3Q23 performance is slightly lower than we expected.
The company announced third-quarter results: 1-3Q23 operating income of 5.502 billion yuan, an increase of 51.0% over the same period last year; net profit of 445 million yuan, an increase of 54.4% over the same period last year. Of this total, 3Q23's operating income was 2.11 billion yuan, up 47.3% from the same period last year and 10.4% from the previous year; the net profit returned to its mother was 123 million yuan, up 1.0% from the same period last year and down 30.7% from the previous month. Due to the impairment loss, the performance was lower than we expected.
Trend of development
The energy storage business is growing rapidly and is expected to increase further by the end of the year. We estimate that 3Q23's new energy business revenue is 1.1 billion yuan, of which energy storage revenue is 900 million yuan, with a significant month-on-month growth rate (1H23 revenue is only about 1.09 billion yuan). We think that the growth rate of overseas large reserves is lower than expected due to the delay of installation and grid connection in the United States, while the company's shipments are mainly in the domestic market, thanks to the high increase in PCS and system integration shipments driven by domestic large storage projects. In addition, the revenue of photovoltaic business in the new energy business is about 200 million yuan, which basically matches the growth rate of the industry. Looking forward to 4Q23, due to the node requirements of the project and the periodic slowdown of lithium carbonate price reduction, we expect a further increase in the installed capacity of energy storage, which will lead to an increase in the company's energy storage shipments.
With the steady growth of smart power, AI brings new opportunities for the development of the data center industry. We estimate that the company's 3Q23 smart power revenue of 340 million yuan (1H23 about 490 million yuan), benefiting from large traffic, AI applications and other downstream demand, to maintain good month-on-month growth. The total revenue of the data center business is about 680 million yuan, which is slightly lower than the previous month. We expect the revenue of IDC services to be affected by the low shelf-up rate of downstream customers, and the data center products will maintain good growth under the demand of AI computing deployment.
The gross margin is stable and the large impairment loss affects the net profit. The annual sales / management / finance / R & D expense rate of the company's 3Q23 is 8.1%, 3.1%, 1.1%, 5.3%, respectively, with month-on-month changes in 0.4ppt/0.2ppt/0.3ppt/-0.7ppt, and the overall expense rate is relatively stable. In terms of gross profit margin, 3Q23's gross profit margin is 28.6%, a month-on-month decline-0.4ppt. We believe that in the current fierce competition in the industry, the company's profitability is still stable by virtue of cost control and supply chain management capabilities. 3Q23 made provision for asset impairment loss of 43 million yuan, credit impairment loss of 11 million yuan, and net profit on sales decreased by 3.5ppt to 5.9% from the previous month.
Profit forecast and valuation
Due to the company's impairment loss and fierce competition in the industry, we cut our net profit by 2023 and 2024 by 13% and 9% to 7.0 and 900 million yuan. The current share price corresponds to 18.3 times 2023 times earnings and 14.3 times 2024 times earnings. Maintain the outperform industry rating, but due to the downside of the valuation center of the industry, we cut our target price by 13.8% to 33.7 yuan, corresponding to 22.2 times 2023 times earnings and 17.3 times 2024 times earnings, which is 21.1% higher than the current stock price.
Risk
Energy storage industry demand is lower than expected; energy storage business profitability is declining; data center demand is weak.