Key points of investment

The imbalance between supply and demand for silicon materials is low, and the company's performance is under pressure in the short term

With 2024H1, the company achieved operating income of 4.584 billion yuan, a year-on-year decrease of 50.84%; net profit to mother was 0.67 billion yuan, which changed from profit to loss year-on-year. Achieve gross profit margin of 2.63% and net sales margin of -14.62%. With 2024Q2, the company achieved operating income of 1.602 billion yuan, a year-on-year decrease of 64.14%, a year-on-year decrease of 46.27%, and net profit to mother of 1.001 billion yuan, which changed from profit to loss over the previous year. Achieved gross sales margin of -23.57%, a decrease of 40.28 pct from month to month; net sales margin of -62.46%, a decrease of 73.55 pcts from month to month. The decline in the company's performance was mainly due to the sharp drop in polysilicon prices during the reporting period due to the imbalance between supply and demand in the silicon market.

The proportion of N-type silicon materials increased, and technology created an industrial moat

2024H1, the company's polysilicon production was 0.1272 million tons, up 60.75% year on year; sales volume was 0.0971 million tons, up 26.34% year on year; unit sales price was 47.01 yuan/kg, down 60.99% year on year. 2024Q2, the company produces 0.065 million tons of polysilicon, sells 0.0431 million tons, and the unit sales price is 45.94 yuan/kg. During the reporting period, the company promoted research and development of a number of core technologies for polysilicon devices, including but not limited to cold hydrogenation fluidized bed process optimization and intelligent control system upgrades for reduction furnaces. The proportion of materials used in monocrystalline silicon wafers reached more than 99%, and the proportion of N-type monocrystalline silicon wafers successfully exceeded 70%. The main quality indicators of polysilicon all met or even surpassed the standards for premium electronic products. The company's 1,000-ton semiconductor-grade polysilicon production line successfully introduced and independently developed cutting-edge technologies such as trace impurity complex adsorption and ultra-low temperature cryogenic purification, and is fully capable of stably producing semiconductor-grade polysilicon.

The production load of the device was adjusted in stages, and the new production capacity project was promoted in an orderly manner. The company adjusted the time window for the annual routine maintenance plan, and adjusted the device production load in stages starting in the third quarter. The company expects to produce 0.043 million tons-0.046 million tons of polysilicon in 2024Q3, and the annual production forecast for 2024 is adjusted to 0.21-0.22 million tons. Production capacity: The company invested in the construction of 0.3 million tons/year high-purity industrial silicon project+0.2 million tons/year silicone project+0.2 million tons/year high-purity polysilicon project+0.021 million tons/year semiconductor polysilicon project in Baotou, Inner Mongolia. The high-purity polysilicon project with an annual output of 0.1 million tons of phase II was officially launched at the end of 2022 and successfully put into operation in May 2024.

Profit forecasting and valuation

The profit forecast was lowered and the “buy” rating was maintained. The company is a leading domestic silicon material, with significant cost advantages and outstanding technical advantages in semiconductors and N-type silicon materials. Considering the intensification of competition in the silicon sector and short-term pressure on performance, we lowered the company's 2024-2026 profit forecast. The company's net profit forecast for 2024-2026 is estimated to be -1.37, 1.17, and 1.56 billion yuan respectively (3.025, 3.462, and 3.983 billion yuan before the reduction), and the corresponding EPS is -0.64, 0.54, 0.73 yuan, respectively, corresponding to PE =/, 35 and 26 times PE, respectively.

Risk warning

Increased competition in the photovoltaic industry; declining gross margin; international trade frictions; risk of exchange rate fluctuations