Performance review

1Q23 performance was slightly higher than market expectations

The company announced 1Q23 results: revenue of 3.60 billion yuan, +84.37% year on year; net profit of 887 million yuan, +100.43% year on year; net profit of non-return mother was 874 million yuan, +102.41% year on year. Guimo's net profit is close to the upper limit of the performance forecast (1Q23 is forecast to achieve net profit of 800 to 900 million yuan, +80.86 to 103.47% year-on-year, and +92.17% at the center), which is slightly higher than market expectations. We believe it is mainly due to revenue growth in the materials business (mainly quartz crucibles) and the acceleration of photovoltaic silicon wafer equipment delivery.

Development trends

Profitability has been steadily improving, and investment in R&D has continued to increase. The gross profit margin of the 1Q23 company was 40.61%, +0.67ppt over the previous year; the cost rate for the period was 10.57%, +1.47ppt over the previous year, mainly due to the company's continuous increase in R&D investment, and other expenses all declined slightly year-on-year. Among them, the sales/management/R&D/finance expense ratio was 0.40%/2.34%/8.09%/-0.26%, respectively -0.11/-0.99/+2.62/-0.05ppt; the net interest rate for the return mother was 24.63%, +1.97ppt over the previous year. Net operating cash flow improved sharply to 431 million yuan in 1Q23, compared to -745 million yuan in the same period last year, mainly due to an increase in sales repayments.

In-hand orders for equipment remain plentiful, and we are optimistic that the release of new products in 2023 will drive demand for equipment iteration. As of 1Q23, the company had not completed contracts for crystallized growth equipment and intelligent processing equipment totaling 26.059 billion yuan, of which 3,520 billion yuan had not been completed for semiconductor equipment (all including tax). We estimate that the number of new 1Q23 orders including tax for equipment signed exceeded 3 billion yuan. The company plans to launch the fifth-generation monocrystalline furnace this year. The new equipment has better intelligent performance and is in line with the new manufacturing model of the photovoltaic industry. At the same time, we believe that 2023 is the first year of mass production of N-type photovoltaic cells. There is plenty of room for efficiency improvement of N-type batteries and higher quality requirements for silicon wafer production. The new monocrystalline furnaces will also be more suited to the growth of N-type silicon wafers, which will help improve efficiency and reduce costs for N-type batteries. We are optimistic about the equipment demand brought about by the launch of new products and can further consolidate the company's technological leadership. At the same time, the company further expanded its downstream equipment category and deployed silicon wafer processing equipment, battery equipment, and component equipment. The target order for battery & module equipment in 2023 was 3 billion yuan (tax included).

The materials business targets revenue of 5 billion yuan in 2023. (1) We expect production capacity of quartz crucibles to reach 360,000 units/year by the end of this year, with annual shipments reaching ~250,000 units, supporting a continuous increase in material business performance; (2) The 30 million kilometer phase of King Kong's first phase was put into operation in November last year and is expected to start shipping this year, which is an increase in annual performance; (3) the company has successfully developed MPCVD diamond crystal growth equipment based on large size and high production capacity. We think it is also expected to form a new growth point in the longer term.

Profit forecasting and valuation

The 2023 and 2024 earnings forecasts remain unchanged. The current stock price corresponds to a price-earnings ratio of 19.5 times/14.7 times 2024 in 2023/2024. Maintaining an outperforming industry rating and a target price of 89.24 yuan corresponds to 25.9 times the 2023 price-earnings ratio and 19.6 times the 2024 price-earnings ratio. There is room for 33.2% upward compared to the current stock price.

risks

Downstream PV production expansion progress fell short of expectations, and new business expansion fell short of expectations.