Description of the event

Tianhe Solar released its 2023 three-quarter report. The first three quarters of 2023 achieved revenue of 81,119 billion yuan, an increase of 39% over the previous year; net profit of 5.077 billion yuan, an increase of 111%; of these, 2023Q3 achieved revenue of 31,736 billion yuan, an increase of 41% over the previous year, an increase of 13% over the previous year; and net profit of 1,537 billion yuan, an increase of 36% over the previous year, a decrease of 13% over the previous year.

Incident comments

In the component business, we expect the company's 2023Q3 revenue scale to maintain rapid month-on-month growth. Thanks to the company's production of the first phase of 20GW silicon wafers in Xining, the production capacity of TopCon batteries in Suqian, Xining Phase I, and Huai'an Phase I, and the gradual completion of climbing, the company's self-supply ratio of silicon wafers and the share of N-type shipments increased, compounded by the impact of some high-priced orders in the previous period, and the company's Q3 profit level exceeded expectations.

For other businesses, we expect the company's distributed revenue scale and profit to remain good in 2023Q3. Shipments in the energy storage business have continued to grow. At the same time, thanks to the offline production capacity of our own batteries and the increase in yield, comprehensive costs have continued to decline, and profitability has increased. Businesses such as scaffolding and power plants are also improving.

According to financial data, the company's expenses rate for the 2023Q3 period was 7.98%, an increase of 3 pct over the previous month. The main factor may be the increase in exchange losses, which caused the company's financial expenses in 2023Q2 to change from -3.7 billion to +450 million in 2023Q2. Additionally, the company incurred $940 million in asset impairment losses and $140 million in credit impairment losses. The company's 2023Q3 investment income is around 300 million yuan, mainly from integrated projects.

Looking ahead, the company's new technology production capacity will gradually be implemented according to the original plan, and crystal slicing production capacity will also be deployed in an orderly manner. The increase in TopCon's share and the increase in the proportion of silicon wafers self-supplied will further increase profits. Furthermore, the company's energy storage shipments are expected to double year-on-year growth, and the target for bracket shipments remains unchanged.

The integrated layout of the Middle East highlights the determination to globalize production capacity. The company signed a memorandum of understanding with AD Ports and Jiangsu Haitou at the Beijing Belt and Road Forum. It aims to invest and build a large-scale integrated base project in the Middle East, including 50,000 tons of silicon, 30 GW silicon wafers, and 5GW battery modules, to be built in three phases.

We expect the company's profit in 2023 and 2024 to be 6.7-9 billion yuan, corresponding to PE 10 or 7 times, maintaining the “buy” rating.

Risk warning

1. The competitive pattern deteriorated;

2. PV installation falls short of expectations.