Main points of investment

Our point of view: Xiexin Technology is a global head silicon material and wafer manufacturer, competing with granular silicon differentiation and outstanding cost advantages, and its production capacity has been greatly expanded in 2022. In the short term, the capacity of the silicon industry is expected to be partially released in 2022, but the output increase is limited. This year, silicon is still the capacity and output bottleneck in the photovoltaic industry chain, and the price for the whole year is expected to remain relatively high; superimposed Xiexin production growth, the company's profits are expected to maintain a high growth trend in 2022. In the long run, the demand for photovoltaic power generation continues to be booming, and Xiexin Technology is expected to continue to share the industry dividend by virtue of the advantages of granular silicon technology and cost. In terms of valuation, as of May 6, 2022, the company's PE TTM is only 10.2x Wind PE 2022E (Wind consensus expectations) only 5.6x, it is recommended that investors pay attention.

Performance improvement: in 2021, the company's revenue was + 34.3% to 19.7 billion yuan compared with the same period last year, gross profit was + 95.8% to 7.35 billion yuan, and the return net profit was turned to 5.08 billion yuan (the previous value was-5.67 billion yuan); 2022Q1, the company's revenue and return net profit were 69.9 yuan and 3.03 billion yuan respectively, maintaining a high growth trend; performance growth was mainly driven by photovoltaic materials business.

Focus on silicon and wafer business, benefiting from rising silicon prices:

Focus on silicon material and wafer business: the company is currently focusing on photovoltaic materials business (mainly silicon material and silicon wafer), and gradually divest the photovoltaic power station business. Since 2021, the photovoltaic materials business has continued to benefit from the boom in downstream photovoltaic installation demand and the high price of silicon materials. Among them, the revenue of the segment in 2021 was + 80.5% to 16.65 billion yuan, accounting for 84.5%, the gross profit margin was from + 29.6pcts to 32.9% to 32.9% to 2022Q1, the segment income was 6.68 billion yuan, accounting for 95.6%, and the gross profit margin was 46.0%. 1) Silicon material:

In 2021, the company's silicon production was + 12.8% to 47600 tons (of which 18% was granular silicon), and the sales volume was + 9.7% to 40300 tons, of which the unit price of bar silicon was + 142.7% to 147.3 yuan / kg. 2022Q1 produces 18600 tons of silicon material. 2) Silicon wafers: in 2021, the company's wafer production (including OEM) was + 21.2% to 38.1GW, sales volume was + 17.3% to 38.0GW, and the unit price of rod-shaped polysilicon wafers was + 63.9% to 0.60 yuan / W. 2022Q1 silicon wafer production 11.6GW.

The price of silicon remains high: since 2021, the newly installed capacity of major domestic and overseas photovoltaic demand countries has increased, and the demand has continued to rise; in the photovoltaic industry chain, the silicon production capacity is low, and the capacity expansion rate is slow; the situation that supply exceeds demand drives up the price of silicon. According to PVinfolink, as of April 27, 2022, the average price of polysilicon densifier in China is 249 yuan / kg, which is nearly 200% higher than that at the beginning of 2021 (80 + yuan / kg). We believe that the capacity increment of silicon material expansion has slowed down due to the impact of the epidemic, the new capacity of 2022Q4 is limited, supply and demand continue to be tightly balanced, and the average price of silicon material in 2022 is expected to be higher than that in 2021.

Granular silicon production capacity expansion, significant cost advantages, products are recognized by customers, technical barriers:

Granular silicon production capacity expansion: as of the end of 2022Q1, the company has 45000 tons of bar silicon and 30, 000 tons of granular silicon production capacity in Xuzhou, of which rod silicon production capacity is scheduled to be converted into granular silicon in 2022H2-2023H1. As of the same period, the company has 60,000 tons of bar silicon production capacity in Xinjiang, the income is not consolidated, and the profit is accounted for according to the equity method. The company expects to increase the production capacity of granular silicon by 230000 tons in 2022, compared with 30,000 tons in Xuzhou, 100000 tons in Leshan and 100000 tons in Baotou. Among them, the Xuzhou project is undergoing preliminary commissioning, putting into production in July this year, and full production of Q3; the Leshan project will be put into production in July this year, with a monthly production of about 20,000 tons, and all will be put into production at the end of the year; and the Baotou project Q4 will be put into production this year and next year. According to the company's capacity planning and production rhythm, we expect its granular silicon production to exceed 70,000 tons in 2022 and 300000 tons in 2023.

Cost advantage is outstanding: 1) granular silicon reduces energy consumption: 2022Q1, the comprehensive power consumption per kilogram of granular silicon in Xuzhou is 14.8kWh (about 1/3 of bar silicon), steam consumption is 15.3kg, the advantage of low energy consumption is high gross profit, and the company's gross profit margin of granular silicon is 15pcts higher than that of bar silicon during the period) Baotou project further reduces cost: Baotou project is equipped with 150000 tons of industrial silicon powder production capacity, which can partially stabilize upstream cost. And industrial silicon production has steam by-products, which can be used in silicon production to further reduce cost.

Granular silicon is recognized by customers: 1) good product quality and price advantage: the company's granular silicon metal and carbon impurity content is up to the standard, in which the metal impurity content reaches the special national standard of rod silicon, and the early hydrogen jump problem has been solved. At the same time, due to the low production cost, the price of granular silicon is lower than that of rod silicon. From the perspective of actual use, the quality of the company's granular silicon reaches the material standard of downstream enterprises and can be used as the main material for mainstream single crystal production, and the N-type material has been verified in small batches. 2) sign a long order with downstream customers: the term is 3 or 5 years, the quantity is not fixed, the monthly settlement is discussed, and there is a certain discount but not much strength.

Technical construction barriers: in 2021, the global silicon output CR5 reached 86.7%. All four companies except Xiexin mainly focused on improved Siemens method and bar silicon. The accumulation of granular silicon technology is less, and Xiexin technology has outstanding first-mover advantages. Combined with the time-consuming situation of the R & D process, the company's secrecy measures (legal means, production modularization, equity incentives for core engineering personnel), the company's continuous R & D investment and technology renewal, it is expected that the company's granular silicon technical barriers will be difficult to break in the short term.

Risk tips: Silicon prices fluctuate, the company's capacity expansion is not as expected, order performance risk, technology substitution or leakage risk.