Matters:

In the first half of 2024, the company achieved operating income of 1.584 billion yuan, a year-on-year decrease of 53.41%; net profit to mother of 0.103 billion yuan, a year-on-year decrease of 89.44%; after deducting non-net profit of 65.7627 million yuan, a year-on-year decrease of 93.18%.

In the first half of 2024, the company's gross margin was 38.26%, down 1.34pct year on year; net profit margin to mother was 6.50%, down 22.19pct from the same period last year.

In the second quarter of 2024, the company achieved total revenue of 0.899 billion yuan, a year-on-year decrease of 36.96% and a month-on-month increase of 31.43%; net profit to mother was 69.0461 million yuan, a year-on-year decrease of 85.37%, and an increase of 103.31%.

The company's gross margin for the second quarter of 2024 was 36.89%, down 2.09 pcts year on year and 3.16 pct month on month; net profit margin to mother was 7.68%, down 25.40 pcts from the same period last year, up 2.72 pcts from the previous quarter.

Commentary:

Shipments declined year-on-year in the first half of the year, and volume in emerging markets helped improve. In the first half of 2024, the company sold about 327 MWh of energy storage batteries, shipped more than 0.06 million units of energy storage inverters in the first half of the year, and about 0.17 million units of grid-connected inverters in the first half of the year. The company's shipments of energy storage batteries and energy storage inverters declined year-on-year in the first half of this year, mainly due to the slowdown in European demand in the first half of this year; the company's shipments of various products improved sequentially in the second quarter of this year, mainly due to the company's expansion into emerging markets. We expect the company's shipments to continue to improve in the second half of the year as demand from Europe recovers and emerging markets continue to expand.

Due to changes in the downstream market structure, gross margin declined. The company's consolidated gross profit margin in the first half of the year was 38.26%, down 1.34pct year on year. The decline in the company's gross margin was mainly due to lower gross margin in emerging markets compared to the European market, and changes in the sales market led to a decline in overall gross margin. In terms of cost ratio, the company's expenses for the first half of the year were 0.513 billion yuan, an increase of 0.323 billion yuan over the same period of the previous year; the cost ratio for the period was 32.40%, up 26.80 pcts from the same period last year. Specifically, sales expenses increased 21.36% year over year, management expenses increased 54.21% year over year, R&D expenses increased 98.73% year over year, and financial expenses turned negative to positive. The increase in sales expenses is mainly to increase investment in emerging markets; R&D expenses are mainly to introduce talents and increase investment in R&D. The company currently has more than 900 R&D personnel, accounting for more than 30% of the total labor force.

New products continue to be launched, new markets are being developed one after another, and the company's shipment volume is expected to continue to increase. The company launched new products such as micro inverters and industrial and commercial energy storage devices in the first half of the year. Orders have already been received for the new products; at the same time, the company has upgraded and iterated on other products. In terms of new markets, the company actively developed markets such as Southeast Asia in the first half of the year. The share of European business has dropped from more than 90% last year to more than 70%, and the share of new markets has increased rapidly.

Investment advice: As demand in the European market recovers, new market demand continues to be fulfilled, and the company's development trend is improving.

We expect the company's net profit to be 0.498/0.804/0.963 billion yuan in 2024-2026, respectively, and the current market value corresponding to PE is 19/12/10 times, respectively. Referring to comparable company valuations, the 2025 15x PE was given, corresponding to a target price of 75.42 yuan, maintaining the “recommended” rating.

Risk warning: Downstream demand falls short of expectations, the company's new product release falls short of expectations, and competition increases risk.