Key points of investment

Household optical storage sharpened its sword for ten years, taking advantage of the Dongfeng: The company was founded in 2012 and has been deeply involved in the European market since 2013. It was the first domestic company to enter Germany, and achieved full coverage of household optical storage products in the early stages of the market (18 years). The company's full early layout was fully recognized by the market in the European account storage sector, helping to seize the explosive opportunities of European account storage. The performance jumped sharply. Net profit returned to mother reached 1.13 billion yuan in '22, an increase of 1704%. The fall in electricity prices in Europe in '23 affected household storage demand. The company's revenue/net profit to mother was 44.7/1.06 billion yuan, -3%/-6% year-on-year. In the same year, the company went public on the Science and Technology Innovation Board and initially raised 1.99 billion yuan to accelerate the industrial layout. In '23, the R&D/sales team increased to 802/352 people, an increase of 180/ 24%, increasing innovation and channel layout.

Cost cuts+interest rate cuts drive demand, and brand+channel accumulation wins! In 23, European household optical storage was affected by electricity price intervention, and the growth rate declined. Household photovoltaic/energy storage added 20.5 GW/8.1 GWh in 23, an increase of 47/ 65%, and storage became the main theme. The economy of household optical storage is expected to improve in 24 years: 1) Costs & interest rates: We expect European module and energy storage prices to drop to 0.12 EUR/W and 0.2 EUR/Wh, compounded by the ECB's expectation to start interest rate cuts and declining interest rates for residents' loans; 2) Tax exemptions and subsidies: Many European countries support development by exempting VAT, and help raise IRR to about 15% (Germany). The inflection point of demand is clear! We expect European household photovoltaic/energy storage demand to reach 26.4 GW/10.1 GWh, an increase of 30/ 25%, and global household photovoltaic/energy storage demand of 123 GW/17.2 GWh, an increase of 21/ 26%, and a steady increase of 21/ 26%. Looking at the pattern, domestic penetration of household optical storage in Europe reached 60% + in 2023. It has passed a period of rapid growth, but the concentration is low, with CR3 < 40%. Looking back, with the end of the European inventory removal, we expect leading companies to take advantage of the brand/channel to gain more market share. At the same time, more manufacturers will distribute household storage to new products and new markets, and household storage competition will become global.

Target the middle and high-end, and dealers+ODM develop collaboratively. 1) Deeply cultivate the European market and position the middle and high-end. The company is deeply involved in the European market, and its price positioning is medium to high-end. It has repeatedly won honors such as EuPD's “Top Brand for Inverters and Energy Storage” in Europe, and its image of strong product performance and excellent stability has been widely recognized in Europe. 2) Adhering to specific adaptations to sales in Europe, gross margin is at the leading level in the industry. The company adheres to a specific adaptation model to ship to Europe, providing better stability while receiving higher product premiums. The gross margin of the company's energy storage inverters/batteries in '23 was 53%/34%, which strongly guarantees that the gross margin of energy storage products is at the top of the industry. 3) ODM+ distribution collaborates to seize new market benefits. The company helped grow shipments by linking core marketing partners. As of May 14, 2024, the company had cooperated with 236 global channel providers. 23H1 distributors account for 77% of the revenue, of which GBC Solino, an established European dealer, contributed a significant amount of 29% to 23H1. Affected by European inventories in '23, the annual shipment of energy storage inverters/batteries/grid-connected inverters was 115,000 units/1.07GWh/182,000 units, -21%/-5%/+15% compared to the same period last year.

Develop incremental products, break the incremental market, and become the leading supplier in all load side scenarios! The company actively promotes the development of new products and new markets, progresses on multiple lines, and enhances comprehensive strength. New products: industrial and commercial storage and micro inverters were introduced to the market in April, and grid-connected machines are under continuous development. Industrial and commercial reserves are expected to see 400-500 units of demand, with a gross profit margin of 30-40%. The slight reversal is estimated to be 50,000 units+, with a gross profit margin of 40-50%. New markets: 1) Received Japan's JET certification, signed an account savings order of 6.4 billion yen (about 300 million yuan) with Sharp on 24/4, which is expected to increase the supply scale in the future; 2) Open products will enter the middle and lower end markets. India's grid-connected machines, Pakistan's grid-connected machines & low-voltage energy storage will increase rapidly. We expect the revenue ratio in emerging markets to rise to 20% in 24 (12% in 23 years), and it is expected that more markets in emerging countries will continue to open up. 3) With Panasonic to increase its share in the US, the company entered the Panasonic supplier list in '24, and is expected to use it to further increase its share. We expect that 2024H2 European inventory will be expected to be cleared to drive a recovery in shipments, and the company's performance is expected to recover quickly. 121,000 units/1.18 GWh/255,000 units of energy storage inverters/batteries/photovoltaic inverters were shipped in 24, an increase of 5/10/ 40%. In addition, the company continues to expand its layout and launch household charging piles to complete the final flat map of “optical storage and charging”. At the same time, the virtual power plant business has successfully operated in the UK, bringing new opportunities to the blue ocean of the industry.

Profit forecast and investment rating: Based on the increasing influence of the company's optical storage business, we expect the company's net profit to be 4.5/68/9.3 billion yuan in 24-26, -58/+52/ +36% year-on-year, and the corresponding PE is 21x/14x/10x. Based on the company's brand/channel advantage in Europe and its high growth in new products and new markets, we gave the company 30xPE in 2024, corresponding to a target price of 84 yuan, covering the first time and giving it a “buy” rating.

Risk warning: Increased competition, changes in international trade and industry policies, global expansion falls short of expectations, etc.