2023 results fall short of our expectations
The company announced its 2023&1Q24 results. In 2023, the company achieved revenue of 2,762 billion yuan, +37% year on year, and net profit of 151 million yuan, +51% year over year. The performance was lower than our expectations, mainly due to downstream component-side cost pressure and rising raw copper prices. 1Q24 achieved revenue of 700 million yuan, +26% year over month, -2% month on month, and net profit of 35 million yuan to mother, -4% year on year and +3% month on month. In 2023, the gross margin of the company's welding belt business increased by 0.01ppt to 11.2% year on year, with the gross margin of interconnected welding belts increasing by 0.3ppt to 10.07% year over year, which we believe was mainly due to the increase in the share of SMBB products with high processing costs; the cost side control for the period was -0.14ppt to 4.49% year over year; net operating cash flow was -202 million yuan, an improvement over the year, mainly due to the improvement in the repayment quality of the company's accounts receivable.
Development trends
Shipments have been growing steadily, and the share of SMBB shipments has further increased under the iteration of battery technology. In 2023, the company shipped 33,000 tons, an increase of 47.8% over the previous year. We estimate that the company shipped nearly 9,000 tons in 1Q24, which is basically flat from month to month. Benefiting from the continuous release of TopCon battery modules, the company expects SMBB to account for 60% or more in 24.
Looking ahead to the later stages, we believe that the company is expected to increase its market share with technology+financial strength+high-quality customer resources. At the same time, the introduction of 0BB welding belts is expected to increase processing costs. Specifically, volume: technology+capital+customer advantage will drive up market share. 1) Technology: In the context of diversified development of battery technology, more product requirements have been put forward for the welding belt process. The company adheres to a product-driven strategy, emphasizes R&D investment, and product layout; 2) Funding: due to the long repayment cycle of major downstream component manufacturers, the company itself is large, has a high credit limit from banks, low interest rates, and sufficient available capital; 3) Customers: Welding tape has a large impact on component yield. The downstream customer verification cycle is long (about 6 months). The company is now widely recognized by downstream customers. The top ten global component manufacturers (excluding cadmium telluride components) (SOLAR) are all company customers.
Advantage: Focus on the profit recovery brought about by the introduction of 0BB welding belts. Currently, the mainstream wire diameter of SMBB welding tape is 0.26mm. We believe it is expected to develop to 0.24mm in the future, and the processing difficulty corresponding to finer welding belts will further increase. At the same time, 0BB is one of the new battery cost reduction technology routes. We think it can be used in HJT with higher cost reduction requirements. If 0BB technology matures, it is expected to be further applied to TopCon. 0BB technology requires the joint promotion of battery module manufacturers, string welding manufacturers, and other auxiliary material manufacturers. The company cooperates closely with downstream customers and other auxiliary material manufacturers to take the lead in promoting mass production of 0BB welding belts.
Profit forecasting and valuation
Due to a fall in industrial chain prices that exceeded expectations and copper prices rose, we lowered our 2024 net profit by 13% to 230 million yuan and introduced a net profit of 300 million yuan in 2025. The current stock price corresponds to 17/13 times the price-earnings ratio in 2024/2025. In the future, we recommend focusing on the profit increase brought about by the introduction of 0BB welding belts and maintaining the industry rating. Considering the downward trend in the industry center, the target price should be lowered by 22% to 51 yuan, corresponding to the 23/18 times price-earnings ratio in 2024/2025, with 33% upside compared to the current stock price.
risks
PV installations fell short of expectations, industry competition intensified, and customer concentration was at risk.