Huabao Xinneng revealed its 2023 three-quarter report. 2023Q1-Q3 achieved revenue of 1.58 billion yuan, -29% year-on-year; net profit of 62.02 million yuan, -124% year-on-year; net profit after deducting non-return net profit of 130 million yuan, -153% year-on-year. Among them, Q3 achieved revenue of 660 million yuan, +39% month-on-month; net profit of net income of 109.76 million yuan, -49% of month-on-month; net profit after deduction of net profit of 43.678 million yuan, +19% month-on-month. 2023Q1-Q3 Due to the slowdown in consumption and the decline in natural gas prices due to continued high overseas inflation, European energy storage product inventories climbed to historic highs, and at the same time, industry competition was heating up, and the company's performance was under pressure.

High cost inventory clearance+product structure optimization, 23Q3 gross margin was clearly optimized month-on-month. The comprehensive gross margin of 2023Q3 company reached 41.4%, +5.1pct month-on-month; net profit margin -1.7%, +2.9pct month-on-month. The significant month-on-month increase in gross margin was mainly due to 1) the gradual digestion of high-cost inventories; 2) the higher gross margin of new products, relatively stable prices, and enthusiastic market response; and 3) the increase in exchange earnings due to the appreciation of the US dollar. In terms of the cost ratio for the period, the 23Q3 sales expense ratio was 34.4%, -3.7pc; the management expense rate was 7.5%, -4.7pct; and the R&D expense ratio was 5.8%, -1.8pct month-on-month. Cost reduction and efficiency continued. We expect that as the company's high-cost inventory is gradually digested, the purchase price of superimposed raw materials remains low, and at the same time, the speed of product iteration accelerates and measures to reduce costs and increase efficiency are gradually improved, the company's gross margin level is expected to be maintained in the future.

Continued efforts are being made to expand offline channels, and we are optimistic about an increase in long-term net interest rates under the advantages of scale. The company attaches great importance to the all-round channel layout integrating “third-party e-commerce platforms, independent brand websites, and offline retail”.

2023Q1-Q3's offline channel revenue increased to 28%, with revenue of 443 million yuan. At present, the company has entered more than 8000 world-famous retail stores and more than 4,000 stores in the top ten famous retail stores in the US. It is expected that the number of stores entering the world will exceed 10,000 this year. As the speed of entering offline stores accelerates, the formation of a scale advantage will facilitate the long-term improvement of the company's net interest rate level.

The North American household storage market has achieved a new breakthrough, and the European market is expected to return to normal levels in 24 years. By market, 1) North America: The “Geneverse Electric Treasurer” was officially released in North America in September. Currently, 10+ installers have been contracted. It is expected that the number of installers will exceed 30 this year, with installers having an annual installation capacity of 150,000 to 20,000 units; at the same time, second-generation new products will be launched in 2024. 2) Europe: As European inventories are gradually cleared, we expect the European market to return to normal levels in 2024; this year, the company has successively launched new products in the medium to large range and higher power Plus series, and is simultaneously expanding into the DIY home photovoltaic energy storage market. Compared with rooftop photovoltaic energy storage products with an average price of 3-4 million US dollars, the company's home balcony photovoltaic energy storage products only cost 0.5-10,000 US dollars, which can cover more household needs. Currently, products in segmented scenarios such as balcony photovoltaic energy storage are expected to explode 。

Profit forecast: Due to increased competition in the portable energy storage industry, we adjusted the company to achieve net profit of -0.54/1.66/323 million yuan in 2023-2025, an increase of -118.9%/406.4%/93.9%, respectively, year-on-year increase of -118.9%/406.4%/93.9%, corresponding to 2024-2025 PE of 46.9/24.2 times. Maintain the “Overweight” rating.

Risk warning: industry competition intensifies; downstream demand falls short of expectations; new product development falls short of expectations, etc.