Matters:
The company released its 2023 annual report and 2024 quarterly report. In 2023, the company achieved revenue of 129.498 billion yuan, +0.39% year on year; net profit to mother of 10.751 billion yuan, -27.41% year on year; comprehensive gross profit margin of 18.26%, +2.88pct year on year; net profit margin to mother of 8.30%, -3.18 pct year on year. 2024Q1 achieved revenue of 17.674 billion yuan, -37.59% YoY, -50.07%; net profit to mother of 2.350 billion yuan, -164.61% YoY, increase of losses; consolidated gross profit margin of 8.89%, -9.02pct, YoY -5.78pct; net profit margin -13.30%, YoY -26.14pct, YoY -10.64pct.
Commentary:
Shipments are growing rapidly, and production capacity building is steadily being promoted. In 2023, the company achieved 125.42 GW of silicon wafers (including 53.79 GW in foreign sales), with a year-on-year increase of 47.45%, maintaining the number one monocrystalline silicon wafer shipment volume in the world for nine consecutive years; 5.90 GW of batteries; and 67.52 GW of module shipments (of which 66.44 GW in foreign sales), an increase of 44.40% year-on-year. In terms of production capacity, by the end of 2023, the company's silicon wafer/battery/module production capacity reached 170/80/120 GW, respectively. In the next three years, the company's monocrystalline silicon wafer/BC battery/module production capacity is expected to reach 200/100/150 GW, respectively. According to the company's business goals in 2024, the company expects to ship about 135GW of silicon wafers and 90-100GW of batteries and modules.
Impairment accruals affect profit statements, putting pressure on the company's performance. Affected by falling prices in the industrial chain and technological iteration, the company prepared 6.757 billion yuan for price reductions in inventory and fixed assets in 2023, of which 5.171 billion yuan was prepared for inventory price reductions (including about 1.35 billion yuan for additional inventory price reductions due to long-term stagnation of some products due to US policies). In the first quarter of 2024, the company calculated impairment provisions of 2,814 billion yuan, including reserves of 2,649 billion yuan for depreciation of inventories, 126.642 million yuan for impairment of contract assets, and 152 million yuan for asset impairment.
Firmly establish BC's development path and build differentiated competitiveness. In September 2023, the company proposed to fully develop BC technology. The production capacity of Xixian's high-efficiency HPBC batteries with an annual output of 29 GW and Taizhou with an annual output of 4 GW has already been put into operation, and the monthly HPBC shipment scale exceeds 2 GW. The company has successfully developed HPBC second-generation products. It is expected that the module power will be more than 5% higher than that of TopCon modules of the same specification, increasing the power generation capacity of the power plant by 6.5% to 8% throughout the life cycle. The new product is scheduled to be launched in the second half of 2024. Competition in the industry is fierce. The company lays out differentiated competition for BC products, which is expected to help the company get through the cycle.
The green hydrogen layout industry is leading and is expected to usher in rapid development. Longji Hydrogen Energy leads the industry in technical indicators for many products. DC power consumption for hydrogen production has been reduced to 4.0 kWh/Nm3, and the maximum size of a single tank can reach 3000 Nm3/h; it has achieved large-scale application in domestic demonstration projects, and achieved a breakthrough in overseas orders. By the end of 2023, 2.5 GW of alkaline electrolyzer production capacity had been built.
Investment advice: The company is a leader in silicon wafers and components, and lays out BC's differentiated development. Considering the sharp decline in industrial chain prices, we adjusted the profit forecast. The company's net profit for 2024-2026 is estimated to be 40.40/75.23/9.491 billion yuan (the value was 138.2/17.41 billion yuan before 24/25), respectively, and the current market value corresponding to PE is 35/19/15 times, respectively. Referring to comparable company valuations, the 2025 23x PE was given, corresponding to a target price of 22.83 yuan. Considering industry competition, the rating was lowered to “recommended”.
Risk factors: Terminal demand falls short of expectations, capacity expansion progress falls short of expectations, market competition intensifies, etc.