Incidents:

The company released its 2024 semi-annual report. The first half of 2024 achieved operating income of 2.646 billion yuan, a year-on-year increase of 4.96%; net profit to mother was 0.273 billion yuan, a year-on-year decrease of 61.80%, and the performance was in line with expectations. In the 2024Q2 single quarter, the company achieved revenue of 1.226 billion yuan, down 2.82% year on year and 13.65% month on month; realized net profit to mother of 61.0533 million yuan, down 83.91% year on year and 72.92% month on month.

Comment:

The closed-loop technology advantages continue to be iterated, and the four major business segments are developing steadily. According to the company's semi-annual report, 2024H1 Company 1) PV cutting equipment: In the context of a sharp contraction in the scale of the industry, the smooth execution of early orders drove revenue growth and achieved revenue of 1.349 billion yuan; as of the first half of 2024, the company's current orders for photovoltaic equipment totaled 1.293 billion yuan. 2) Diamond wire:

Continuously promote fine wire iteration, leading the industry to launch 30/28 μm carbon wire; breaking through the cold drawing process of tungsten wire busbars, leading the industry to launch 21μtungsten wire, and achieve a rapid increase in tungsten wire shipment scale. In the first half of the year, 29 million kilometers of diamond wire were shipped, including 6 million kilometers of tungsten wire (including personal use), achieving revenue of 0.334 billion yuan. 3) Foundry business: The first phase of the Yibin 25GW project has reached full production conditions, and the company's foundry business production capacity exceeds 60GW. There was an imbalance between supply and demand in the photovoltaic industry in the first half of the year. Overcoming adverse factors such as sharp price cuts for silicon wafers and sharp fluctuations in the operating rate of the industry, the company achieved an increase in the scale of shipments. It effectively shipped about 19 GW, and achieved revenue of 0.75 billion yuan. 4) Innovative business: “Multi-scene high hard and brittle material cutting” has obvious advantages in collaborative research and development. The product matrix is constantly being enriched, overseas orders continue to break through, and competitiveness continues to lead. Revenue of 0.115 billion yuan was achieved in the first half of the year. As of the first half of 2024, the company had ongoing orders for innovative business equipment of 0.114 billion yuan.

The overall price of the photovoltaic industry chain fluctuates sharply, and the company's profitability is under pressure in the short term. According to the company's semi-annual report, 2024H1's gross profit margin was 26.19%, -20.57 pcts year on year; net profit margin was 10.31%, -18.01 pcts year on year. Single 2024Q2 gross profit margin 19.00%, 31.40 pcts year on month, -13.39 pcts month on month; net profit margin 4.98%, -25.09 pcts year on year, -9.93 pcts month on month. In the first half of the year, the prices of major links in the industrial chain fell irrationally and rapidly. Prices of polysilicon and silicon wafers fell by more than 40%, prices in many links fell below cash costs, industry competition and losses intensified, and the company's profitability was under pressure in the short term. 2024H1 sales/management/ R&D/ finance cost rates were 1.96%/8.14%/5.47%/0.65%, respectively. The increase in the 2024H1 management cost rate was mainly due to an increase in the company's management labor costs and an increase in new project start-up costs; the decline in R&D cost rates was mainly due to companies focusing on optimizing R&D projects.

The profit forecast was lowered and the “buy” rating was maintained. Considering that prices of silicon wafers, diamond wire, etc. fluctuate greatly, affecting the short-term profitability of the company's business, we lowered our profit forecast. We expect net profit to be 0.464/0.573/0.711 billion yuan for 2024-2026 (original net profit for 2024-26 0.976/1.385/1.816 billion yuan), and the company's current stock price (2024/08/30) corresponds to PE in 2024/25/26, respectively. According to Wind's unanimous forecast, The PE of the comparable company was 15X in 24, and the PE level of the company was lower than that of the comparable company. Considering that the company's slicing capacity is leading in the industry and the scale of production capacity is expanding in an orderly manner, profitability is expected to recover in the future as industry demand recovers and the company's scale effect is reflected, and the purchase rating will be maintained.

Risk warning: risk of industry demand falling short of expectations; risk of sharp fluctuations in product prices; risk of increased industry competition; risk of high customer concentration.