Incident: The company released its 2024 mid-year report. During the reporting period, it achieved revenue of 16.213 billion yuan, or -53.54%; realized net profit to mother of 3.064 billion yuan, -167.53% year over year; deducted non-net profit of 3.489 billion yuan, or -191.60% year on year. Among them, Q2 achieved revenue of 6.281 billion yuan, net profit attributable to mother of 2.184 billion yuan, and deducted non-net profit of 2.45 billion yuan. The company's asset depreciation in the first half of the year was -1.114 billion yuan, mainly due to inventory price reduction preparations, etc.; investment income was -0.115 billion yuan, mainly due to Maexon's operating losses, etc.

Silicon wafer shipments remain ahead, and the overall cost advantage is obvious. In the first half of 2024, the company shipped about 62 GW of silicon wafers, with a total market share of 23.5% compared to the same period, ranking first in the industry; the export market share of the company's N-type products was 42%, +6pct year on year, and the export market share for large size (210) was 61%, up year on year. By the end of the reporting period, the company's N-type products achieved a single monthly output of about 12.3%, and the second-best in the industry with 1.15 pieces per kilogram. Affected by different investment methods, against the backdrop of high unit depreciation, the company's total cost leading industry advantage was about 0.033 yuan/W.

Forwardly lay out overseas production capacity and actively promote a global strategy. In the first half of 2024, the company reached cooperation with RELC and VisionIndustries, a wholly-owned subsidiary of the Saudi Arabian Public Investment Fund (PIF), to jointly promote the establishment of the largest crystal chip factory overseas to provide strong support for enhancing global competitiveness. Furthermore, based on the company's global strategic plan, Maxeon is an important strategic fulcrum for TCL Zhonghuan's deep participation in international energy transformation. It has key assets such as patents (IBC, Topcon, tiled component series patents), high-end brands and channels. The company plans to control Maxeon through a package of restructuring transactions such as convertible bonds and fixed increases.

Investment advice: We maintain the company's profit forecast for 2024-2026. We expect the company's net profit to be -3/2.1/3.3 billion yuan in 2024-2026, corresponding EPS of -0.75/0.51/0.81, respectively.

We believe that the company has a clear competitive advantage and significant ability to cross the cycle. As prices in the industrial chain bottom, the company's profit is expected to gradually bottom out and reverse, maintaining a “buy” rating.

Risk warning: downstream demand falls short of expectations, industry competition intensifies, overseas policy risks.