Matters:

The company publishes its 2023 annual report and 2024 quarterly report. In 2023, the company achieved operating income of 1,609 billion yuan, a year-on-year increase of 21.49%; net profit to mother of 461 million yuan, an increase of 12.16% over the previous year; net profit after deduction of 431 million yuan, an increase of 10.25% over the previous year; and EPS of 1.69 yuan. In the first quarter of 2024, the company achieved operating income of 450 million yuan, an increase of 29.60% year on year; net profit of 135 million yuan, up 44.48% year on year; net profit after deduction of 127 million yuan, an increase of 40.86% year on year. The company's 2023 profit distribution plan: It is proposed to distribute a cash dividend of RMB 3.5 (tax included) for every 10 shares to all shareholders.

Ping An's point of view:

The revenue structure and cost control continued to be optimized, and the company's performance remained high. Since 2023, the share of N-type battery laser equipment such as XBC laser microetching, TopCon SE, and LIF in the company's revenue structure is expected to increase. As high-value equipment is successively tested and revenue confirmed, the company's revenue and profit growth rate has increased rapidly. In 2023, the company's revenue increased 21.49% year on year, up 16.12 percentage points from the previous year. Among them, Q4 revenue growth rate was as high as 68.36%, and 2024Q1 revenue growth rate reached 29.60%. As the revenue structure and cost control continue to be optimized, the company's net profit to mother increased by 12.16% year on year in 2023, up 4.24 percentage points from the previous year. Among them, the Q4 growth rate was as high as 62.66%, and the 2024Q1 profit growth rate remained high at 44.48%. In terms of profit margin, the company achieved a gross sales margin of 48.38% in 2023, an increase of 1.29 percentage points over 2022, and 2024Q1 slightly increased to 48.65%, maintaining a high level. Due to the rapid increase in sales, management, and R&D expenses, the company's net sales interest rate in 2023 fell 2.39 percentage points from 2022 to 28.66%. The cost ratio declined slightly during the 2024Q1 period, and the net interest rate increased to 29.98%. The company's profit level is expected to continue to improve as the share of new technology products such as XBC battery laser microetching, TopCon laser SE and LIF, and component laser equipment increases further in revenue.

XBC has the leading market share in laser microetching, and new laser technologies such as TopCon+, HJT, and perovskite are expected to continue to expand. The company is technologically advanced in laser micro-etching equipment used in BC batteries, and continues to obtain mass production orders from leading companies. Currently, Longji Xixian 29GW and Taizhou's 4GW HPBC production capacity (first-generation product) have all been put into operation. On May 7, Longji released the new component product Hi-Mo 9 based on high-efficiency HPBC 2.0 battery technology. In the next three years, Longji plans to increase BC battery production capacity to 100GW, and expand production capacity mainly for HPBC II; according to Aixu Co., Ltd., as of the 2023 annual report disclosure date, the average conversion efficiency of Aixu ABC battery mass production reached 27%, and the mass production and delivery efficiency of ABC modules reached 24.2%. In December 2023, the company launched a high double-sided ratio ABC module suitable for centralized scenarios. The double-sided ratio can reach 70%, and BC's enhanced double-sided power generation advantage is expected to further expand centralized application scenarios. In addition, many leading photovoltaic companies have layouts and reserves of BC technology, and the company is expected to continue to benefit from the expansion of BC technology production. Since 2023, TopCon production expansion has shown an explosive growth trend. The company rapidly expanded mass production orders for laser doping (TCSE) and laser-induced sintering (LIF) equipment used in TopCon, while actively promoting R&D and verification of new technologies such as selective laser doping for frontal light junction, selective laser thinning on the back, and double-sided poly laser processes. Furthermore, in the HJT battery process, the company's LIA laser repair technology received orders from European customers. In terms of components, the company is actively developing a new laser welding process. This component line equipment can simplify the production process, improve welding quality, and improve component efficiency. It is more suitable for the application of 0BB components. Currently, mass-produced prototypes have been delivered to customers on the BC route, and can also be used in TopCon, HJT and other routes in the future. As the company's new signatures and ongoing orders continue to expand, the company's contract liabilities and inventory size have grown rapidly. As customer advance payments increased, the company's contract debt at the end of 2023 was 1,960 billion yuan, an increase of about 170.32% over the end of 2022, reaching 1,971 billion yuan at the end of 2024Q1. With the increase in products and products issued, the company's inventory at the end of 2023 was 1,918 billion yuan, an increase of about 123.48% over the end of 2022, and reached 2,014 billion yuan at the end of 2024Q1.

Continue to increase investment in R&D and actively promote the layout of pan-semiconductor fields such as new displays, integrated circuits, and consumer electronics. The company attaches great importance to independent research and development. In 2023, the company's R&D expenses were 255 million yuan, an increase of 91.65% over the previous year. The R&D cost rate was 15.58%, and 2024Q1 remained at 15.53%. As of the end of 2023, the company and its subsidiaries held a total of 262 domestic and foreign patents. The company not only has new laser technology coverage and order fulfillment in various battery and component processes such as TopCon, IBC, HJT, and perovskite, but is also actively developing laser processing equipment in the fields of high-end consumer electronics, new displays, and integrated circuits. The company is focusing on promoting the development and verification of TGV laser microporous equipment. Through precision control systems and laser modification technology, the company can perform microhole and microslot processing on glass substrates of different materials, which can be used in semiconductor chip packaging, display chip packaging, etc., and has already achieved small-batch orders. At the same time, the company plans to make a huge transfer this year. Prototypes such as laser repair, laser annealing, and wafer cutting will be delivered to clients for testing.

Investment advice. Taking into account the progress of production expansion of various N-type batteries, the company's order scale and revenue confirmation pace, etc., we expect the company's net profit to be 6.26, 7.72, and 920 million yuan in 2024-2026 (the original forecast values for 2024-2025 were 8.26 billion yuan and 1,044 million yuan), EPS was 2.29, 2.83, and 3.37 yuan, respectively, and dynamic PE was 20.3, 16.4, and 13.8 times. The company continues to promote the development and verification of new technology products, continues to expand orders for new battery laser equipment, and actively develops into the pan-semiconductor field, maintaining the company's “recommended” rating.

Risk warning. (1) Due to downstream consumption and trade policies, etc., downstream installed demand falls short of expectations; (2) if N-type battery cost reduction and efficiency progress slows down, or terminal sales fall short of expectations, production expansion or weakens; (3) the company's international procurement of optical components accounts for a large share, and supply may be affected by logistics and trade policies; (4) the company faces competitive pressure from new entrants from outside the industry, and the competitive pattern may deteriorate.