The 2023 results were slightly lower than our expectations, and the 1Q24 results were in line with expectations

The company announced FY23 and 1Q24 results: in 2023, the company's revenue was $57.251 billion, +24.53% year over year, net profit after deducting the impact of central control was 3.8 billion yuan, -4.5% year over year, slightly lower than our expectations (4 billion yuan deducted). Among them, Aneng's performance met our expectations, low voltage appliances fell short of our expectations, or was relatively high on the 4Q cost side.

1Q24's revenue was 15.9 billion yuan, +1.1% year on year. Net profit returned to mother after deducting the impact of central control was 1,072 billion yuan, -5.76% year over year, in line with our expectations. The year-on-year decline was mainly affected by the pace of household sales.

By sector: Low-voltage electrical appliances had revenue of 20.04 billion yuan in 2023, +7.84% year-on-year, gross profit margin of 28.04%, year-on-year +1.85ppt; PV sector's revenue in 2023 was 36.6 billion yuan, up +38.11% year-on-year, with a comprehensive gross profit margin of 18.43%, year-on-year. PV business split: 1) Inverter and energy storage revenue of 1.25 billion yuan, +37% year on year, gross profit margin of 35.3% year on year -1.6ppt; 2) household power plant sales revenue of 24.4 billion yuan, +149% year on year, gross profit margin 10.2%, y-4.1ppt; 3) household operating revenue of 4.73 billion yuan, +35% year on year, gross profit margin of 56.46%, year-on-year -3.49ppt.

Development trends

The profit margin of low-voltage appliances has continued to recover since 2023, and prices have increased 3 times in a row or shown good demand.

1Q24's low-pressure gross margin reached 29.2%, an increase of about 2ppt over the previous year. Since 2023, it has been recovering quarterly. The raw materials for low-voltage electrical appliances are mainly commodities such as copper, silver, and steel. We observe that the company's gross margin was not damaged during the 2016-2018 price increase cycle. We believe that the demand side is mainly strong, and product prices can rise smoothly; while copper prices have continued to rise since 2020, due to the epidemic, low voltage surges are difficult to face price wars, and the company's gross margin has been damaged, so we think whether the price can be raised is an important indicator of whether the industry's demand is good. Zhengtai has raised prices 3 times in the past 2 quarters, including October 2023 and 2024 4 The average monthly increase is 3-5% for large-scale products. We think or show that the demand side is better.

Zhengtai Energy's performance is in line with expectations, with a share of nearly 30% for the full year of 2023. In 2023, Zhengtaian achieved net profit of 2.6 billion yuan, +48.6% year-on-year, in line with our expectations. In fiscal year 23, 12.6 GW was newly developed, up more than 60%, and the share was 29%, up 4 percentage points from the first half of the year, and 8.17 GW was sold. 1Q24 added 2.44GW of installed capacity and sold 1.95GW. The company plans to develop more than 15 GW in 2024.

Profit forecasting and valuation

As the low-voltage electrical business is still under pressure, we lowered our 2024 net profit forecast by 8.3% to 4.43 billion yuan, and introduced a 2025 performance forecast of 5.15 billion yuan. Maintaining an outperforming industry rating, due to the recent decline in sector valuation, we lowered our target price by 15.7% to 28 yuan, corresponding to 13.6/11.8 times P/E in 2024/2025. There is 35.6% upside compared to the current stock price. The current stock price corresponds to 10/8.6 times P/E in 2024/2025.

risks

Macroeconomic growth falls short of expectations, household PV demand falls short of expectations, and the risk of worsening competition.