The profit of quartz shares is expected to increase by 400% year on year, but today's opening saw a decline.

The market reacted so strongly, mainly because the fourth quarter results of Quartz shares fell short of market expectations. However, in fact, the company's net profit for the first three quarters of 2023 increased by 638.32% year on year, reaching a record high. Among them, Q3 net profit was 1,776 billion yuan, up 531.4% year on year. Facing the high profit base for the third quarter, the month-on-month decline in Q4 was also expected, and the PV industry intensified in the fourth quarter of 2023. Downstream silicon wafer companies removed inventory one after another, and the operating rate decreased, which had an impact on the company's single quarter results.

In 2024, outer sand barriers are low and competition is intensifying, but inner layer sand and middle layer sand are still scarce in the short term. Currently, it is still quartz shares that can supply middle layer sand domestically. Although after 2025, along with overseas production expansion and implementation, domestic middle layer sand production capacity will also be invested one after another, and middle layer sand will inevitably fall in price, but the competitive landscape has not deteriorated in the short term. What exactly are the market's expectations for quartz shares?

Q4 performance declined, but full-year results are still leading in the PV industry

On the evening of January 23, Quartz Co., Ltd. announced its 2023 annual results forecast. The company expects to achieve net profit of 4.75-5.33 billion yuan for the full year of 2023, an increase of 351.44%-406.56% year-on-year, and achieve deducted non-net profit of 47.20-5.300 billion yuan, an increase of 374.47%-432.77% year-on-year.

(Based on the average performance forecast)

The company said that the pre-increase in performance was mainly driven by growing demand in the downstream semiconductor, photovoltaic and other industries, so business performance grew rapidly throughout the year. Demand for quartz sand used in the photovoltaic sector increased sharply year on year. Production and sales were strong, and the market volume of quartz materials for semiconductors was also rapidly expanding, making the profit level of major products clearly superior to the same period.

Against the backdrop of surplus in the entire photovoltaic industry chain and increased internal volume in the second half of 2023, Quartz shares achieved 400% profit growth leading the industry, but the fourth quarter results did not meet market expectations.

Looking back at the performance of Quartz Co., Ltd. in the first three quarters of 2023, the company's net profit for Q3 was 1,776 billion yuan, an increase of 531.4% over the previous year, reaching the peak of Quartz Co., Ltd. since its establishment. According to the performance forecast data disclosed by the company, it can be calculated that the net profit for 2023Q4 was 543-1,123 million yuan, an increase of 12.66%-132.99% year-on-year, but a decrease of 36.8%-69.4% month-on-month.

The reason for the decline in Q4 profit compared to the company has not been disclosed in the performance forecast. However, based on the PV industry's performance in the fourth quarter of 2023, it seems that an answer can be found.

In the fourth quarter of 2023, the fragmentation of the photovoltaic industry intensified. P-type products and N-type products were clearly divided. Demand from many end customers switched from P-type products to N-type products. P-type M10 products gradually lost market recognition, and demand declined rapidly. This transformation triggered a serious mismatch between downstream product demand and upstream inventory.

On the battery side, production of P-type M10 batteries was cut and eliminated, demand for upstream P-type silicon wafers weakened, and there was an oversupply of upstream P-type silicon wafers. At the beginning of November 2023, the price of P-type silicon wafers began to drop sharply, and silicon wafer companies cut production one after another. Until December, the price of P-type silicon wafers fell sharply, with a weekly decline of more than 7%.

As demand for P-type silicon wafers shrank at the end of last year and the price war intensified, silicon wafer companies are trying to remove inventory at low prices and reduce operating rates. This has led to a decline in demand for crucibles, which in turn has reduced the demand for high-purity quartz sand products. As a result, the profit of quartz shares declined month-on-month in the fourth quarter of last year, which is consistent with the fundamental situation in the photovoltaic industry.

