Brief performance review

On the evening of March 29, the company disclosed its annual report for the year 23, and achieved revenue of 2.99 billion yuan in 2023, +3.5% year-on-year. Net profit to mother was $310 million in 2023, or -43.9% YoY. The decline in profits was mainly due to a drag on the biomass power generation business.

Management analysis

Business losses and depreciation are dragging down performance, and the company plans to gradually withdraw from the biomass power generation business.

In 2023, the company's comprehensive resource utilization business achieved revenue of 390 million yuan (-39.6% year over year); gross margin fell to -19.4%, mainly due to the discontinuation of production and maintenance of Q4 biomass generators, inadequate subsidies, and continued high fuel prices. At the same time, bad debt preparations for renewable energy subsidies were taken into account, which seriously hampered the company's performance. According to the company's statement on the investor interactive platform, it is planning a strategic exit from biomass power generation projects. Currently, early due diligence work on projects such as audits and evaluations has basically been completed.

The amount of distributed photovoltaics in industry and commerce has increased rapidly, and the average electricity price in the photovoltaic business has risen. The company added a total of 51.7 GW of new PV installations in 2023. Among them, industrial and commercial distribution added 50.6 GW of installed capacity, +37.2% compared to the same period in operation. The pace of installation accelerated compared to 22 years, and the business achieved +20.7% year-on-year revenue. Operating gross margin was +0.6pct year over year, rising to 65.1%. In an objective environment where industrial and commercial users implement timeshare electricity prices and midday electricity prices are unfavorable, a steady increase in gross margin has been achieved, or the main reasons: (1) the reduction in photovoltaic module costs contributed strongly to revenue; (2) the company's preferred projects and strict yield control, and the ability to contract fixed electricity prices/fixed discounted electricity prices with customers to lock in the risk of price fluctuations is strong. Along with the decline in the share of “full Internet access” agricultural and solar complementary projects, the share of distributed industrial and commercial projects with higher electricity prices for “spontaneous use” increased, and the average electricity price for the company's photovoltaic business rose to 0.76 yuan/kilowatt-hour, +0.05 yuan over the same period last year.

Profit Forecasts, Valuations, and Ratings

Taking into account the growth of the photovoltaic business and the drag of biomass projects, we expect the company to achieve net profit of 6.1/8.1 billion yuan and EPS of 0.16/0.21/0.26 yuan respectively from 2024 to 2026, corresponding to PE of 31 times, 24 times, and 19 times, respectively, maintaining a “buy” rating.

Risk warning

Risks that new distributed photovoltaic installations fall short of expectations; risk that biomass fuel cost fluctuations and subsidy arrears will continue to drag down performance; risk of declining demand for urban energy-saving businesses, etc.