FY23's performance fell short of our expectations. The 1Q24 results were in line with our expectations. The company announced FY23 results: revenue of 139.1 billion yuan, -2.3% year over year; net profit to mother of 13.57 billion yuan, or -47.2% year on year. Among them, the company achieved sales of 387,200 tons of silicon materials, +50.8% year over year, with a gross profit margin of 53.26% in the polysilicon and chemical business segment, up to -21.87ppt; the company achieved cell sales of 80.66 GW (including personal use), +68.1% year on year, and the battery module business segment gross margin of 12.77%, +2.58ppt year on year. FY23's performance fell short of our expectations and was mainly affected by the accrual of $4.923 billion in asset impairment losses. In addition, the company plans to distribute a cash dividend of 4,074 billion yuan, a dividend rate of about 30%, and plans to repurchase a total capital of 2-4 billion yuan (inclusive) to fully optimize shareholders' returns and demonstrate confidence in future development.
The company announced 1Q24 results: revenue of 19.57 billion yuan, -41.1% year-on-year; net profit to mother - 790 million yuan, narrowing month-on-month losses. The cost rate for the period was +1.8ppt to 11.23% month-on-month, of which the R&D cost ratio was +0.85ppt to 1.35% month-on-month, mainly due to increased investment in research and development of new battery technology. By business: We estimate that silicon equity shipments are about 75,000 tons, with a unit profit of about 85,000 yuan/ton; PERC battery shipments are about 16 GW, TopCon battery shipments are about 8 GW, and the battery business has an average unit loss of about 2 cents/W.
Development trends
The traditional silicon business maintains industry leadership, and expands production to consolidate its leading position. The average production cost of FY23 silicon is about 42,000 yuan/ton, and the full cost is about 45,000 yuan/ton. Currently, N-type materials account for more than 90% of the monthly output, maintaining industry leadership. The company expects the Yunnan base to be put into operation with a production capacity of 200,000 tons in 2Q24 and Inner Mongolia with a production capacity of 200,000 tons to be put into operation in 3Q24, driving the nominal production capacity to reach 850,000 tons by the end of 24. We believe that the contribution of the new production capacity will help consolidate the market share advantage of the company's main business, and is also expected to ease the upward pressure on electricity prices at the Sichuan base.
Positive progress has been made in multi-technology route battery research and development and production capacity layout. 1) TopCon technology: In terms of products, the company announced that the latest mass production average conversion efficiency reached 26.26%, and the non-silicon cost was reduced to about 0.16 yuan/W.
In terms of production capacity, we are actively promoting the upgrading of existing PERC production capacity and the construction of new TNC production capacity. The company expects to gradually complete about 38 GW PERC technology reform in 24 years, and add TNC battery production capacity at the Meishan base (16 GW) and Shuangliu base (25 GW). It is expected that TNC production capacity will reach 100GW/130-150GW by the end of 24/25. 2) Other battery technology: The company announced that the latest heterojunction module set a new power record, with a maximum output power of 762.79W and a conversion efficiency of 24.56%. The highest batch efficiency of the company's P-TBC and N-TBC pilot lines reached 25.51%/26.66%, respectively, and the efficiency of small-sized perovskite/HJT laminated batteries reached 33.08%.
Breakthrough in component market-side performance and acceleration of industrial chain integration. FY23 achieved 31.11 GW of module sales, +292.08% over the same period, of which overseas sales accounted for about 6%. The company plans to increase its share to 15-20% in 24 years. We believe that overseas market performance is expected to achieve a breakthrough. With the commissioning of the Yancheng/Jintang/Nantong base, the current nominal component production capacity has reached 75GW. We are optimistic that the competitive strength of the company's entire industry chain will be further strengthened.
Profit forecasting and valuation
Considering the accelerated decline in industrial chain prices, we lowered the 2024 net profit of 85% to 2.27 billion yuan, introduced a profit forecast of 4.24 billion yuan, and considered the company's main silicon battery industry advantage and new business technology development potential. We maintained a performance rating, adjusted profit forecasts, and lowered the target price by 33% to 30.2 yuan, corresponding 60/32 times P/E in 2024/2025. There is room for 39% increase compared to current stock prices. The current stock price corresponds to 43/23 times P/E in 2024/2025.
risks
Demand for terminals fell short of expectations, and capacity expansion fell short of expectations.