Matters:

The company released its 2024 semi-annual report, achieving revenue of 38.529 billion yuan, a year-on-year decrease of 40.41%; net profit to mother was a loss of 5.243 billion yuan, a year-on-year decrease of 157.13%; net profit after deduction was a loss of 5.277 billion yuan, a year-on-year decrease of 158.24%. With 2024Q2, the company achieved revenue of 20.855 billion yuan, a year-on-year decrease of 42.6%. Net profit to mother was a loss of 2.893 billion yuan, a year-on-year decrease of 152.21%.

Ping An's point of view:

Multiple factors led to a significant loss in the first half of the year. Asset depreciation of 5.784 billion yuan in the first half of the year was mainly inventory impairment. Large asset impairment was the core reason for the company's sharp losses in the first half of the year. Furthermore, with the decline in product prices and the decline in revenue scale, the cost ratio increased. The total sales, management, and R&D expenses rate reached 10.3% in the first half of the year, an increase of 4.6 percentage points over the previous year, compounded by a sharp decline in overall gross margin, which led to a sharp drop in the company's overall profit level. In the first half of the year, the company's domestic business revenue was about 20 billion yuan, the gross profit margin was 1.38%, and the overseas business revenue was about 18.53 billion yuan, and the gross profit margin was 14.43%. The profit level of the domestic business was far lower than that of the export business and showed losses, which was an important reason why the company's overall profit level was under pressure in the first half of the year.

Component shipments increased by about 18% year on year, and a breakthrough was achieved in the expansion of the North American market. In the first half of 2024, silicon wafer shipments were 44.44 GW, down about 15% year on year, including external sales of 21.96 GW, down about 4% year on year; battery sales were 2.66 GW, down 19% year on year; module shipments were 31.34 GW, up about 18% year on year. Among them, sales in the Asia-Pacific region increased by more than 140% year on year. The company has enhanced its global capabilities around the supply chain traceability management system, green and sustainable procurement, and localized operation. The US 5GW module factory has been officially put into operation, which has formed strong support for business development in the North American region; in the first half of the year, the subsidiary American Leye PV achieved revenue of 1.91 billion yuan and net profit of 0.76 billion yuan.

A new component product, Hi-Mo 9, was released to vigorously promote the BC battery module production capacity layout. In the first half of the year, the company shipped about 10GW of BC modules, accounting for 31.9% of total component shipments. Based on high-efficiency HPBC2.0 battery technology, the company launched Hi-Mo 9, a double-sided component product for the centralized market. By introducing advanced composite passivation technology and high-reliability back-contact interconnection technology, superimposing the core advantages of the company's high-quality Terry silicon wafers, such as high resistance concentration, good absorption effect, and strong mechanical properties, the mass production power of the component was as high as 660W, higher than 30W of TopCon components of the same specification. The component conversion efficiency jumped dramatically to 24.43%, and the two-sided ratio exceeded 70%. As the first phase of BC second-generation projects in Xixian New Area, such as 12.5GW batteries and Tongchuan 12GW batteries, progresses, the company's HPBC 2.0 products will be launched on a large scale by the end of 2024. It is expected that by the end of 2025, the company's BC production capacity will reach 70 GW (of which HPBC 2.0 production capacity is about 50 GW), and all domestic battery bases plan to migrate to BC products by the end of 2026.

Investment advice. Considering the recent supply and demand situation in the PV module industry chain and the depreciation of the company's assets, the company's profit forecast is estimated to be -7.497, 1.67, and 6.318 billion yuan (original forecast values -0.854, 3.439, 7.202 billion yuan), and the corresponding dynamic PE is -13.3, 59.8, and 15.8 times, respectively. Looking at the easing of supply and demand in the PV module industry chain in the short term, the profit levels of all major links are clearly under pressure or even large losses. The company's financial situation is steady and resilient to risks. HPBC technology is expected to build a strong differentiated competitive advantage for the company. I am optimistic that the company will cross the industry trough and expand its competitive advantage, and maintain the company's “recommended” rating.

Risk warning. (1) Increased competition for silicon wafers and components, and the risk that profit levels fall short of expectations. (2) The company's component business accounts for a relatively large share of exports. If the phenomenon of overseas trade protection intensifies, it may have an adverse impact. (3) HPBC production capacity is less than expected risk.