Matters:

Since the second half of 2023, prices in the industrial chain have continued to decline. As of March 28, 2024, the price of TopCon182mm modules was 0.96 yuan/W, and the price of PERC182mm modules was 0.92 yuan/W, down 39%/34% from July 2023, respectively. In terms of silicon prices, the current price of N-type dense materials is 70 yuan/kg, down 41% from July 2023, respectively.

Guoxin Telecom's new opinion:

1) Since the second half of 2023, component production and operating rates have continued to decline. According to Infolink statistics, the operating rate of first-line component manufacturers fell from 82% in July 2023 to about 45% in February 2024; in February 2024, domestic component production was 31 GW, a decrease of 20% over the previous month, and the production rate has decreased by 45% compared to July 2023. Along with the stabilization of industrial chain prices, industrial chain inventories have gradually been digested. Looking forward to the traditional peak season for PV module shipments in the second quarter, overseas and domestic demand is expected to start, and PV module prices are expected to stabilize.

2) We calculated that the gross profit range for a single watt of the 2024Q1 integrated module was -0.05 to -0.01 yuan/W, a decrease of 0.05 to 0.06 yuan/W over the previous month. Considering that the photovoltaic industry is in a period of running out of production capacity and the profitability of integrated modules continues to decline, we lowered the company's profit forecast: we expect net profit of 76.2/36.0/5.06 billion yuan in 2023-2025 (the original forecast was 89.2/111.9/13.85 billion yuan for 2023-2025), with year-on-year growth rates of +37.7%/-52.7%/+40.4%, respectively. PE's valuation is 7.6/16.1/11.5 times, maintaining the “buy” rating.

Commentary:

PV demand growth is slowing down, and competition is intensifying due to overcapacity

According to CPIA data, the world added 390 GW of installed capacity in 2023, an increase of 70% over the previous year. Based on the boom in domestic and foreign PV demand, the world is expected to add 480 GW of installed capacity in 2024, +23% over the same period, and the growth rate is slowing down. In recent years, the market pattern has deteriorated, with industry production capacity CR5 falling from 58% in 2021 to 40% in 2023; industry output CR5 falling from 57% in 2021 to 47% in 2023. Relative overcapacity will cause competition in the industry to intensify. The profitability of integrated enterprises may decline significantly year on year in 2024. Backward production capacity is expected to be cleared at an accelerated pace, and market share may be concentrated steadily towards leading companies. We expect CR5 of the industry's production capacity/output to reach 48%/50% respectively by 2024, with a year-on-year increase of 8 pct/3.2 pct, respectively.

Since the second half of 2023, component production and operating rates have shown a downward trend. According to Infolink statistics, the operating rate of first-line component manufacturers fell from 82% in July 2023 to about 45% in February 2024; in February 2024, domestic component production was 31 GW, down 20% from the previous month, and 45% lower than in July 2023.

Since the second half of 2023, prices in the industrial chain have continued to decline. As of March 28, 2024, the price of TopCon182mm modules was 0.96 yuan/W, and the price of PERC182mm modules was 0.92 yuan/W, down 39%/34% from July 2023, respectively. In terms of silicon prices, the current price of N-type dense materials is 70 yuan/kg, down 41% from July 2023, respectively.

Entering 2024, the profitability of integrated modules declined significantly. According to estimates, the gross profit range for single watt of integrated modules in 2024Q1 was -0.05 to -0.01 yuan/W, down 0.05 to 0.06 yuan/W from month to month: Among them, the gross profit margin of Topcon 182 mm modules fell from profit 0.05 yuan/W to loss 0.01 yuan/W, down about 0.06 yuan/W from month to month; the gross profit loss per watt of PERC182mm modules continued to expand, falling from gross profit balance to loss 0.05 yuan/W, about 0.05 yuan/W from month to month 0.05 yuan/W

Looking ahead to 2024Q2, along with the stabilization of industrial chain prices, industrial chain inventories are gradually being digested. The traditional peak season for PV module shipments is approaching, overseas and domestic demand is expected to start, and PV module prices are expected to stabilize.

Competition in the photovoltaic industry intensified in 2024, and the company's profit or short-term pressure. In recent years, the company's photovoltaic module business achieved rapid growth. In the first three quarters of 2023, the company achieved revenue of 59.981 billion yuan, an increase of 21.61% over the previous year, and achieved net profit of 6.765 billion yuan, an increase of 105.62% over the previous year.

In terms of profitability, the company's gross margin/net margin level has continued to rise in recent years. Mainly in 2021-2023, demand in the photovoltaic industry continued to rise, the company's capacity utilization rate continued to be high, and profitability increased steadily. 2023Q1-Q3's gross margin/net margin was 19.9%/11.6%, respectively. In terms of solvency, the company's overall balance ratio is relatively stable. As of 2023Q3, the company's balance ratio was 63%.

Based on prudential principles, we assume that the average sales price of the company's components in 2023-2026 will be 1.33/0.95 yuan/0.91/0.91/W (the original assumption is 1.65/1.53/1.45/1.42 yuan/W in 2023-2026), and the unit gross profit is 0.26/0.14/0.13/0.13 yuan/W (the original assumption is 0.26/0.25/0.26/0.25 yuan/W in 2023-2026).

Considering the impact of the sharp drop in component prices on performance, the gross profit of the company's component business in 2023-2025 is 143.8/108.2/13.40/ billion yuan, a decrease of 19.1/80.1/10.15/ billion yuan from the original assumption; in 2023-2025, the company's net profit to mother is 76.2/36.0/5.06 billion yuan, a decrease of 13.7/77.4/8.94 billion yuan from the original assumption.

Based on the main business revenue and gross profit forecast described above, we forecast the company's expenses, tax rate, dividend distribution ratio, etc. as follows. Rates will rise slightly over the next few years, mainly due to a sharp drop in component prices, a marked slowdown in the company's revenue growth rate, and the company's shipping scale is still growing rapidly, and various expenses may remain at a high level.

In summary, we expect the company to achieve operating income of 772.3/789.7/94.37 billion yuan in 2023-2025, +5.8%/+2.3%/+19.5% year-on-year; achieve net profit of 78.0/42.3/5.49 billion yuan, +40.9%/-45.7%/+29.7% year-on-year. The PE corresponding to the current stock price is 7/14/11 times, respectively.

Investment advice: Due to the significant decline in module prices and unit profit, we lowered the company's profit forecast and maintained the “purchase” rating. Considering that the photovoltaic industry is in the process of running out of production capacity and the profitability of integrated modules continues to decline, we lowered the company's profit forecast: we expect net profit to be 76.2/36.0/5.06 billion yuan in 2023-2025 (the original forecast was 89.2/111.9/13.85 billion yuan for 2023-2025). The year-on-year growth rate was +37.7%/-52.7%/+40.4%, respectively. The PE valuation was 7.4/16.1/11.5 times, maintaining the “buy” rating.

Risk warning

The risk of price fluctuations of new energy raw materials, the risk of increased competition in the new energy industry, and the risk of changes in global “double carbon” policies.