Cinda Securities: Gives quartz shares a buy rating

2021-10-25Lou Yonggang and Huang Liheng of Cinda Securities Co., Ltd. conducted a study on quartz shares and released a research report "Gross Profit Margin Continues to Improve to Confirm Industry Boom", this report gives a buy rating to Quartz shares, and the current stock price is 50.23 yuan.

Quartz Shares (603688)

Event: The company released the third quarter report of 2021 on October 23, 2021, and achieved revenue and net profit attributable to the mother of 670 million yuan and 175 million yuan during the reporting period, an increase of 44.54% and 17.77% respectively; of which the revenue and net profit attributable to the mother in the third quarter were 2.38 and 62.78 million yuan, respectively, 48.27% and 126.7% year-on-year.

Comments:

Net profit increased year-on-year, short-term limited electricity and other impacts. Revenue in the third quarter was 238 million yuan, an increase of 48% and 2% year-on-year, respectively; net profit attributable to the mother was 0.63 billion, an increase of 126.7% year-on-year, down -10.52% month-on-month; and deducted non-net profit was 0.60 billion, an increase of 137.6% year-on-year and 5.8% month-on-month. In September, jiangsu industrial power curtailment affected some of the company's production lines, resulting in the delay in delivery and revenue recognition of some products, while the net profit was affected by management expenses (an increase of 5.3 million), credit and asset impairment (an increase of 5.8 million) and investment income (a decrease of 480W), which was slightly lower than that of the previous month, and the net profit after deducting the above impact is expected to be in the range of 75-80 million yuan; after the elimination of the impact of one-time factors, the company's profitability quality and ability will be further improved.

Gross margin increased significantly to 48% and overall profitability increased further. Gross margin in the third quarter increased to 48.0%, up 5.7pct and 2.8pct respectively, net profit margin of 26.3%, up 9.1pct year-on-year, down 3.7pct from the same period last quarter, and we expect to further improve the gross margin of the high-purity quartz sand and semiconductor quartz business. The overall gross profit margin in the 1-3 quarters was 44.7%, 2.4pct year-on-year; the non-net profit margin was 23.9%, an increase of 2.6pct year-on-year; the net profit margin was 25.8%, down 5.9pct year-on-year, mainly for 2020 to recognize more investment income. The high gross profit margin business has a faster growth rate, the new production capacity of the high-purity quartz sand business is put into operation, and the product price increase is sufficient, and the semiconductor quartz business will jointly promote the optimization of product structure and the improvement of profitability.

The new production capacity of high-purity quartz sand is about to be released, and the semiconductor quartz is quantitatively released. Since 2021, the price of high-purity quartz sand has risen steadily, and the United States Unimine photovoltaic quartz sand products have risen from about 30,000 / ton at the beginning of the year to 45,000-50,000 yuan / ton, and we expect that some of the company's products will follow the price adjustment. At the same time, the company's high-purity quartz sand phase 2 project 20,000 / ton will be put into operation at the end of the fourth quarter, and it is expected to contribute nearly 20,000 tons of production increase in 2022, and the volume and price will rise together to support the high performance. The semiconductor quartz material business certification is smooth, through the TEL high temperature diffusion field certification, LAMresearch etching certification, etc., in addition, the company as a manufacturer with both high-purity quartz sand production line and semiconductor quartz material production capacity, after passing the certification has higher product yield and quality, enjoy stronger growth capabilities.

Earnings Forecast and Investment Rating: We maintain our forecast of net profit attributable to the company of 268 million, 486 million and 652 million for 2021-2023, an increase of 42.6%, 81.8% and 34.3% respectively year-on-year, with the latest market capitalization corresponding to PE of 63x, 34.8x and 25.9x, respectively. Considering the high demand in the downstream photovoltaic and semiconductor fields, the excellent competitive pattern of the company's high-purity quartz sand, the price increase trend in the short and medium term, and the increase in the contribution of new production capacity next year, the company's buy rating is maintained.

Risk factors: the impact of power curtailment, high-purity quartz sand production and price increases are less than expected, semiconductor products are less than expected, etc.

A total of 8 institutions have given ratings in the last 90 days, 6 buy ratings and 2 overweight ratings; the average target price of institutions in the past 90 days has been 42.84; the Securities Star Valuation Analysis Tool shows that Quartz Shares (603688) good company rating is 3 stars, good price rating is 2 stars, and valuation comprehensive rating is 2.5 stars.