Cinda Securities: Gives quartz shares a buy rating

2021-11-03N Cinda Securities Co., Ltd. Lou Yonggang, Huang Liheng conducted a study on quartz shares and released a research report "Promoting Common Prosperity, Continuing to Promote Employee Shareholding", this report gives a buy rating to Quartz shares, and the current stock price is 57.0 yuan.

Quartz Shares (603688)

Event: On November 2, 2021, the company announced the third phase of the employee stock ownership plan, which intends to raise a total amount of not more than 90 million yuan to purchase the company's shares through the secondary market. Sources of funding include the legitimate income of employees, as well as interest-free loan support provided by the chairman.

Comments:

The launch of three phases of employee shareholding for three consecutive years demonstrates full confidence. Since 2019, the company has launched an employee stock ownership plan for three consecutive years, all of which have purchased the company's shares in the secondary market through self-financing; after the stock price rose sharply in 2021, the third phase of the plan was rapidly launched. Employee shareholding is purchased through self-financing and interest-free loan support provided by the chairman, highlighting the confidence of management and technical personnel in the main business such as high-purity quartz sand and electronic grade quartz materials. On the one hand, the continuous introduction of employee stock ownership plans stimulates the enthusiasm of management and technical personnel, and on the other hand, it enables employees to share in the company's growth and promote common prosperity.

The impact of power curtailment has been gradually eliminated, and the main business volume has increased in the medium term. At present, the power curtailment in Jiangsu Province has been basically eliminated, and the company's production capacity affected by the power curtailment has basically returned to normal since the end of the third quarter. In 2021, the rapid growth of photovoltaic installed capacity has led to a high demand for photovoltaic monocrystalline crucible high-purity quartz sand, and in the absence of obvious supply increments from major manufacturers, the supply and demand pattern has entered from excess to insufficient supply, tight production capacity, driving prices to rise steadily; major suppliers have increased prices to varying degrees, and the company's products still have room for price increase in 2022. In addition, the company's high-purity quartz sand phase 2 project 20,000 / ton will be put into production in the near future, next year to provide 20,000 tons of supply increments, volume increase price increase. The certainty of semiconductor quartz materials has entered the release period, and the company will gradually put into use the new production capacity of 6,000 tons /year according to the order situation. Since 2020, the acceleration of semiconductor quartz material certification has brought about the continuous growth of orders, and it is expected that this year will make a breakthrough in the certification of tel etching links and applied materials; coupled with the high temperature diffusion of tel and lamresearch etching certification passed in 2020, the revenue of semiconductor quartz materials will continue to increase.

High technical barriers and excellent competitive landscape support the steady improvement of profitability. The company's photovoltaic monocrystalline crucible high-purity quartz sand is the only batch supplier in China, and we expect that only a few companies will have capacity expansion in the next three years to meet the growth needs of the photovoltaic industry. High technical barriers and excellent competition pattern give the company strong bargaining power, and enjoy more than 50% of the high gross profit and continuous price increase ability in the photovoltaic auxiliary materials industry chain. At the same time, as the only company in China that has passed the high-temperature diffusion link certification of semiconductor quartz materials, it has fully benefited from the rapid development of the semiconductor industry and order transfer; the growth of production capacity has also brought scale effects, and the gross profit margin has steadily increased.

Earnings Forecast and Investment Rating: We expect the company to achieve attributable net profit of 260 million, 486 million and 667 million in 2021-2023, an increase of 38.1%, 86.9% and 37.3% year-on-year, respectively, with the latest market capitalization corresponding to 74x, 40x and 29x, respectively. Considering the high prosperity of downstream photovoltaics, the continuous release of semiconductor quartz materials, and the excellent competitive pattern of the company's high-purity quartz sand, the price increase trend, and the imminent launch of new production capacity, the company's buy rating is maintained.

Risk factors: the impact of power curtailment continues, the production and price increase of high-purity quartz sand is less than expected, and the volume of semiconductor products is less than expected.

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 is 40.77; the Securities Star Valuation Analysis Tool shows that Quartz Shares (603688) good company rating is 3.5 stars, good price rating is 2 stars, and valuation comprehensive rating is 2.5 stars.