As a leading company in the photovoltaic junction box industry, Qc Solar's profitability hit bottom. As the industry leader, Qc Solar specializes in the photovoltaic junction box and connection system industry. With strong demand from the downstream photovoltaic industry, the company's revenue/NP increased from RMB2.95/0.33bn in 2017 to RMB11.0/1.18bn in 2022, with a CAGR of 30%/29%. In 2023H1, Qc Solar reported revenue and NP of RMB6.49/0.88bn, +22%/+86% yoy. We expect the company's profitability to further improve as its COGS decreases, the proportion of high-profit new products increases, and the expense ratio declines thanks to economies of scale.
With high demand for junction boxes from strong photovoltaic growth, the market share of leading companies is likely to increase. The global photovoltaic industry experiences ongoing strong demand, driving a high growth for junction boxes. We estimate that global photovoltaic installations in 2023/2025 are likely to reach 370/572GW, corresponding to a demand for photovoltaic junction boxes of 760mn/1.11bn sets, with CAGR of 29.5% in 2022-2025. The competitive landscape in the photovoltaic junction box industry is relatively fragmented, with Jiangsu Tongling Electric and Qc Solar jointly holding only 20% of the market share in 2022. With the fund support of IPO and overseas capacity expansions, we expect the market share of leading companies to further increase in 2023.
High growth of shipments to leading module manufacturers, cost decline, and an increase in the proportion of high-margin new products drive up profitability. 1) Quantity: The company has close cooperation with leading module manufacturers, with its top five customers all being well-known module companies. The top two customers, Jinko Solar and Trina Solar, both rank among the top four in the industry, accounting for over 40% of industry sales. The company benefits from high shipments, and in response to the high market demand, the company is expanding its production capacity. By the end of 2023, the company's capacity is scheduled to reach 100mn sets, and we expect its annual shipments to reach 70mn+ sets. 2) Profit: The decline in copper and other raw material prices is driving down costs. The company has a forward-looking layout of intelligent junction boxes with cut-off and optimization functions. The GPM of intelligent junction boxes is much higher than that of general junction boxes. With an increase in the proportion of new products, the company's profitability is likely to improve structurally.
Earnings Forecast & Rating: We expect the net profit of the company in 2023-2025 to be Rmb205/295/393mn (+73%/+44%/+33% yoy), implying P/E at 21x/14x/11x. We initiate coverage with the "Buy" rating.
Risks: Lower-than-expected industry demand growth, intensified competition, significant fluctuations in raw material prices.
