Ping An's point of view:

A global leader in optical storage inverters, with another brilliant track record. Sunshine Power was founded in 1997 and listed on the Shenzhen Stock Exchange GEM in November 2011. The company started with photovoltaic inverters and gradually formed three major business segments: photovoltaic inverters, energy storage systems, and new energy investment and development, while also laying out products such as wind power converters and hydrogen production electrolyzers. The company has a leading position in the global market for photovoltaic inverters and energy storage systems. In 2022, the global market share of the company's photovoltaic inverters was 23%, ranking second in the world; the market share of energy storage systems was 16%, leading the world. In 2023, the company achieved revenue of 72.25 billion yuan, a year-on-year increase of 79.5%; net profit to mother was 9.44 billion yuan, an increase of 162.7% over the previous year. In the first quarter of 2024, the company achieved revenue of 12.61 billion yuan, an increase of 0.3% year on year; net profit to mother was 2,096 billion yuan, up 39.1% year on year.

Photovoltaic inverters: The market space is broad, and the company is in the lead. The global PV installed growth rate is slowing down, but it continues to grow. We forecast 461/544GW of global PV installations in 2024/2025, an increase of 23%/18% over the previous year. Considering stock replacement and in-transit inventory requirements, we estimate that global inverter shipments in 2024/2025 will be 550/651 GW, respectively, and the market volume is huge. The company and Huawei are the two leading photovoltaic inverters in the world, leading the domestic and foreign markets, and their leading position is stable. The company's photovoltaic inverter product layout is comprehensive, focusing on string-type products with major power groups. In 2023, the company shipped 130 GW of photovoltaic inverters worldwide, and the revenue of the photovoltaic inverter and other power conversion equipment sector was 27.65 billion yuan, an increase of 61.0% over the previous year; the gross profit margin of the photovoltaic inverter sector was 37.9%. We believe that in the field of photovoltaic inverters, the company has three advantages in technology, channel, service, and brand, and is superior in strength. It is expected that it will maintain a stable market position, and that the photovoltaic business will be a stable support for the company's performance.

Energy storage: Overseas big storage has risen, and companies have taken the lead. The global energy storage market is booming. We expect the world's new energy storage capacity to reach 64.8/84.6 GW in 2024/2025, respectively, with a year-on-year increase of 41%/31%. The US and European large reserves market thresholds and gross margins are all high, demand is growing rapidly, and the competitive pattern is excellent, bringing opportunities to leading domestic companies. The company's energy storage products cover large storage, industrial and commercial storage and household storage scenarios, focusing on high-value overseas large storage markets. In 2023, the company delivered 10.5 GWh of energy storage systems globally, ranking first among Chinese companies for eight consecutive years; energy storage system revenue was 17.80 billion yuan, an increase of 76% over the previous year; and the gross profit margin of energy storage systems was 37.5%. The company has a solid layout in the overseas storage market, leading the world in market share. In 2022, the global market share of the company's energy storage systems was 16%, ranking first in the world; North America had a market share of 13%; ranking third. The company's large storage products are strong, hit the pain points of the industry with the characteristics of high performance, high safety and high integration; at the same time, it has high-quality local service capabilities and sufficient project accumulation, forming a brand reputation. Product and brand strength are expected to support the company to maintain its leading position in the overseas large storage market and continue to share market growth dividends.

Other businesses: Strong growth in power plant development, excellent potential in the hydrogen energy business. The company has built a business matrix around new energy sources and comprehensively lays out the field of “optical wind hydrogen storage”. The business covers photovoltaic inverters, energy storage systems, new energy investment and development, wind power converters, and hydrogen energy businesses. In terms of power plant development, the company's new energy investment and development revenue has grown strongly, and the distributed household business and overseas power plant business are expanding smoothly. In terms of wind power converters, the company has leading technical strength. In 2023, 32 GW of wind power converters were shipped worldwide, leading the market share in the world. In terms of hydrogen energy, the company's electrolyzer product market share (measured by the winning bid scale) is the second largest in the country, and the planned production capacity is leading in the world. It is one of the well-deserved leading participants in the green hydrogen circuit. Hydrogen energy is expected to become an important driving force for the company's future performance.

Investment advice: We expect that in 2024/2025/2026, the company will achieve net profit of 111.42/130.33/14.958 billion yuan, EPS of 7.50/8.78/10.07 yuan, respectively. The PE corresponding to the closing price on May 21 is 13.3/11.4/9.9 times, respectively, which is lower than the average price-earnings ratio expected by comparable companies for the next three years. As a leader in the optical storage industry, the company has a solid accumulation of technology and channels, and its performance is expected to continue to grow steadily under the opportunity of an explosion in demand for overseas storage and commercial storage. We covered it for the first time and gave it a “Recommended” rating.

Risk warning: (1) The risk that demand in the energy storage market will not grow as much as expected. Under the global carbon neutrality vision, the growth of the major storage markets in China, the US, and Europe is quite certain; however, if factors such as grid-connected queues and industrial chain restrictions cause installed capacity to fall short of expectations, or changes in tax reduction and subsidy policies, the energy storage market may fall short of expectations, affecting the company's energy storage system related performance. (2) The risk of tightening overseas trade policies. Recently, there are signs of tightening the US trade policy on parts of China's photovoltaic and lithium battery industry chain. If the US subsequently imposes sanctions in the form of tariffs on photovoltaic inverters, energy storage systems, etc., or if the European market imitates its practices to tighten trade policies, it may affect the company's business development in these markets. (3) The risk of increased competition in the global market. If competition in the photovoltaic inverter and energy storage circuit markets intensifies and there are price wars, etc., the company's market development and profits may be affected to a certain extent. (4) The risk of changes in the revenue model of new energy power plant projects. In 2023, the company calculated impairment losses for some new energy power plants due to prudential principles. Overseas electricity markets are diverse. If market or policy factors cause changes in the company's NEV revenue model, it may have a slight impact on the company's profits.