Key points of investment

Dongfang Risheng achieved revenue of 35.327 billion yuan (+20%) and net profit to mother of 1,363 billion yuan (+46%) in 2023, of which 23Q4 achieved revenue of 7.310 billion yuan and net profit to mother of 84 million yuan, achieving positive profits in the context of the entire industry chain falling into loss. 2024Q1 achieved revenue of 4.933 billion yuan (-27%) and net profit to mother of -280 million yuan (-190%). In terms of production capacity, as of the end of 2023, the company's battery and module production capacity was 27 and 35 GW, respectively, and module shipments were about 19 GW in '23. Of these, the Malaysian base sold 1.44 GW to the US, which is an important profit contributor.

The heterogeneous production line climbed smoothly, and the pace of cost reduction was in line with expectations. At present, the company's heterojunction plants in Ninghai and Jintan have been put into operation one after another. The battery production capacity has exceeded 6GW. The production line is in good working condition. The usable yield has reached 99.6%, and the fragmentation rate is controlled at 0.3%. At the same time, the average efficiency has reached 26%, and the champion efficiency has exceeded 26.5%. In terms of cost, the non-silicon cost of heterojunction batteries is 0.22 yuan/w, of which the low silver paste is about 5.3 cents/w and the target material is 3 min/w. The cost reduction progress is in line with expectations.

In addition, the company is also actively promoting the introduction of efficient processes, including CVD uniformity, microcrystal layer optimization and improvement, PVD materials, masks, secondary velvet making, and advanced screen technology.

The rise in silver prices has led to an increase in the economy of heterojunctions, and owners are gradually starting large-scale applications of heterojunctions. Since the beginning of '24, the price of silver has risen sharply. COMEX silver futures prices have risen by more than 30 US dollars/kg. After the rise in silver prices, the pressure on battery production costs increased sharply. Compared with mainstream TopCon, which uses high-temperature silver paste, the amount of pure silver in the low silver paste used in heterojunctions is less than 7 mg/w, while TopCon is currently around 10 mg/w. In economic comparison, heterojunction advantages are gradually showing. Since the beginning of the year, Huaneng, Lufa, CGN, and Datang have all conducted separate tenders for heterojunction components. Silver prices remain high, which will be an important catalyst for accelerating heterojunction penetration.

The energy storage business is expanding at an accelerated pace. The company's energy storage business contributed about 2 billion dollars in revenue in 2023. Since the beginning of '24, customer willingness to pick up goods has increased, and further growth is expected throughout the year. In terms of production capacity, Shuangyili plans to invest in the construction of integrated production capacity for energy storage systems. The total plan is 10 GWh, and the construction will be carried out in two phases of 5 GWh, with a total project investment of 2,058 billion yuan.

Profit forecasting

We expect the company's net profit to be returned to mother in 2024-2026, respectively

11.08/18.79/2.26 billion yuan, corresponding to 2024-2026, the company's PE was 14.77x/8.71x/7.24x, respectively, maintaining the “gain” rating.

Risk warning:

Demand for PV installations fell short of expectations.