2Q24 results are in line with our expectations

The company announced 1H24 results: revenue of 0.899 billion yuan, up 37% year on year; net profit to mother of 0.088 billion yuan, corresponding to profit of 0.56 yuan per share; 2Q24 achieved revenue of 0.471 billion yuan, up 112% year on year, up 10% month on month; net profit to mother of 0.048 billion yuan, up 170% year on year and 21% month on month, in line with our expectations.

The company's various expense ratios have declined, reflecting an increase in operating efficiency. 1H24 sales/management/R&D/finance cost rates were 7.45%/4.69%/6.3%/0.87%, respectively, -2.04pp/ -1.72ppt/n.m/-0.28ppt.

1H24 calculated credit impairment losses and asset impairment losses of 40.3377 million yuan, and asset impairment losses of 29.952 million yuan, mainly due to losses due to inventory depreciation losses.

Development trends

Inventory removal is improving, and there was a slight increase in Q2. 1H24 achieved revenue of 0.62 billion yuan. The company shipped 0.29 million units + in Q2, a slight increase over the previous month, mainly due to recovery in European Q2 demand and the rapid growth rate of the balcony photovoltaic market. The company's sales revenue in Europe reached more than 60%. We expect 1.1 million micro-reverse shipments throughout the year, an increase of 20% + over the previous year. In terms of inventory, as of the end of 1H24, the company's inventory balance was 1.516 billion yuan, a decrease of about 0.1 billion yuan compared to 1Q24, reflecting that the company adjusted its inventory strategy in a timely manner and reduced inventory preparation. The inventory removal effect was remarkable.

Industrial and commercial storage achieved a breakthrough from 0-1 overseas, and EZHI Microlight Storage opened up the balcony photovoltaic scenario. In terms of industrial and commercial storage, 1H24 industrial and commercial reserves achieved revenue of 0.178 billion yuan, mainly due to the rapid increase in domestic 100 MWH projects. Currently, the company is in good order status, and may confirm sales in the second half of the year and next year to drive the rapid expansion of the scale of energy storage revenue. Furthermore, in the second half of the year, we expect the company's industrial and commercial storage products to penetrate overseas, achieve a breakthrough of 0-1 in overseas markets, and the gross sales margin in overseas regions such as Europe is expected to reach 30%, driving the company's energy storage profitability to increase. In terms of micro storage, the company launched an EZHI micro storage product for the balcony DIY market. It has an off-grid function and can also be connected to all brands of micro reverse systems. We believe that the product is highly flexible and has cost performance advantages. At the same time, the off-grid characteristics of the product can help extend its application scenarios to Asia, Africa, and Latin America. We expect this product to increase in Q4. We are optimistic about the joint efforts of the company's micro-optical storage, household optical storage, and industrial and commercial optical storage, and that two-wheel drive at home and abroad will drive steady growth in performance.

Profit forecasting and valuation

Due to the slowdown in demand growth in Europe in Q3 and the company's new product release situation remains to be seen, we lowered our 2024/2025 net profit by 14%/11% to 0.275/0.365 billion yuan.

Maintaining an outperforming industry rating, but due to the downturn in the PV industry's valuation center, we lowered our target price by 31% to 69 yuan, corresponding to a 40/30 times price-earnings ratio in 2024/2025. There is 49% upside compared to the current stock price. The current stock price corresponds to 26/20 times the price-earnings ratio in 2024/2025.

risks

There is a risk that demand for storage alone falls short of expectations, risk of trade policy fluctuations, increased risk of competition, and risk of exchange rate fluctuations.