Event: On August 30, 2023, the company released its 2023 semi-annual report. 23H1 achieved revenue of 27.85 billion yuan, an increase of 17.91% over the previous year; realized net profit of 1,904 million yuan, an increase of 13.70% over the previous year; and achieved non-net profit of 1,843 billion yuan, an increase of 13.08% over the previous year. In terms of a single quarter, 23Q2 achieved revenue of 12.109 billion yuan, a year-on-year decrease of 6.40%; realized net profit of 702 million yuan, a year-on-year decrease of 36.26%; and achieved net profit of 757 million yuan, a year-on-year decrease of 21.47%. In terms of profitability, the company's gross margine/net profit margin in 23H1 was 22.29%/9.07%, respectively, +0.27/+0.58pct over the previous year. In terms of cost control, the cost rate for the 23H1 company period was 10.88%, down 1.59 pcts from the previous year, of which the financial expense rate was 1.89%, down 0.81 pct from the previous year; the management expense rate was 3.25%, down 0.03 pct from the previous year; and the sales expense rate was 3.90%, down 0.28 pct from the previous year.

Low-voltage appliances: Optimize channel layout and deepen implementation of global manufacturing capacity layout. The 23H1 smart appliances segment achieved revenue of 11.475 billion yuan, an increase of 7% over the previous year. In terms of channels, core distributors with customer resources and financial strength were selected and developed into regional distributors, 1,600 new distributors were developed, and the coverage rate of local and municipal channels increased from 81% to 85%. In terms of market development, using the “Zhengtai+Nojak” dual brand product strategy, we are deeply cultivating the “new exclusive” market, focusing on high-value-added projects, and developing new leading customers in industries such as Krista, Sunshine Power, and Shangneng Electric, bringing in increased business. In terms of international business, it achieved revenue of 2,319 million yuan, an increase of 29.14% over the previous year. Zhengtai International continues to promote the construction of a regional headquarters, prepare 4 overseas factories, deepen the operation management center in Singapore, and complete the overall construction work in Europe/West Asia and Africa.

New energy: Household photovoltaics continue to rise, and inverter energy storage sets sail. 1) Household business: In 23H1, Zhengtaian achieved revenue of 13.705 billion yuan, net profit exceeding 1,202 billion yuan, achieved a development capacity of over 5.3 GW, and sales revenue of power plants to central Chinese enterprises exceeded 10 billion yuan, injecting strong impetus into sustainable business development.

2) Power plant business: In terms of domestic power plants, Zhengtai New Energy actively explores new models of cooperation with central state-owned enterprises and obtained development indicators as a consortium. In terms of foreign power plants, a joint venture EPC company was set up with partners to undertake European EPC business, with more than 1 GW of contracts signed. 3) Energy storage inverter business: In terms of domestic business, we continue to deepen and consolidate cooperation with central enterprises in China, expand sales with domestic platform providers, and sign 10 new central enterprise customers such as China Power Construction, China Power Investment, China Power Changyuan Electric, Huadian and China Nuclear Huineng to achieve large-scale supply, complete the Zhanjiang Baosteel 12.5MW Phase II photovoltaic project, the 91 MW and 15 MWH energy storage and fishing light complementary projects in Fuzhou, Jiangxi, and the Qingtan 40MWH energy storage project. In terms of foreign business, the Korean market has successfully built photovoltaic power generation projects such as Boongeo-9MW and ASK Namjido-ri 9MW; the European market has added local product certifications, signed new multinational agents, and obtained large orders.

Investment suggestions: We expect the company's revenue for 2023-2025 to be 557.85, 664.00, and 76.765 billion yuan, respectively, with corresponding growth rates of 21.3%, 19%, and 15.6%, respectively; net profit to return to the mother is 47.64, 58.59, and 7.127 billion yuan, respectively, with corresponding growth rates of 18.4%, 23%, and 21.6%, respectively. Using the closing price on September 1 as the benchmark, the corresponding PE for 2023-2025 will be 11X, 9X, and 7X. Maintain the “Recommended” rating.

Risk warning: risk of fluctuations in raw material prices; risk of exchange rate changes.