Currently, the inner coil of high-purity sand is mainly outer sand. Middle layer sand is still scarce, while Quartz Co., Ltd. mainly supplies middle and inner layer sand. It has a domestic monopoly, and its position in the industry is stable. According to the latest SMM data, the average price of inner layer sand is currently 415,000 yuan/ton, the average price of middle layer sand is 195,000 yuan/ton, and the average price of outer sand is 85,000 yuan/ton. The inner/medium/outer prices for high-purity sand in Q4 in 2023 were 420,000 yuan/ton, 210,000 yuan/ton, and 120,000 yuan/ton respectively. Compared with the fourth quarter of last year, the price of inner layer sand remained high. The price of middle layer sand dropped slightly, and the price of outer sand dropped significantly.

High-purity quartz sand is a resource control attribute. Only specific mines can produce inner layer sand for photovoltaic quartz crucibles, and they are all overseas mines. The main sources of Unimine and Norwegian TQC come from the US, while quartz shares bind India's high-quality ore sources.

Because resources are so scarce, in the post-silicon era, high-purity quartz sand became the most scarce link in photovoltaics, and unlike the logic of silicon scarcity back then, it was difficult to expand production of inner layer sand at will due to resource limitations, so the price of inner layer sand is still firm, and there is almost no sign of decline.

The inner layer sand used by domestic companies is mainly imported Unimine and TQC products, but the inner layer sand supplied by the two companies falls far short of the demand for photovoltaics. Although Unimin officially announced plans to expand production last year, and production capacity is expected to double in 2023-2025, progress is still slow. Faced with the gap between supply and demand, Quartz Co., Ltd. is also trying to make part of the inner layer sand, although it may affect the service life of the crucible.

Mid-layer sand is mainly supplied by Quartz Co., Ltd. Although other small companies can also produce mid-layer sand, the output is small and the quality is unstable. The requirements for outer layer sand are relatively relaxed. About 10 domestic companies can produce it, so the fastest price drop is outer sand.

Although the profit of Quartz shares declined month-on-month in the fourth quarter of 2023, demand for high-purity sand is expected to increase as silicon wafer production capacity clears up and operating rates increase after the Spring Festival. Although there are problems with overcapacity in other parts of the photovoltaic industry, Quartz shares still have a competitive advantage this year due to their monopoly advantage and scarcity of resources.

It is difficult for photovoltaics to make money for a long time; semiconductors are the next starting point

Quartz Co., Ltd. had a relatively low share of the photovoltaic business in the early days. Until the PV demand exploded after 2021, the PV business accounted for 64.54% in 2022. However, the high profit effect of this round of photovoltaics has passed, and it will be difficult to repeat the profiteering market again in the next few years. Quartz's semiconductor business will be another growth point after the photovoltaic business.

In 2023, the company has successively stated the importance it attaches to the semiconductor business. On November 21, 2023, Quartz Co., Ltd. announced that the company and the Jiangsu Donghai Economic Development Zone Management Committee recently signed a “Letter of Intent to Invest” to invest in the construction of an electronic grade quartz material project with an annual output of 3,000 tons in the Jiangsu Donghai Economic Development Zone for use in the semiconductor field, with a total project investment of 1.03 billion yuan.

With the end of the surge in the photovoltaic industry, although the supply of inner layer sand is expected to remain tight in 2024, the tension on inner layer sand is expected to ease as companies such as Unimin plan to start production in 2025. This may make it difficult to maintain the high price of inner layer sand, especially in the context of new production capacity investment, second- and third-tier enterprises participating in competition, and the development of synthetic quartz sand technology. Mid-layer sand prices may also face downward pressure, especially considering that Quartz shares plans to expand its high-purity sand production capacity (currently around 60,000 tons).

Furthermore, the price of outer sand has declined markedly. Therefore, in the face of a possible trend of increased production and falling prices in the high-purity quartz sand market, it is necessary for Quartz shares to lay out the semiconductor business ahead of time. This helps companies spread risk and open up new growth points.