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Editor’s Note

In order to better improve the quality and efficiency of the capital market's service to the real economy, China Fund News and the Shanghai Stock Exchange jointly launched the "Hundred Billion Plan - Visiting Listed Companies with Investment Giants" column, and together with institutional investors with management scale of tens of billions of yuan and more than 10 million fans of China Fund News, they visited high-quality Shanghai-listed companies.

Since its listing in 2020, Gaoce’s net profit has shown explosive growth. From 2020 to 2023, the compound annual growth rate of net profit attributable to the parent was 191.71%.

Every profession has its own specialty. How did Gaoce Co., Ltd. "open up new territory" in the photovoltaic silicon wafer cutting segment and quickly grow into an industry leader? As a technology-based company, what is the secret of innovation? In the face of fierce competition in the industry, how to achieve cycle crossing? How to stand firm and go far after entering the global market?

The "Hundred Billion and Ten Million Plan" column and Southern Fund Fund Manager Zhu Henghong came to Gaoce Co., Ltd. to explore the secret of efficient innovation.

China Fund News reporter Zhao Xinyi

In the 19th century, the "Gold Rush" in the American West brought a fascinating role to modern business - the shovel seller. When opportunities came, it was even more profitable than gold mining.

The industry changes and evolves, and as the new energy wave surges, a new group of "shovel sellers" emerges.

As one of the "photovoltaic shovel sellers", Gaoce Co., Ltd.'s photovoltaic silicon slicers, diamond wires and other products have quickly emerged in the industry with their leading technology and cost advantages.

However, if you want to take the lead in the industry competition, you obviously need to hold a "sharp blade". Gaoce shares, based on professional and fine division of labor, has successfully built a technical closed loop around cutting capabilities with the three capabilities of "cutting equipment + cutting consumables + cutting technology".

Soon, Gaoce Co., Ltd.'s market share in photovoltaic equipment jumped to first place in the market, its diamond wire thinning iteration achieved industry leadership, and its silicon wafer cutting and processing service business quickly penetrated, promoting industry change and consolidating its leading position in the industry.

How to achieve all this? Zhang Xiutao, general manager of Gaoce Co., Ltd., gave the answer: "Attract talents, stimulate vitality, and build barriers."

This issue of the "Hundred Billion and Ten Million Plan" column also records this survey activity with a video. The video is as follows for readers' enjoyment.

"Excellent technique"

Optimizing Technological Innovation

Walking into the high-precision equipment factory of Gaoce Co., Ltd., the sunlight shines through the glass and onto the neatly arranged rows of equipment. As soon as you enter the door, you can see the core products such as diamond wire, ultra-thin silicon wafers, silicon carbide substrates, etc. displayed on the display stand.

"The slicing of ultra-thin silicon wafers is an extremely difficult precision machining process, which requires high-precision cutting equipment, high-quality diamond wires and highly adaptable cutting technology to ensure high-quality, high-efficiency and low-cost silicon wafer cutting production." Wang Muya, secretary of the board of directors of Gaoce Co., Ltd., introduced as he walked.

Approaching the slicer, the reporter saw a "silver wire" half the thickness of a hair being pulled into the center of the machine and wrapped around to form a silk-like wire net. After a silicon rod passes through the "silver wire" net, it immediately turns into more than 4,000 silicon wafers.

Faced with the technological trends of thinning silicon wafers, high-speed slicers and thinning diamond wires, Gaoce Co., Ltd. has continuously led the industry in achieving updates and iterations of cutting equipment and thinning diamond wires, and many of its products quickly secured the top spot in market share.

"Skill" is ability, which includes knowledge, methods, strategies and experience. "Excellent skill" means constantly improving one's ability.

Zhang Xiutao repeatedly mentioned in an interview with our reporter that Gaoce is a "technologically innovative" enterprise. Obviously, for Gaoce, the ability that needs to be continuously improved is innovation.

"When the company was small, our R&D staff would stay in the workshop every day to think about the equipment, draw pictures, and hold meetings. After the equipment left the factory, everyone would follow it to the customer's site and continue to improve it based on customer feedback. The innovation model was very simple and direct," Zhang Xiutao recalled.

Later, as the company and the team grew and expanded, especially after multiple products were launched, Zhang Xiutao admitted that there were obviously more issues that needed to be considered, such as how to motivate the team to continue to innovate and establish a complete innovation mechanism.

"We have taken many detours, but this is normal. Only by continuous attempts can we find the right path," said Zhang Xiutao.

Learning from others' experience can help you polish your jade - learn the art of innovation management from outstanding high-tech companies. Since 2015, Gaoce has been learning from leading companies in the technology, Internet, consulting and other industries, gradually building up its own innovation system and continuously improving it.

"For technology-innovative enterprises, the most valuable thing is always talent," Zhang Xiutao believes. Based on this, he introduced to reporters the measures taken by Gaoce Co., Ltd. in motivating talent innovation, emphasizing two key points, namely "using up all the bullets" and "empowering to the nerve endings."

