PACIFIC QUARTZ(603688)IN-DEPTH REPORT SERIES NO.1(TAKEAWAY)：SCARCITY OF HIGH-PURITY QUARTZ SAND AND PACIFIC QUARTZ

On the supply side, photovoltaic (PV) quartz crucible has high requirements for high-purity quartz sand in terms of purity, gas-liquid inclusion, particle-size distribution, consistency, etc. It needs to meet both the requirements of ore source quality and purification technology, and the supply of high-purity sand is scarce. On the demand side, although high-purity quartz sand crucible does not account for a high proportion of the cost of crystal pulling, the loss caused by quality problems is relatively big, so downstream customers have relatively low price sensitivity.
Considering the continuous production of silicon material in the future, it takes time to provide incremental supply of high-purity quartz sand, whose price may still have upward elasticity. Pacific Quartz has accumulated its own purification technology and appropriate mineral resource reserves, and its product quality has been recognized by the downstream customers. It may become the largest supplier of high-purity quartz sand in the world in 2022 in terms of output and sales. Meanwhile, the proportion of inner sand sales will continue to increase, and product structure will be steadily optimized. We value the stock at 37x 2023E PE and maintain the target price of Rmb190 and the "BUY" rating.
The importance of high-purity quartz sand.
Silicon wafer grown by Czochralski (CZ) method relies on the quality of the quartz crucibles, and problems such as deformation and crystallization can easily affect the crystallization rate and the quality of silicon wafers. The core of the quality of the quartz crucible lies in the raw material, high-purity quartz sand, and the requirements are mainly reflected in four aspects: purity, gas-liquid inclusion, particle-size distribution and consistency. Purity requires not only a content level of 99.99% or more of silicon dioxide, but also a high content of other elements such as aluminum, barium, magnesium, calcium, etc.
The scarcity of high-purity quartz sand.
The high-purity quartz sand used for the PV crucible has a high threshold, which needs to meet both the requirements of ore source quality and purification technology. The capability of Unimin (a US high-purity quartz sand producer) and The Quartz Corp, also known as TQC (a Norwegian high-purity quartz sand producer) to supply high-purity quartz sand mainly comes from their joint mining of Spruce Pine quartz ore, which is scarce. Pacific Quartz has competitive advantages in terms of ore source reserves and purification technology, and can provide high-purity quartz sand. However, small- and medium-sized enterprises (SMEs) are difficult to expand production and guarantee quality, so there is a certain scarcity at the supply side.The price of high-purity quartz sand will likely increase further.
During the crystal pulling process, if the quality of the quartz crucible is defective, the single crystal silicon ingots will be scrapped, with a direct loss of more than Rmb50,000. In case of silicon leakage, the crystal pulling apparatus will be affected and the loss will be even greater, which is much higher than the unit price of less than Rmb3,000 for a quartz crucible. Therefore,
considering that high-purity quartz sand accounts for only about 1% of the cost of downstream silicon wafers, downstream enterprises tend to use high-purity quartz sand of better quality as much as possible under the consideration of giving priority to ensuring production safety and quality. According to the supply and demand measurement, we expect the gap between supply and demand of high-purity quartz sand to widen further in 2023 as the silicon material capacity is gradually released. The gap may basically widen quarter by quarter from 4Q22 to the end-2023, which means that the supply of high-purity quartz sand will remain tight. In addition, in view of the dramatic expansion of silicon chip enterprises and the market share decreases of industry leaders LONGi Green Energy and TCL Zhonghuan, the pricing power of high-purity quartz sand will be strengthened, and the price elasticity may be further enhanced under the condition of maintaining high concentration in the upstream and decreasing concentration in the downstream links.
Pacific Quartz: Poised to be the largest PV high-purity quartz sand company in the world.
In recent years, through the accumulation and progress of purification technology for different mineral sources, Pacific Quartz has matched the appropriate mineral sources in India, Brazil, South Africa, China and other places to produce high-purity quartz sand that meets the requirements of downstream PV enterprises. From the product index of the Company’s PV high-purity quartz sand, the content of impurities such as potassium, calcium and iron has been significantly lower than the standards set in the Quartz crucible manufacturing practices for photovoltaic single crystal silicon growth.
The content of calcium, copper, nickel and other elements in quartz sand of Pacific Quartz has been reduced to the same level as Unimin, and the impurity content of some products are even lower than those of Unimin’s products, presenting better product quality. Therefore, the quality of the Company’s PV high-purity quartz sand products has been continuously recognized by the downstream players. Based on our estimates, in 2021, the volume of quartz sand purchased by OJing increased greatly by about 230% YoY. With the contribution of the acquisition of Qiangbang Quartz and the commissioning of new projects, the Company is likely to continue to increase the output and sales of PV high-purity quartz sand in the future, thus becoming the largest supplier in the field in the world. In addition, as overseas production capacity reaches the full extent, the gap of sand for the inner layer of quartz crucible is constantly enlarged. Pacific Quartz is the best domestic quartz producer, therefore, the proportion of output and sales of products for the inner layer is likely to continue to increase.
Potential risks: Less-than-expected PV demand; disappointing progress of newly-built capacity; intensified competition in industry supply side; emerging of alternative technology.
Investment recommendation: High-purity quartz sand has certain scarcity on the supply side. Under the premise of ensuring production, downstream enterprises tend to use high-purity quartz sand with better quality, and coupled with the subsequent release of silicon material capacity, high-purity quartz sand will likely achieve continuity and elasticity in price increase. In addition, the Company’s new capacity continued to expand, and the profitability level continued to rise. We maintain our 2022E/23E/24E EPS forecast of Rmb2.42/5.13/6.76.
Considering the sound global competition pattern of the industry, and the Company’s future CAGR may reach more than 30%, we value the stock at 37x 2023E PE as the price of quartz sand is likely to increase until 2023, maintain the target price of Rmb190 and reiterate the “BUY” rating.
【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。

   【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。