Key points of investment

The company's performance growth is slowing down, creating a differentiated competitive advantage

In 2023, the company achieved operating income of 129.498 billion yuan, a year-on-year increase of 0.39%; achieved net profit to mother of 10.751 billion yuan, a year-on-year decrease of 27.41%; achieved a gross sales margin of 18.26%, an increase of 2.88pct; and achieved a net sales margin of 8.25%, a year-on-year decrease of 3.19 pcts. With 2023Q4, the company achieved operating income of 35.398 billion yuan, an increase of 20.20% over the previous month; net profit to mother was 943 million yuan, a decrease of 137.46% over the previous month.

With 2024Q1, the company achieved operating income of 17.674 billion yuan, a year-on-year decrease of 37.59%; realized net profit to mother of -2350 billion yuan, a year-on-year decrease of 164.61%. The reasons for the slowdown in the company's revenue growth and decline in profitability in 2023 are due to the phased imbalance between supply and demand in the industry, the continued decline in industrial chain prices, prominent barriers to overseas trade, and the company's calculation of large inventory depreciation.

Silicon wafers: Continuing to promote production capacity construction projects, and shipments reached a new high. In 2023, the company's silicon wafer business achieved revenue of 24.519 billion yuan, a year-on-year decrease of 35.81%, accounting for 18.93% of total revenue; the gross profit margin of the silicon wafer business was 15.88%, a year-on-year decrease of 1.74 pcts. In 2023, the company shipped 125.42GW of monocrystalline silicon wafers (export sales 53.79GW), an increase of 47.45% year-on-year. By the end of 2023, the company's monocrystalline silicon wafer production capacity reached 170 GW. The Ordos project with an annual output of 46 GW monocrystalline silicon rods and chips has been put into operation one after another, and construction of the 6.6 GW silicon rod project in Malaysia is progressing in an orderly manner. The company's newly developed “Terry” silicon wafers use a new TrCz crystal drawing process to improve the uniformity of the silicon wafer's resistivity, absorption effect and mechanical strength, and support the improvement of battery-side efficiency in mainstream technology routes across all platforms. The technology will be introduced into mass production in 2024Q2.

Batteries and components: Building BC's differentiated competitive advantage, the new production capacity was implemented in an orderly manner. In 2023, the company's battery and module business achieved revenue of 99.199 billion yuan, an increase of 16.91% over the previous year, accounting for 76.60% of total revenue; the gross margin of the battery and module business was 18.38%, an increase of 4.73 pcts over the previous year. In 2023, the company shipped 67.52 GW of monocrystalline modules (export sales 66.44 GW), an increase of 44.40% over the previous year. By the end of 2023, the company's battery/module production capacity reached 80GW/120GW respectively. In terms of battery technology, the efficiency of the company's self-developed back-contact silicon heterojunction solar cells (HBC) and crystalline silicon-perovskite laminated batteries reached 27.09% and 33.9% respectively, winning the “Double Material Champion” for battery research and development. At the same time, the company's HPBC second-generation product can increase the module power by more than 5% compared to TopCon components of the same specification. The product is scheduled to be launched in the second half of 2024. In terms of capacity construction, the company is speeding up production capacity upgrades and mass production of HPBC and TopCon. Xixian's production capacity of 29GW per year and Taizhou's 4GW high-efficiency HPBC battery production capacity has all been put into operation, and projects such as the Ordos 30GW per year battery project and the Wuhu 10GW module have been put into operation one after another. At the same time, the company is actively expanding overseas production capacity, and projects such as 2.8 GW modules in Malaysia and 3.35 GW batteries in Vietnam are gradually put into operation as scheduled.

Profit forecasting and valuation

The profit forecast was lowered and the “buy” rating was maintained. The company is a leader in photovoltaic integration. Battery technology upgrades and iterations continue to advance smoothly, and market competitiveness continues to improve. Considering that the price of PV modules continues to be under pressure and the price center is declining, we lowered the company's profit forecast for 2024-2025 and added a profit forecast for 2026. The company's net profit for 2024-2026 is 47.59 billion yuan, 82.87, and 10.355 billion yuan, respectively (before the reduction, the company's net profit to mother for 2024-2025 was 170.25 billion yuan and 20.32 billion yuan, respectively), and the corresponding EPS was 0.63, 1.09, and 1.37 yuan, respectively.

Risk warning: The competitive landscape of the industry worsens, downstream demand falls short of expectations, fluctuating raw material prices, risk of trade disputes