What does "shoot up all the bullets" mean? Zhang Xiutao said that "shoot up all the bullets" is an attitude that can inspire employees' innovative vitality and build trust in the company. "Empowerment to the nerve endings" puts higher demands on the incentive system, requiring the division and measurement of performance to be more detailed and specific. Zhang Xiutao explained, "Only by delegating power to the nerve endings can we attract more talents and gain a broader space for growth." As of December 31, 2023, Gaoce shares have 725 valid patents and 44 software copyrights.

"Ming Dao"

Ming's Way to Cross the Cycle

Those who understand the way know the way to survival and the way to development.

In recent years, renewable energy represented by photovoltaics has ushered in a development trend, and the global photovoltaic market has grown rapidly. However, the rapid development and short-term capacity explosion have also exacerbated the difficulties of the photovoltaic industry, such as periodic and structural overcapacity, overall price fluctuations in the industrial chain, rapid iteration of new and old technologies, and declining industry profitability. The industry competition has become more intense, and new challenges are emerging.

Zhang Xiutao seems calm about the cyclical fluctuations in the industry. He said: "The photovoltaic industry has been developing to this day and the industry has continued to grow. It has experienced multiple rounds of cyclical fluctuations, but in each round of fluctuations there are always companies that can survive the cycle. Cyclic fluctuations will definitely have an impact, but if you want to do business, you must have enough strategic determination and follow your own pace."

Gaoce's R&D and innovation strategy is "deliver one generation, develop one generation, and pre-research one generation". Relying on the closed-loop technical advantages of "cutting equipment + cutting consumables + cutting process", it "extends the R&D cycle, expands generational differences, and reduces the risk of technology diffusion." This is the new answer given by Zhang Xiutao in the face of cyclical fluctuations.

"During the cycle of clearing out production capacity, the industry may be in a low-profit era for a long period of time, and companies' willingness to invest in technology and production capacity will decline, but we have clear technical insights and will conduct research at our own pace," said Zhang Xiutao.

The inner calmness comes from the increasingly perfect R&D platform and innovation mechanism. Through the simultaneous advancement of cutting equipment, cutting technology and cutting consumables, Gaoce has created a complete closed loop of cutting technology, and has continuously deepened its technical barriers by relying on the closed loop of technology.

Zhang Xiutao explained that the underlying technical logic is consistent. With a solid R&D foundation, the technology can be extended according to industry needs to meet the needs of different fields.

Horizontally, we have expanded from the cutting of photovoltaic silicon materials to the research and development of diamond wire cutting technology in the fields of semiconductors, sapphire, magnetic materials and silicon carbide, making it broader and stronger.

Vertically, we will thoroughly study the cutting equipment, cutting consumables and slicing services of an industry scenario, and achieve a spiral increase in product competitiveness through the R&D technology closed loop of "cutting equipment + cutting consumables + cutting process". Ultimately, technological advantages will be transformed into cost advantages.

"Innovation is about reducing costs in a way that is difficult for competitors to imitate," said Zhang Xiutao.

"Taking advantage"

Global layout takes advantage of the momentum

Under the trend of global green transformation, the photovoltaic industry has carried the "going overseas" gene since its birth and is regarded as a pioneer in the internationalization of the science and technology industry.

As one of them, Gaoce Co., Ltd. has also "set sail" long ago, and has now sold cutting equipment, diamond wire and other products to many countries around the world, including the United States, France, Turkey, India, Malaysia, Vietnam, etc. Last year, Gaoce Co., Ltd. also established Hainan Gaoce Technology Co., Ltd. as a platform for expanding overseas business.

Looking back on Gaoce's overseas journey, we can find that it initially laid the foundation with marketing services, and now it is deeply engaged in R&D and industrial chain cooperation, working together with industrial chain partners to jointly plan for the overall overseas expansion.

"Talent" is still the key point that Zhang Xiutao repeatedly mentioned when talking about the company's globalization. "Our technical attributes are always stronger than our manufacturing attributes, so the first thing we focus on is the layout of talent." Regarding the next overseas plan, Zhang Xiutao said that the layout of overseas R&D talents and professional talents will be the first consideration.

It is better to be safe than sorry. Based on a comprehensive investigation of local policies, markets and risks, Zhang Xiutao believes that the key lies in "local talent recruitment" to ensure that the team can deeply understand and adapt to the local environment, thereby ensuring long-term, stable operations and development.

In response to the reporter's doubts about whether "we missed the opportunity due to excessive caution", Zhang Xiutao responded from a long-term perspective. In his opinion, short-term interests are not what Gaoce shares pursue, because from the long-term development logic of the industry, it must be technological innovation that drives cost reduction and creates greater value for customers with low-cost advantages. Only such development is valuable.

With innovation as its wings and going global as its sail, Gaoce Co., Ltd. is telling the story of Chinese science and technology companies pursuing their global dreams.

