Matters:

The company released its three-quarter report for 2023. The 2023Q1-3 achieved operating income of 1,408 million yuan, +50.41% year-on-year; net profit of 415 million yuan, +14.73%; net profit after deduction of 381 million yuan, +8.95%; and a comprehensive gross profit margin of 44.32%, -2.58pct year-on-year. 2023Q3 achieved operating income of 343 million yuan, -18.78% year-on-year, -29.21%; net profit of 67 million yuan, -61.11% month-on-month; net profit after deducting non-return net profit of 49 million yuan, -69.06% yoy, -69.49% month-on-month; and a comprehensive gross profit ratio of 49.11%, +1.22pct year-on-month, +10.69pct month-on-month.

Commentary:

Overseas inventories affect slightly inverted shipments, and structural optimization has led to an increase in gross margin. In 2023Q1-3, the company expects micro-reverse shipments of 110-115 million units, of which 22-240,000 units will be shipped in 2023Q3. The company's microinverse shipments declined month-on-month in the third quarter, mainly due to a backlog in microinverted market inventory, which affected microinverse shipments. With the gradual digestion of overseas inventories and the implementation of the policy of increasing the power of German balcony photovoltaics to 800W without approval, micro-reverse shipments are expected to pick up steadily.

The company's gross margin increased month-on-month in the third quarter. We believe it was mainly due to product structure improvements. The share of highly profitable one-last-two and one-last-four products increased. The company continues to increase investment in R&D and continuously launch new products. In the first half of the year, the company launched a new four-2000W three-phase microinverse, which can match 182/210mm high-power modules, and is also suitable for industrial and commercial photovoltaic power plants, etc., expanding the boundaries of microinverse application scenarios.

Enter the energy storage business and create a second growth curve. The company has been laying out energy storage business since 2017, and channels can be reused with microinverters. Related products mainly include energy storage inverters, energy storage systems, etc. At present, the company's energy storage inverter products have successively passed grid-connected certification in important countries such as Germany, Poland, France, the United Kingdom, Australia, Austria, and Pakistan, and the conversion efficiency can reach 97.6%. Relying on the subsidiary Qinghe Xinneng to launch a full industrialization of energy storage, the energy storage integrated system currently has an annual production capacity of 5 GWh and a planned production capacity of 10 GWh in 2024. Future emissions are expected to contribute to increased performance.

The fee rate for the period increased significantly from month to month, and Q4 is expected to improve. The 2023Q3 company's fee rate for the period was 36.08%, +30.03 pct year over year and +30.95 pct month over month. It is mainly affected by factors such as exchange losses, a decrease in unexpired interest income from wealth management products, and continuous investment costs in new businesses. In the future, with the restoration of microinverted shipments and an increase in revenue from the energy storage business, the company's expense ratio is expected to improve markedly during the period.

Investment suggestions: The company's channels are gradually developing to help restore shipments, the energy storage business is developing rapidly, and performance is expected to improve. Considering the impact of overseas inventories on shipping, we adjusted our profit forecast. It is estimated that the company's net profit from 2023-2025 will be 591/10.07/1,455 billion yuan (previous value: 833/13.75/1,996 billion yuan), respectively, and the current market value corresponding to PE is 31/18/13 times, respectively. Referring to comparable company valuations, maintain the target price of 297 yuan, corresponding to 25×PE in 2024, and maintain the “recommended” rating.

Risk warning: terminal demand falls short of expectations, capacity expansion progress falls short of expectations, increased market competition, etc.