ZHEJIANG JINGSHENG(300316)：2Q23 NET PROFIT +73% YOY IN LINE; ARMS RACE STILL GOOD FOR EQUIPMENT MAKERS

　　Zhejiang Jingsheng (JSG)’s net profit in 1H23 surged 83% YoY to RMB2.2bn, in line with the pre-announced profit released in mid-Jul. Net profit in 2Q23 grew 73% YoY to RMB1.3bn, a record high. As of end-Jun 23, total backlog reached RMB27.8bn (solar/semiconductor: 88%/12%), which continues to offer visibility over the coming 18 months. We maintain our TP at RMB106, based on 32x 2023E P/E, on the back of 32% earnings CAGR in 2023E-24E. While the solar sector has been under pressure, we expect equipment makers will outperform other segments in the supply chain due to the arms race to expand and upgrade capacity. Upcoming catalysts include: (1) new orders on solar cell & module equipment; and (2) spin-off of crucible business unit.
　　1H23 results: Explosive growth of materials segment. Revenue grew　92% YoY to RMB8.4bn in 1H23. By segment, equipment revenue (solar + semiconductor) grew 71% YoY RMB6.1bn. Materials revenue (crucibles, diamond wire saw & sapphire) surged 2.4x YoY and 1x HoH to RMB1.88bn.Materials gross margin sharply expanded by 27.3ppt YoY to 54.7%, which more than offset the 2.4ppt contraction of equipment segment (to 40.1%).Blended gross margin therefore expanded 2.7ppt YoY to 42.7%.　Administrative expense ratio dropped 1ppt YoY to only 2% in 1H23. R&D expense ratio increased 0.8ppt YoY to 7.1% which we believe is essential given JSG’s continuous development of new technology. In 1H23, JSG recognized RMB70mn of fair value gain (1H22: nil). Operating cash inflow reached RMB1bn in 1H23, a strong recovery from an outflow of ~RMB52mn in 1H22.
　　Key highlights of 2Q23 results. Revenue surged 99% YoY to RMB4.8bn.Gross margin expanded 4.2ppt YoY and 3.6ppt HoH to 44.2%, driven by the ASP hike of materials segment. Minority interest surged 12x YoY to RMB208mn due to the strong growth of non-wholly owned material business. Net profit grew 73% YoY to RMB1.3bn.
　　Strong pricing power reflected in the growth of customers’　downpayment. As at end Jun 2023, contract liabilities (an indicator of down-payment from customers) surged 49% YoY to RMB10.4bn.
　　Risks: 1) Slowdown in solar power capex; 2) lower-than-expected gross margin; (3) decline in crucible price.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。