Description of the event

Yuneng Technology released its 2023 annual report. In 2023, the company achieved revenue of 1.42 billion yuan, a year-on-year increase of 6.11%; of these, 2023Q4 achieved revenue of 452 million yuan, up 10.01% year-on-year, and 45.48% month-on-month; and net profit to mother of 0.4 billion yuan, down 63.01% year-on-year and 13.73% month-on-month.

Incident comments

The micro-inverse business, with sales volume of 840,000 units in 2023, down 10% year on year, is mainly affected by factors such as European channel inventories, US policy fluctuations, and rising global interest rates. The annual gross margin reached 36.1%, a year-on-year decrease of 2 pcts, and is still at a good level against the backdrop of increased competition in the industry. Structurally, of the company's annual slight negative revenue of 940 million, Europe, North America, and Latin America accounted for 62%, 30%, and 4%, respectively, with year-on-year changes of +15, 1, and -18pct; gross margins were 37%, 33%, and 47%, respectively, and the year-on-year changes were -4, 0, and +5 pcts.

Among other businesses, intelligent control switches sold 1.04 million units in 2023, an increase of 7% over the previous year, and the gross margin reached 38.6%, a significant increase of 11.4 pct over the previous year, or related to the promotion of the company's new products. Energy communicators sold 140,000 units throughout the year, up 21% year on year, achieving steady growth. The Industrial and Commercial Reserve achieved a major breakthrough in Q4, selling 306 units throughout the year, contributing 160 million in revenue, and a gross profit margin of 16%.

According to financial data, based on the principle of prudence, the company accrued a total of 90 million yuan in assets and credit impairment in 2023, of which 70 million was in Q4 (mainly inventory price drop losses and contract performance cost impairment), which dragged down the release of reporting side performance. The company's annual expense ratio was 17.8%, +10pct. The main reason was that the company was considering long-term development, expanding personnel, increasing R&D, and laying out new businesses, etc., which led to a high increase in sales, management, and R&D expenses. Furthermore, the company incurred share payment expenses of $40 million throughout the year, which also led to an increase in management expenses. By the end of Q4, the company's inventory was 1.56 billion, down 7% from the previous month, indicating that inventory was being erased. Additionally, the company's Q4 financial expenses — $0.5 billion, are mainly exchange gains.

Looking ahead to the future, the company's demand is at an inflection point, and industrial and commercial savings are worth looking forward to. The company's slight reverse shipment performance is expected to be stable month-on-month during the Q1 off-season, Q2 shipments are expected to increase month-on-month, inventory removal to a reasonable level at the end of Q2. The upward trend is clear from quarter to quarter throughout the year, and profitability remains stable. At the same time, the company actively lays out the energy storage business. Industrial and commercial storage revenue is expected to more than double in 2024, and household storage is also expected to achieve a breakthrough.

We expect the company to achieve a profit of 370 million in 2024, which is about 20 times PE. Maintain a “buy” rating.