Event: On October 26, 2023, Star Shuai released the 2023 three-quarter report. In the first three quarters of 2023, the company achieved operating income of 2,285 billion yuan, up 82.67% year on year; net profit of the mother was 182 million yuan, up 67.99% year on year. Among them, in the third quarter of 2023, the company achieved operating income of 730 million yuan, an increase of 29.58% over the previous year, and realized net profit of 66 million yuan, an increase of 109.91% over the previous year.

Investment highlights:

The PV module business accelerated, and the third quarter results reached the upper limit of the performance forecast. (1) In terms of operating income, the company's operating income continued to maintain a high growth rate in the first three quarters of 2023, mainly due to the increase in the contribution of its subsidiary Fuller New Energy's photovoltaic module business. The share of the company's H1 photovoltaic module business revenue in 2023 has increased to 71%, becoming the company's main revenue component; (2) In terms of gross margin, in the first three quarters of 2023, the company's comprehensive gross margin was 17.01%, up 0.33pct from the previous year. On a quarterly basis, the 23Q3 consolidated gross margin was 20.15%, up 8.20pct year on year and 5.08pct over year.

There was a marked increase in gross margin in the third quarter, which is expected to be mainly affected by the sharp decline in raw material prices for photovoltaic modules. Since May 2023, the main materials for photovoltaic modules have shown a sharp downward trend, driving profit to shift downward.

Cash flow from operating activities has improved. In the first three quarters of 2023, the net cash flow from the company's operating activities was 100 million yuan, of which 112 million yuan was in Q3 of 2023, a significant improvement over the same period last year. At the same time, the company received capital raised by issuing convertible bonds this year, and monetary capital increased by 76.93% over the end of the previous year. As of the end of the third quarter of 2023, the company's monetary capital was 9.1 billion yuan, an increase of 520 million yuan over the same period last year.

Annual module shipments will reach 1.5-1.7 GW, and 2 GW photovoltaic production capacity is expected to be put into production by the end of the year. The company continues to explore the new energy market. Domestic and foreign business development momentum is good, and orders are sufficient. At present, the company has achieved an annual output of 1.5 GW of photovoltaic modules, with a daily output of about 6800 pieces. Shipments in the first half of the year reached 0.8 GW, and the annual shipment volume is expected to reach 1.5-1.7 GW. As the price of module materials falls and continues to fluctuate at a low level, the company's photovoltaic module business is expected to continue to maintain a high level of profitability in the fourth quarter. Furthermore, the company is rapidly advancing the “Annual Output 2 GW High-efficiency Solar Photovoltaic Module Project”. Currently, the main plant has been completed, and the project is expected to be completed and put into operation by the end of the year. At that time, the company's annual production of photovoltaic modules will increase to 3.5 GW, laying the foundation for the subsequent development of the photovoltaic module business.

The steady development of the home appliance parts business will provide stable support for the company's performance. The company continues to consolidate its leading position in the home appliance parts business around an integrated two-wing strategy. In the first half of 2023, the company's compressor and motor business revenue was 346 million yuan and 76 million yuan respectively, with year-on-year changes of -1.10% and +3.38%, respectively, and the business development momentum was steady. As the pace of macroeconomic recovery accelerates, demand for the home appliance parts business is gradually picking up. At the same time, the company is actively developing the new energy market and rapidly developing new energy vehicle motor projects. The company's home appliance parts and motor business is expected to maintain steady growth in the fourth quarter.

Profit forecast and investment advice: In the first three quarters of 2023, the company's photovoltaic module business continued to expand, compounded by falling prices of tourist raw materials, and the company's performance increased beyond expectations. In the fourth quarter, the company's main business is expected to maintain steady growth and maintain a high level of profit. We have raised the company's profit forecast. The company's revenue from 2023 to 2025 is estimated to be 31.95/60.06/7.292 billion yuan (original profit forecast results were 32.45/47.08/6.350 billion yuan), net profit of 2.26/30/3.8 billion yuan (original profit forecast results were 1.79/2.06/270 million yuan), corresponding to PE (as of November 1) of 17.6X, 13.2X, and 10.5X, respectively, maintaining the “buy” rating.

Risk factors: PV module prices fall beyond expectations, new energy customer expansion falls short of expectations, construction of new production capacity falls short of expectations, large fluctuations in raw material prices, etc.