At the end of the interview, Zhang Xiutao told the reporter: "We must believe in the market, believe in common sense, and believe in ourselves. To believe in the market, we must have insight into the market and follow its logic; to believe in common sense, we must consider problems and do research from the bottom up; to believe in ourselves, when our assumptions are constantly proven to be correct, the team's self-confidence and cohesion will continue to increase."

The investment value of the Science and Technology Innovation Board depends on the long-term transformation of the domestic economy

The Science and Technology Innovation Board has celebrated its 5th anniversary. What is the long-term, medium-term and short-term investment value of the Science and Technology Innovation Board? What is the current valuation of the photovoltaic industry and how will it develop in the future? With the rise of overseas expansion, how do you view the development opportunities of photovoltaic companies? Zhu Henghong, fund manager of Southern Fund, shared with us his investment insights on the photovoltaic industry and technological innovation companies.

China Fund News: How do you view the development of the photovoltaic industry in recent years? Some people now believe that the turning point is coming. How do you view the subsequent development trend of the industry?

Zhu Henghong:The development of the photovoltaic industry in recent years can be said to be mixed. On the one hand, the scale of new photovoltaic power generation installations in the world has reached a new high, with a year-on-year growth of more than 30% last year, indicating that the photovoltaic industry is still developing at a high speed. And whether in terms of application or products, my country is truly the first.

But on the other hand, we can also see that under multiple pressures such as tariff issues, absorption issues, and inventory backlogs, the photovoltaic industry is also in a dilemma of temporary oversupply and declining profits.

At present, the photovoltaic industry is at the bottom of the cycle and is still going through the process of clearing out production capacity. With the elimination of obsolete production capacity, some companies with core competitiveness will stand out. This process is conducive to further magnifying the advantages of advanced production capacity, accelerating the iteration of new and old technologies, and promoting the maturity of the photovoltaic industry.

China Fund News: How do you view the current valuation level of the photovoltaic industry? How do you understand the future investment logic of the photovoltaic industry, especially which variables need special attention?

Zhu Henghong:Currently, the A-share photovoltaic sector is at a relatively low valuation. As of the end of June 2024, the PETTM of the CSI Photovoltaic Industry Index is about 15 times, and the percentile is about 14% in the past five years. As the supply side gradually improves, the price bottom of the industrial chain stabilizes, and the possibility of the industry continuing to fall sharply is small, the photovoltaic sector has a high allocation value in the long run.

Looking back at the past performance of the sector, it was mainly driven by thematic investment and boom investment, and was quite elastic under the dominance of the demand side. However, after the photovoltaic sector enters its mature stage, it may be more focused on the supply side, and the investment logic will gradually shift to comparison of links within the sector, changes in the industry's supply structure (including overseas expansion), and technological iteration. These three factors jointly drive the differentiation of performance of companies in the industry.

China Fund News: As the photovoltaic industry is going global, how do you view the development opportunities? How do you value companies going global?

Zhu Henghong:In the face of overcapacity and fierce low-price competition in China, going overseas will help related companies increase overseas demand supply, drive market share increase and unit profit increase, while enhancing the company's risk resistance and operational stability and achieving sustainable development.

On the other hand, photovoltaic enterprises are still facing many difficulties in going overseas due to the disturbance of global competition, trade barriers and other factors. First, there is the "increase in volume and decrease in price" caused by the intensified competition. In addition, photovoltaic enterprises going overseas are also affected by "black swan" events such as geopolitical conflicts. For example, the Red Sea crisis has caused the freight costs of my country's photovoltaic products exported to Europe to soar.

There are two modes for photovoltaic exports: one is the traditional product export mode, that is, "made in China, sold globally"; the other is the production capacity export mode, that is, building factories overseas and establishing local production capacity.

Therefore, the valuation methods are also different. Building factories overseas involves longer periods of calculation, larger capital investments in the early stages, and the process may also face overseas policy risks, so the valuation uncertainty will be greater.

China Fund News: The market has been volatile this year. How do you view the long-term, medium-term and short-term investment value of the Science and Technology Innovation Board?

Zhu Henghong:The investment value of the Science and Technology Innovation Board depends on the long-term transformation of the domestic economy. In the process of transitioning from high-speed growth to high-quality growth, technological innovation will gradually become a new engine of economic growth. With the support of policies and funds, technology-innovative enterprises will benefit in the long run and grow stronger.

In the medium term, the recovery of the domestic economy will see greater resilience in the earnings recovery of science and technology enterprises. In addition, as the Federal Reserve is about to enter a rate cut cycle, the high interest rate environment will gradually ease the valuation suppression of global growth stocks, and related industries are expected to usher in valuation repairs under the rhythm of economic recovery.

In the short term, the market is at the bottom, and traders have a low risk appetite, but there is limited room for further decline. Growth stocks are more flexible and can more efficiently grasp the market's periodic rebound.

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