1H24 results are in line with our expectations

The company announced the interim report: 1H24 revenue of 2.117 billion yuan, +7.38% year on year; net profit to mother of 0.482 billion yuan, -1.86% year over year. Looking at a single quarter, 2Q24 revenue was 1.137 billion yuan, +9.07%/+15.99%; net profit to mother was 0.266 billion yuan, +2.49%/+23.58% month-on-month, and net profit to mother improved markedly, mainly due to the month-on-month increase in PV business revenue and the company's gross margin recovery.

The 1H24 results were in line with our expectations.

Development trends

Demand for photovoltaics continued to recover, leading to a month-on-month improvement in the company's revenue. According to data from the National Energy Administration and the General Administration of Customs, 56.74 GW of PV installations were added in 2Q24, +24.05% month-on-month, and inverter exports amounted to 16.984 billion yuan, or +47.64% month-on-month. Judging from downstream demand, we judge that after experiencing pressure for three quarters, 2Q24 revenue was clearly recovered month-on-month. Considering that the second half of the year is the traditional peak season for the photovoltaic industry, we believe that the company's related revenue is expected to grow further.

Building overseas plants increases export confidence and promotes steady growth in the automobile business. According to the company's announcement, the company plans to establish a wholly-owned subsidiary in Hungary with no more than 0.1 billion yuan of its own capital, mainly for the manufacture of film capacitors. According to EV Volumes, the penetration rate of new energy vehicles in Europe may increase slightly by 21.8% in 2024 compared to 2023, and is expected to rise rapidly to 61.9% in 2030. We believe that the company's overseas factories are expected to improve overseas supply capacity and response speed and enhance supply chain security. We are optimistic about the long-term growth opportunities of the company's automotive film capacitors in the global NEV market.

Continuing to reduce costs and increase efficiency, the bottom of gross margin rose in the second quarter. 2Q24 gross margin was 34.9%, with a month-on-month fix of 1.8ppt. We believe that the main reasons for the month-on-month repair are: 1) structural optimization of gross margin due to a recovery in demand in the photovoltaic business and an increase in sales share; 2) the company continues to implement cost reduction and efficiency measures such as optimizing production processes, improving the self-control rate of key raw materials, and improving the level of equipment automation. We believe that the demand facing the company is expected to continue to improve, compete, or be close to a steady state, and we are optimistic that cost optimization will boost gross margin from quarter to quarter.

Profit forecasting and valuation

Maintain 2024/2025 net profit of 1.094 billion yuan/1.253 billion yuan to mother. The current stock price corresponds to 2024/2025 P/E 16.09x/14.05x. Maintaining an outperforming industry rating, due to the downward shift in the industry valuation center, we lowered our target price by 14.3% to 100.00 yuan, corresponding to the 2024/2025 P/E20.57x/17.95x, an increase of 27.8% over the current stock price.

risks

PV demand falls short of expectations; industry competition intensifies; risk of falling gross margin.