1Q24 results are in line with our expectations
The company announced 1Q24 results: revenue of 159 million yuan, +25.01% year over month, +11.6% month on month; net profit to mother of 31 million yuan, adjusted +3.3% year on year, -9.4% month on month, in line with our expectations.
According to the company's announcement, the increase in 1Q24 revenue was mainly due to the increase in power generation revenue from the company's own power plants, while PV EPC revenue increased sharply year-on-year. However, the net profit of 1Q24 increased slightly compared to the same period of the previous year. The main reason is that the company successfully issued 800 million yuan of convertible corporate bonds to unspecified targets on October 26, 2023. Although the bonds are paid at the coupon interest rate every year (current coupon interest rate is 0.30%), the actual interest rate refers to the average interest rate of non-convertible bonds rated at the same level in the secondary market during the same period. The actual interest rate for 1Q24 financial expenses increased more than the same period last year. 1Q24 financial expenses increased by 0.22 100 million yuan, +26.5% YoY.
1Q24's gross profit margin was 47.3%, year-on-year -5.7ppt, month-on-month -4.3ppt, net profit margin 19.6%, year-on-year -4.0ppt, and -4.5ppt month-on-month, mainly due to the significant increase in revenue from the EPC business with relatively low gross margin. 1Q24 sales/management/R&D/finance expense ratio 0.4%/6.9%/3.8%/13.6%, +0.25/-0.73/-1.08/+0.16ppt, month-on-month -0.02/-1.63ppt.
Development trends
The electricity price level in Zhejiang Province was relatively stable in 1Q24. According to the State Grid Zhejiang, the electricity price of electricity agents purchasing electricity in Zhejiang Province (single system, general industrial and commercial 35 kv and above) was 0.724/0.749/0.739 yuan/kilowatt-hour, respectively, -7.2%/+4.3%/-5.3%, respectively, +0.7%/+3.4%/-1.3% month-on-month, respectively. As the operating rate of enterprises increased in March after the Spring Festival, the spontaneous self-use rate of enterprises rebounded. We estimate that the company's comprehensive electricity price level improved in March compared to February.
The decline in component prices is driving the cost of power plants to continue to decline. The average price of 1Q24 182/210 single-sided PERC modules in the first quarter was 0.88 yuan/watt, compared to -51.2%. As module prices continue to drop, we expect the current overall cost of industrial and commercial power plants may fall below 3 yuan/watt, which is a significant decrease from the cost of 3.5 yuan/watt or more in 2021-2022, boosting the return on investment in newly built power plants.
Profit forecasting and valuation
We maintain our 2024/2025 net profit forecast of 2.41/292 million yuan, maintain an outperforming industry rating, and reduce the target price by 10.4% to 12.1 yuan, corresponding to 2024/2025 25/20.6 times P/E. There is 41% room for increase compared to the current stock price. The current stock price corresponds to 17.8/14.7 times P/E for 2024/2025.
risks
Industrial and commercial electricity prices risk falling short of expectations. Installed capacity falls short of expectations, and new business expansion falls short of expectations.