Incident: The company released its 2023 annual report & quarterly report for '24. It achieved revenue of 710 million yuan in the first quarter of '24, +14.7% year-on-year; realized net profit of 51.089 million yuan, or +39.9% year-on-year. For the full year of 2023, we achieved operating income of 4.93 billion yuan, +110.9% year-on-year; realized net profit of 290 million yuan, +250.5% year-on-year.

The annual report results are close to the forecast limit and are in line with market expectations.

PV inverters: In 2023, PV inverters achieved revenue of 2.88 billion yuan, accounting for 58.4% of revenue, an increase of 6pp over 2022. In 2023, the company's PV inverter sales volume was 23.5 GW, +132.6% year-on-year.

The company is one of the few manufacturers in the industry covering various technology routes such as centralized and string systems. The power segment covers 3kw-4.4mw. The company currently ranks among the top three in the country in centralized ground power plant tenders. As the national scenic base project enters a large-scale grid connection cycle, it is expected that the future will fully benefit from the continuous growth in the installed scale of domestic ground power plants. At the same time, the company has now completed the layout of major photovoltaic markets including the United States, Europe, the Middle East, India, and Southeast Asia, and overseas orders are emerging. Furthermore, during the reporting period, the company's distributed products have completed distributed product certification in major European countries, which is expected to open up new growth poles in the future.

Energy storage PCs and system integration: Energy storage PCs and system integration achieved revenue of 1.93 billion yuan in 2023, accounting for 39.1% of revenue, down 4.6pp from 2022. In the past three years, the company ranked first in domestic energy storage third party shipments of more than 215 kW. Relying on domestic development advantages, the company actively explores overseas markets. Currently, high-power energy storage PCS has received orders for many 100 megawatt projects in the North American market. In 2024, the company is expected to stabilize its position in the domestic high-power energy storage PCS market, further increase its domestic market share, accelerate product promotion of household energy storage and industrial and commercial energy storage systems, and actively promote the layout of domestic and overseas markets to achieve full coverage of the energy storage business.

The pre-cost effect was evident, gross margin & net margin increased, and profits were gradually released. The fee rate for the 2023 period was 13.3%, 0.6 pp narrower than in 2022, and has been declining for three consecutive years. Specifically, the sales expense ratio was 4.8%, a slight increase of 0.1 pp over 22, mainly due to an increase in market development expenses; the management expense ratio was 1.8%, down 0.4 pp from '22; the R&D expense ratio was 5.4%, down 0.7 pp from '22; and the financial expense ratio was 1.2%, up 0.4 pp from '22, mainly due to an increase in exchange earnings and interest income. In terms of gross margin & net margin, the company's gross margin in 2023 was 23.3%, up 6.0 pp from 2022, mainly due to an increase in PV and energy storage gross margin. Among them, PV increased from 19.6% in 22 to 20.3% in 23, mainly due to a gradual increase in overseas share, from 12.4% in 22 to 16.2% in 23, mainly due to fewer shipments of low-margin energy storage systems; in terms of net interest rate, the net margin for 23 was 5.8%, up 2.3 pp from '22.

Profit forecasting and investment advice. EPS is expected to be 1.32 yuan, 1.87 yuan, and 2.53 yuan respectively in 2024-2026, corresponding to dynamic PE of 21 times, 15 times, and 11 times, respectively. As a leader in centralized inverters, on the one hand, the company is expected to fully benefit from the continuous increase in the installed scale of domestic ground power plants. On the other hand, the company actively explores emerging overseas markets, has significant marginal improvements, and is optimistic about further flexible release of the company's profit side. It gives a 30-fold valuation in 2024, corresponding to a target price of 39.6 yuan, and maintains a “buy” rating.

Risk warning: Market competition increases risk, and international trade protection and friction increase risk.