Core views

The company released its three-quarter report for 2023. Revenue and performance achieved a significant year-on-year increase, but there was a month-on-month decline, which is expected to be due to the pace of receipt of integrated projects. Judging from gross margin, both year-on-year and month-on-month increases, proving that the quality of the company's operations has improved. The month-on-month decline in performance was mainly due to the increase in various expenses, and was also related to the exchange earnings in Q2. Looking ahead to Q4, the company's photovoltaic and energy storage businesses are expected to continue to expand, and maintain or increase gross margin levels through R&D cost reduction and overseas market expansion.

occurrences

The company released its three-quarter report for 2023, achieving revenue of 1,134 billion yuan, a year-on-year increase of 75.9%, a year-on-year decrease of 27.2%; realized net profit of 73 million yuan, a year-on-year increase of 226.6%, a year-on-year decrease of 25.7%; and realized a net profit of 70 million yuan, a year-on-year increase of 295.9%, a year-on-year decrease of 28.2%. In the 1-3 quarter, we achieved total revenue of 3,311 billion yuan, an increase of 210.6% year on year; realized net profit of 209 million yuan, an increase of 359% over the previous year; and realized net profit after deduction of 199 million yuan, an increase of 449% over the previous year.

Brief review

Domestic photovoltaic demand is strong. According to the company's interim report, the company's photovoltaic inverter revenue in the first half of the year was 1,303 billion yuan, an increase of 276% over the previous year, a significant increase of 276%. The gross profit margin was 19.85%, with a year-on-year ratio of -0.97pct, which is relatively stable. According to data from the National Energy Administration, the country added 128.94 GW of grid-connected photovoltaic capacity from January to September 2023, an increase of 145.1% over the previous year. Domestic PV demand is strong. According to the interim report, the company is currently in the top three in the bidding for centralized ground power plants. It is expected that the company's photovoltaic inverter revenue will continue to increase month-on-month, while profitability is expected to remain stable. The company also pays attention to overseas market development. In 2022, the number of inverters connected to the grid in the Indian market ranked second, accounting for about 23.39%. At present, orders for ground power plants and distributed photovoltaic inverters have been obtained in Europe, and exports have been achieved.

Energy storage revenue is expected to decline month-on-month. PCS gross margin is expected to remain stable due to lack of integrated revenue recognition

The company's Q3 revenue decline month-on-month is expected to be due to the lack of integrated energy storage revenue recognition. Q2 confirmed the 400MWh energy storage integration project, with revenue of about 600 million dollars. Meanwhile, PCS revenue for energy storage is expected to continue to rise. Since PCS gross profit margin (25%) is significantly higher than integration (below 10%), Q3 gross margin increased significantly, up nearly 7 pct from 16.65% in Q2. According to data from the Zhongguancun Energy Storage Association (CNESA), the domestic energy storage capacity was added in July-September by 3.8 GW/7.6 GWh, which continues to maintain a high level.

Gross margin has increased significantly, and inverters and PCS have significant cost reduction effects

Due to the lack of integrated revenue in Q3, there was a significant increase in gross profit compared to Q2. However, compared to Q1 (also no integrated revenue), gross profit also increased significantly, proving that the gross margin of the company's device products (photovoltaic inverters, energy storage PCS) increased markedly. The company's photovoltaic inverters are being developed on a large scale. String inverters can provide 8 to 350 kW full power range products, centralized inverters can provide 2,500 to 6900 kW power range products, and distributed inverters have a stand-alone power range of 1000 to 3150 kW. In terms of energy storage, the company can currently provide AC energy storage converters, DC energy storage converters, and integrated energy storage systems. Among them, the power range of AC energy storage converters has covered 140 to 3,450 kW. Larger PCS will help dilute the cost per W and increase gross profit margin.

Cost increases affect net interest rates

The Q3 company incurred sales expenses of 86 million yuan and R&D expenses of 69 million, an increase of 15 million over Q2; it incurred financial expenses of 17 million, an increase of 39 million over Q2 (Q2 had exchange earnings, financial expenses of -22.5 million), so the comprehensive cost ratio increased significantly compared to Q2, which had a certain impact on the company's net interest rate.

Investment recommendations and performance forecasts

The company is a leader in centralized photovoltaic inverters and energy storage PCS in China, and is optimistic that its performance will continue to grow in the context of domestic photovoltaics and energy storage volumes. The company's net profit for 2023 and 2024 is estimated to be 358 million and 575 million yuan respectively.

Risk analysis

1) On the demand side: Changes in national infrastructure policies have caused the scale of power investment to fall short of expectations; the decline in the installed growth rate of new energy has led to a decline in demand for flexible power sources; the growth rate of installed energy storage has fallen short of expectations; the growth rate of electricity consumption of the whole society has declined, etc.

2) On the supply side: Prices of commodities such as lithium resources, copper resources, and steel have risen; supply of power electronic devices such as IGBTs is tight, and localization progress has fallen short of expectations, etc.

3) Policy aspects: Energy storage-related support policies fell short of expectations; capacity electricity price compensation standards fell short of expectations; electricity spot market progress fell short of expectations; electricity peak and valley price differences fell short of expectations, etc.

4) In terms of the international situation: the energy crisis is easing relatively quickly, energy prices are falling rapidly; international trade barriers are deepening, etc.

5) Market side: Increased competition has caused the gross profit margins and profitability of energy storage batteries, integrators, and PCS manufacturers to fall short of expectations; transportation and other expenses have risen.

6) Technical aspects: The cost reduction progress of technologies such as electrochemical energy storage, compressed air energy storage, and liquid flow battery energy storage is lower than expected; the reliability of energy storage technology is difficult to further improve; circulation efficiency is stagnant, etc.

7) On the institutional side: The progress of the electricity market mechanism fell short of expectations; the spot market's supporting auxiliary services, capacity compensation, peak and valley price differences, etc. fell short of expectations; emerging market mechanisms such as virtual power plants and demand-side management fell short of expectations, etc.

Analysis of the sensitivity of the company's performance: Assuming that the company's domestic energy storage converter shipments in 2024 are 5GW, 7 GW, and 9 GW, respectively, then the corresponding company's gross performance in 2024 is 6.13, 6.47, and 680 million, respectively.