ratio was 8.24%, up 3.24 pct year on year; the financial cost ratio was 0.50%, down 0.12 pct year on year; and the R&D expense ratio was 5.78%, down 0.05 pct year on year.
Product updates and iterations are rapid, and the scale of production capacity has increased dramatically
Cutting equipment: The company rapidly updated and iterated a variety of equipment products. The leading effect was remarkable, and the market share was stable, with orders of 2,260 billion yuan as of December 31, 2023; King Kong wire: the annual output of 2023 was about 56 million kilometers, and the fine wire iteration continued to lead the leading industry to accelerate the iterative application of tungsten wire thinning. The “Huguan (Phase I) Project with an annual output of 40 million kilometers of King Kong Line” is expected to release production capacity in the first half of 2024;
Slicing OEM: Achieve rapid release of production capacity and orders, leading the industry in cutting yield and yield.
The “Yibin (Phase I) 25GW PV Large Silicon Wafer Project” is expected to be produced in the first half of 2024, and the production capacity will reach 63 GW by the end of 2024;
Innovative business: Continuing to expand new cutting scenarios. The 8-inch silicon carbide diamond wire slicer has been recognized by leading customers in the industry and batch orders have been formed. As of December 31, 2023, the innovative business had orders of 100 million yuan.
Investment advice
We consider that the overall profit of the silicon wafer sector is under pressure, and the profitability of the company's chip foundry business and diamond wire is yet to be repaired. Due to prudential considerations, we slightly lowered the company's profit forecast and predicted that the company's revenue for 2024-2026 would be $73.78/92.36/11.156 billion yuan ($80.98/102.86/12.431 billion yuan before adjustment), respectively, and net profit to the mother of $1,059/14.06/17.14 billion ($13.96/16.72/19.72 billion before adjustment), based on the current total share capital The diluted EPS calculated at 339 million shares was $3.12/4.15/5.05. The company's current stock price is 9/7/6 times the PE ratio of the predicted EPS for 2024-2026, respectively. Considering the company's high market share of cutting equipment and consumables, and the closed-loop advantage of the company's technology brings flexibility in slicing foundry and the performance flexibility of innovative businesses, it maintains a “buy” rating.
Risk warning
The risk that the subsequent expansion of production in the photovoltaic industry falls short of expectations; 2) the risk of falling silicon wafer prices; 3) the risk of innovation due to technological iteration; 4) the risk of uncertainty in developing new business; 5) the risk of errors in measuring market space; 6) the risk that the information based on the research is not updated in a timely manner and does not fully reflect the company's latest situation.