Core views
The company released its 2024 mid-year report. All four main businesses achieved growth, and the performance was basically the same year on year. It is expected to be due to a decline in the share of overseas business and an increase in cost rates. The performance growth rate has declined due to the company's expenses and production capacity estimates, but the quality of operations is still excellent in terms of business. The core conflict is the recovery in demand for overseas commercial and commercial reserves, and interest rate cuts are expected to become an inflection point. We believe that the company is the core target of energy storage PCS and charging piles, taking into account domestic and overseas markets, and is expected to benefit from the growth of the global storage and charging pile industry.
occurrences
The company achieved revenue of 1.431 billion yuan in the first half of 2024, an increase of 29.8% year on year; a return of 0.182 billion yuan, an increase of 0.02% year on year; after deducting non-performance of 0.173 billion yuan, an increase of 1.77% year on year. Looking at Q2 alone, we achieved revenue of 0.832 billion yuan, +27.1% YoY, +38.8%; achieved return to parent performance of 0.115 billion yuan, -3.12% YoY, +73.6% month-on-month; achieved non-performance deduction of 0.114 billion yuan, +0.13% YoY and +89.9% month-on-month.
Brief review
The basic market growth of the industrial power supply business was steady, and the gross margin remained at a high level. The business achieved revenue of 0.251 billion yuan in the first half of the year, +17.4%, and a gross profit margin of 54.7%, and +1.1 pct year over year. This business is mainly for products related to power quality control, and is related to the demand of high-end equipment manufacturing industries such as downstream high-end new materials, new energy vehicles, high-end medical equipment, innovative drugs, and agricultural machinery and equipment. The National Development and Reform Commission promulgated the “Electricity Quality Management Measures (Interim)” in 2023 to promote the development of the power quality industry. On a year-on-year basis, the growth rate in the first half of the year was higher than in the first half of last year, and downstream demand continued to grow steadily.
The NEV charging and switching business maintained rapid growth. The gross margin stabilized. The business achieved revenue of 0.556 billion yuan in the first half of the year, +44.8% year-on-year, and a gross profit margin of 38.1%, or -1.4 pct year-on-year. According to statistics from the Charging Alliance, 1.647 million new charging infrastructure units were added in the first half of 2024, an increase of 14.2% over the previous year, including 0.396 million public charging stations, an increase of 12.7% over the previous year. While the company's revenue is rising, gross margin remains stable. In the second half of the year, the company will also launch a 1MW charging pile based on an 800kW high-power split charging pile to achieve an MW level charging experience.
The growth rate of new energy conversion equipment declined, and gross margin declined due to a decline in overseas share, that is, the energy storage business. The first half of the year achieved revenue of 0.465 billion yuan, +19.6% year over year, gross profit margin of 30%, and -5.6 pct year on year. The business grew 381% in the first half of last year. The decline in performance growth and the decline in gross margin are expected to be due to a decline in the share of overseas shipments. The company's overseas shipments are mainly commercial and commercial reserves.
According to Wood Mackenzie data, the 2024Q1 US commercial and commercial storage unit is 19.4 MW/44.4 MWh, a year-on-year decrease of 78%, which is expected to be related to high interest rates suppressing the economy.
Battery formation and testing are still maintaining high double-digit growth. The gross margin increase is expected to increase the business's revenue of 0.126 billion yuan in the first half of the year due to an increase in overseas share, +35.5% year-on-year, and 49% gross profit margin, and +3.2 pct year-on-year. Although domestic battery companies' production expansion has slowed, domestic and foreign lithium battery leaders are still expanding overseas production capacity. The company's business achieved overseas sales revenue in 2023, and will continue to expand overseas sales channels and opportunities in 2024, maintaining the trend of contrarian growth in the industry's downward cycle.
The results for the first half of the year remained flat year on year. The company's gross sales margin for the first half of the year is expected to be 39.57%, 39.54% and 39.59% in the first and second quarters, respectively, due to production capacity and cost assumptions, which remain stable. However, gross sales margin fell 1.97 pct year over year in the first half of the year. In terms of expenses, sales, management, and R&D expenses increased by about 0.041 billion yuan, 0.016 billion yuan, and 0.031 billion yuan, respectively, in the first half of the year, and financial expenses (mainly exchange income) increased by 0.011 billion yuan year on year. The overall cost ratio for the first half of the year was 25.29%, +1.46 pct year on year. The gross margin decreased and the cost ratio increased, resulting in a year-on-year performance basically flat year on year. In terms of balance sheet, as of the end of the interim reporting period, the company's fixed assets were 0.408 billion yuan, which was basically the same as the end of the 2023 annual report and the end of the 2024 quarter report. The projects under construction had dropped to 0.085 billion yuan, proving that the Suzhou factory had completed construction and transformation, and depreciation pressure in the later stages would decrease as the company's size grew.
Investment recommendations and performance forecasts
The company's charging pile business has become the fastest growing sector. The short-term pressure on the energy storage business is expected to be mainly due to a decline in overseas share, while domestic market shipments are expected to increase by about 80% year-on-year, maintaining a high growth trend. Industrial power supplies and battery chemistry continue to grow steadily. The company has now developed major storage markets in the US and Europe, and it is expected that demand for overseas commercial and commercial reserves will also recover in anticipation of interest rate cuts. The company's net profit for 2024 and 2025 is estimated to be 0.468 and 0.605 billion yuan, respectively.
Risk analysis
1) Demand side: The growth rate of installed domestic energy storage fell short of expectations, and the growth rate of new energy investment declined; overseas energy storage demand fell short of expectations, and overseas carbon neutrality progress was slowing down.
2) Supply side: The supply of power electronic devices such as IGBTs is tight, and the progress of localization falls short of expectations; prices and processing costs of raw materials such as copper, aluminum, and steel have risen.
3) Policy aspects: Support policies related to energy storage fell short of expectations; compensation standards for capacity electricity prices fell short of expectations; electricity spot market progress fell short of expectations; electricity peak and valley price differences fell short of expectations.
4) In terms of the international situation: international trade barriers have deepened, exports have been blocked; local production requirements have increased and costs have risen; international conflicts have led to rising shipping costs and extended delivery times.
5) Market side: Increased competition has led to lower gross profit margins and profitability of energy storage batteries, integrators, and PCS manufacturers than expected; the company's market competition strategy is wrong.
6) On March 15, the company announced the “Notice Concerning Shareholders Holding 5% or More of Their Shares Receiving Decisions on Administrative Supervision Measures”. Investors should pay attention to the risk that the company will cause fluctuations in stock prices due to information disclosure, reduction of major shareholders' holdings, etc.