2023&1Q24 results are in line with our expectations

The company announced 2023&1Q24 results: the company achieved revenue of 1,420 million yuan in 2023, +6% year on year; net profit to mother was 220 million yuan, -39% year over year. Net profit attributable to mother in 2023, after deducting share payment fees of $58 million, was $280 million, -23% year over year. 1Q24 achieved revenue of 428 million yuan, -2% YoY and -5% month-on-month; net profit of 40 million yuan, corresponding to earnings per share of 0.36 yuan, -66% YoY and +0.2% month-on-month. 2023&1Q24 results are in line with our expectations.

Affected by European inventories, there was a slight year-on-year decline in reverse shipments, and the industrial and commercial storage business gradually expanded. In 2023, the company shipped 842,000 units, down 10% year on year, and gross margin -2.2ppt to 36% year on year. Looking at micro reverse sales revenue, Europe accounted for 62%, North America 30%, Latin America 4%, and others 3%. In terms of industrial and commercial storage, the company sold a total of 306 industrial and commercial storage systems in 2023, with a gross margin of 15.87%. The 1Q24 consolidated gross margin was 35.8%, -5.8ppt year over year, and +11ppt month-on-month. The month-on-month increase was mainly due to the relatively large share of the commercial and commercial storage business with low gross margin in 4Q23.

In terms of period expenses, the company's total cost rate for the 2023 period was +9.58ppt to 17.84% year on year, with R&D expenses +90.8% to 105 million yuan, corresponding R&D expenses rate +3.27ppt to 7.37% year on year, and sales expenses +5.3ppt to 11.7% year over year, mainly due to: 1) the company increased investment in R&D and market; 2) the increase in warehousing expenses and after-sales related expenses; 3) The company invested more in the upfront costs. The fee rate for the 1Q24 period was 19.4%, +8.4ppt year over year, and +7.2ppt month-on-month. The month-on-month increase was mainly due to 4Q23 exchange earnings and the concentration of commercial and commercial reserves in closing at the end of the year.

Development trends

Continue to strengthen the optical storage product sequence and enter the power plant operation circuit to expand the company's profit points. The company has now formed the three major optical storage business formats: DIY microoptical storage, household small to medium optical storage, and industrial and large optical storage with micro inverters as the core. In 2023, due to the impact of high inventories in the European market, the company's shipments declined year-on-year. Looking ahead, we believe that micro reverse products will naturally fit into the consumer scenario, and that the European market will gradually come to an end. We are optimistic that the company will increase its share with high-quality products and high cost performance compared to overseas manufacturers. At the same time, it is recommended to focus on increasing the penetration rate of 1 to 8 high-power micro-reverse products in the industrial and commercial scene. In terms of energy storage business, the company is actively promoting certification of domestic and international standards. Currently, it has reserved an industrial and commercial project capacity of more than 500 MWh (10+ 50MWh+ projects). We believe that sufficient project reserves are expected to help the company double its energy storage business this year. At the same time, the company built a new power plant project based on its own optical storage products and entered the power plant operation circuit. We believe it is expected to further drive the shipment of the company's optical storage products and expand the company's profit points.

Profit forecasting and valuation

Considering that industry withdrawal is still ongoing and industry sentiment is declining in stages, we lowered 2024/2025 net profit by 12%/19% to 3.21/409 million yuan, and the current stock price corresponds to 25/19 times P/E in 2024/2025. Maintaining an outperforming industry rating, the target price was lowered by 13% to 100 yuan, corresponding to 35/27 times P/E in 2024/2025, with 43% room for improvement compared to the current stock price.

risks

Overseas PV installation demand falls short of expectations, industry competition intensifies, and trade friction risks.