In the first three quarters of 2023, the company realized a net profit of RMB 166 million yuan, with a significant year-on-year growth of 185.41%. The production and sales scale of equipment helped the profit to continuously improve. Progress in the third quarter: 1) TOPCon battery equipment has been mobilized for six consecutive years, and the company is expected to put into production in November;2) Carbon sequestration projects have been completed and put into production, and 4 lines are under construction/proposed, which is expected to start a new stage of rapid development. Based on the profit change of photovoltaic industry and the progress of various businesses of the company, we adjusted the forecast of parent net profit of the company from 2023 to 2025 to 2.7/11.1/15.9 billion yuan respectively (the original forecast value was 3.2/11.9/17.2 billion yuan), the corresponding EPS forecast was 1.85/7.72 /11.05 yuan respectively, and the current price corresponding PE was 20/5/3 times respectively. According to the average PE valuation of 9 times in 2024 expected by Wind of comparable company, we give the company 9 times PE valuation in 2024, with target market value of RMB 10 billion yuan and target of RMB 70 yuan, maintaining the "buy" rating.

The photovoltaic industry continued to expand production and the company's performance was strong. In the first three quarters of 2023, the Company realized operating income of CNY 2.187 billion (+109.76% YoY) and net profit of CNY 166 million (+185.41% YoY). Among them, the company realized operating income of 855 million yuan (+130.90% YoY,+13.01% QoQ) in 2023Q3, net profit of 63 million yuan (+259.63% YoY,-6.83% QoQ), and strong performance. The gross profit margin/net interest rate of the Company in the first three quarters of 2023 was 26.67%/7.53% respectively, with a year-on-year improvement of +0.23pct/+1.77pct, among which the gross profit margin/net interest rate in Q3 of 2023 was 26.45%/7.28% respectively, with a month-on-month comparison of-1.11pct/-1.66pct, and the impact of equity incentive expenses was about CNY 57 million. Benefiting from the high boom of photovoltaic industry and the acceleration of new technology expansion, the demand for photovoltaic environmental protection equipment continued to increase, and the sales volume of the Company's products drove the performance improvement.

The demand for photovoltaic equipment is high, and there are abundant orders in hand. As the leader of photovoltaic cell process exhaust gas treatment equipment, the company holds the top five global photovoltaic cell shipments and the top ten core customer resources for module shipments, and expands its business to integrated equipment supply such as exhaust gas, wastewater, pure water and CDS. As of the end of September 2023, the Company has announced that the newly won projects in that year amounted to RMB 5.433 billion (including consortium projects), mainly concentrated in photovoltaic, pharmaceutical and other fields, of which 90% were EPC projects, reflecting the competitiveness of the Company in large-scale industrial comprehensive projects.

The expansion of TOPCon production has been steadily promoted, and the advantages of equipment synergy and cost reduction are significant. Since 2023, the battery tension pattern continues, supply and demand are tight & penetration rate improvement factors, which are expected to jointly promote TOPCon battery profit premium to continue to highlight. The company plans to produce 24GW of TOPCon battery cells in two phases, and the construction of 18GW of plant in Phase I has entered the final stage, of which 9GW has completed the procurement of battery production equipment in mid-July. At present, relevant electromechanical equipment and production equipment have been mobilized for six times. The progress of the project is consistent with market expectations. According to the company's production rhythm, we expect that the company's N-type battery shipment volume in 23/24 years will be 0.5/12GW. It is expected that the company will have an advantage of 2-3 minutes/W compared with the average cost of the industry by virtue of ammonia recovery, pure water reuse and environmental protection system design experience. After the production capacity is put into production, it will form a significant contribution to the 24-year performance.

Policies support green and low-carbon technologies and accelerate the commercialization of carbon sequestration projects. Recently, the National Development and Reform Commission and other departments have issued a circular on the implementation plan of the green and low-carbon advanced technology demonstration project. The policy side supports the green and low-carbon advanced technology demonstration project, and actively distributes the demonstration projects with leading technology, outstanding emission reduction effect, and coordinated pollution reduction and carbon reduction.

At present, the company has a number of patents related to carbon capture and utilization technology. Through the use of non-carbon raw materials such as steel slag to capture flue gas CO2 at low cost, the steel slag after carbon capture is mixed with mineral powder, fly ash and other materials to prepare ultra-fine high-activity composite mineral powder, and the production of low-carbon cementitious materials (for the production of low-carbon cement), concrete admixtures and artificial aggregates to replace concrete and other building materials to achieve commercialization. Under the successful demonstration effect of Jiyuan Zhonglian Project, the Company actively exerted its technical advantages in carbon sequestration projects and successively signed projects with Yongfeng Group, Yukun Iron and Steel and Shanghai Zhongheng. At present, 2 lines have been completed and put into operation; 4 lines are under construction/proposed, and the carbon sequestration business has great development potential.

Risk factors: environmental protection industry policy risk; market competition aggravates risk; project construction schedule is less than expected risk; accounts receivable calculation risk increases; macroeconomic fluctuation risk.

Profit forecast, valuation and rating: the company is a leading enterprise of photovoltaic environmental protection equipment, and the volume of orders contributes to high performance growth. On this basis, the company extends the layout of TOPCon battery capacity, equipment cooperation cost reduction is significant; carbon sequestration technology has significant advantages, the company actively promote the landing of industrialization projects, is expected to open a new stage of high-speed development.

Based on the downward adjustment of profit expectation for battery industry, we adjusted the net profit forecast of parent company from 2023 to 2025 to 2.7/11.1/15.9 billion yuan respectively (original forecast value is 3.2/11.9/17.2 billion yuan), corresponding EPS forecast is 1.85/7.72 /11.05 yuan respectively, and current price corresponding PE is 20/5/3 times respectively. Domestic photovoltaic cell enterprises (Junda shares, Aixu shares), photovoltaic equipment enterprises (Jingsheng Electromechanical, Jiejia Weichuang) and terminal pollution control enterprises (Longjing Environmental Protection, Aofu Environmental Protection) are selected as comparable companies. At present, the average PE valuation of the above comparable companies in 2024 based on Wind consensus expectation is 9 times, and the PE valuation of the company in 2024 is 9 times, with the target market value of RMB 10 billion Yuan and the target of RMB 70 Yuan. Maintain the "Buy" rating.