Major asset restructuring, Tongrun Equipment, which entered the optical storage circuit, was established in 2002. Its traditional main business is metal products. After acquiring Zhengtai Power, it entered the new energy sector. Zhengtai Power is a subsidiary of Zhengtai Group. Established in 2009, it specializes in photovoltaic inverters and energy storage products. It has a complete range of products and has established a high brand popularity in the industry. In 2023, Bloomberg inverters ranked first in global financing value and are highly financeable.

Longer than the North American market, and the scale can be expected

In 2015-2022, Zhengtai Power continued to have the highest market share in the field of industrial and commercial photovoltaic inverters in North America. It has established customer relationships with nearly 200 North American PV developers. It has a stable leading position and high brand awareness. The company's performance in the North American market is due to:

1) Entered the North American market earlier, and the first-mover advantage was obvious. Zhengtai Power officially entered the North American market in 2011. The unique product design concept combined with years of after-sales service enhances customer stickiness. 2) Localized management team to shape the image of an American company. The subsidiary CPS is an American localized sales company. Most of the management team comes from US power companies, and the market acceptance is high. 3) Having a production base in Thailand to effectively reduce tax costs. The Thai string inverter factory was put into operation in 2021, which can effectively guarantee stable supply in the US region and drastically reduce tariffs. Looking forward to the future, the company is actively expanding new application scenarios in North America, focusing on community photovoltaics, energy storage, and ground power plant businesses: 1) Take advantage of industrial and commercial product advantages to enter the community photovoltaic field. Community PV in the US is expected to add about 2 GW of installed capacity in 2024, and the cumulative installed capacity is close to 14 GW in 2028. Zhengtai Power's industrial and commercial customers partially overlap with community photovoltaic customers, and can use the product advantages and brand effects accumulated in the industrial and commercial fields to enter the community photovoltaic field without barriers. 2) Seize the transformation opportunities of North American terrestrial power plants and lay out high-power string inverters. There is a clear trend of centralized to high-power string power plants in the US, but there is currently a lack of high-power band serial products, so the market can be expected to grow in the future. Zhengtai Power's 275kW high-power string inverters and system products are designed and developed for the North American power grid environment and power plant, and have now helped connect the 105 MW photovoltaic project in Montana, USA to the grid.

In addition, the company launched a new high-power 320/350KW string inverter this year, further enhancing its competitiveness in the field of high-power string inverters. 3) Major US storage is expected to expand, and energy storage products are being launched one after another. In 2024, the US Big Storage maintained rapid development. Zhengtai Power successfully launched a new generation of energy storage products this year, which is expected to be rapidly promoted in the North American market in the future.

Expand the global market and contribute to profit growth

In addition to the North American market, the company will also further expand the global optical storage market and achieve scale expansion. Specifically: 1) The Chinese market has cooperated deeply with Zhengtai Eneng (household power plant developer) to maintain the position of Zhengtai Eneng's largest inverter supplier, and the household photovoltaic business is steady, moderate and improving; using the brand advantages of the Zhengtai Group, it has established long-term and stable cooperative relationships with central enterprises that are deeply involved in the medium and large terrestrial power plant business. 2) In the European market, Zhengtai Power has no inventory consumption pressure. Production capacity and delivery can be adjusted flexibly. Through a differentiated layout of the Eastern European market, brand awareness is gradually increased, and the European market is gradually developed with the help of Zhengtai New Energy EPC resources. 3) In the Korean market, the company ranked first in the Korean photovoltaic inverter market in 2020-2022. In 2023, it signed a strategic cooperation framework agreement with Hyundai Energy. With Hyundai Group's influence in Korea, the company will further increase its market share and strengthen its leading position. 4) In other markets, the company actively explores emerging markets such as Japan and Latin America to further strengthen its global business layout. Among them, Zhengtai Power Brazil was established in November 2022. It mainly deals in sales and after-sales service of photovoltaic inverters in Brazil and other overseas regions.

We expect Tongrun Equipment to achieve net profit of 300 million yuan and 500 million yuan respectively in 2024-2025, corresponding to PE 19 and 12 times.

Covered for the first time, giving a buy rating.

Risk warning

1. The US PV installation falls short of expectations;

2. European market development progress falls short of expectations;

3. Risk that profit forecasting assumptions are untrue or fall short of expectations.