Incident: The company's 2024H1 revenue was 3.15 billion yuan, down 17.5%, net profit to mother was 0.02 billion yuan, down 103.2%, gross profit margin 22.8%, and 12.8pct; of which 2024Q2 revenue was 2.02 billion yuan, -3.5%/+79.5% year on month, net profit to mother 0.005 billion yuan, -98.8%/+117.3% year-on-month, gross profit margin 20.1%, -12.5pct/- 7.3pct 2024Q2's asset and credit impairment of $0.045 billion was mainly affected by component and cell inventories, and the performance was slightly lower than market expectations.

Shipments of 2024Q2 increased month-on-month, and the share of 2024Q3 energy storage continued to increase. 2024H1 sold 0.2785 million inverters, including 0.2559 million grid-connected units and 0.0226 million energy storage units. The sales volume of 2024Q2 photovoltaic inverters was 0.17-0.18 million units, about +18%/+100% compared to the same period. The gross margin fell to about 25%, and the loop fell by 10 pcts. The reason: the share of domestic shipments increased to 60%, and the domestic gross margin was only 14-15% (about 35% overseas). 2024Q2 energy storage inverters sold 0.015-0.02 million units, -70%/+175% month-on-month, gross margin fell to 45%, down 8 pcts. Reason: Part of the increase came from emerging markets, with a gross margin of about 40%, slightly lower than Europe. As 2024Q3 gradually expands to emerging markets, the company's shipments will increase month by month and the share of energy storage will increase. We expect the company to ship 0.7-0.8 million/ 0.07-0.09 million units of grid-connected/energy storage inverters in 2024, respectively, about +40%/-50% year on year. Next year, interest rates in Europe will be cut, and demand may be significantly restored.

The battery pack and household systems business is developing steadily. 2024H1's energy storage battery revenue was about 0.2 billion yuan, down 70%, mainly affected by battery price cuts and weak demand in Europe, with a gross profit margin of 30%. We expect to achieve revenue of 0.8-1 billion yuan in 2024, an increase of about 10%; 2024H1's domestic household distributed system sales volume is 404.43 MW, an increase of about 230%, and a gross profit margin of 15%. We expect to ship 1GW+ in 2024, which is about double the year-on-year increase.

The cost rate fell by 11 pct during the period, and contract liabilities increased slightly. The company's expenses for the 2024Q2 period were 0.36 billion yuan, +89.8%/+8.7% compared to the same period, and the cost rate for the period was 17.7%, +8.7pct/-11.5pct compared to the same period, due to increased shipments and revenue; 2024H1 net operating cash flow -0.91 billion yuan, a decrease of 228.6%, of which 2024Q2 net operating cash inflow was -0.19 billion yuan, -132.6%/+72.7% YoY; end of 2024Q2 Inventory was 2.58 billion yuan, up 14% from the end of 2024Q1; contract liabilities at the end of 2024Q2 were 0.267 billion yuan, an increase of 16.6%.

Issuing restricted stock incentives to help the company grow in the long term. On September 4, the company issued a restricted stock incentive (draft). A total of 187 people (including some foreign employees) will be awarded the number of incentives to 1.7587 million shares, accounting for about 0.725% of the total share capital, and the grant price is 32.77 yuan. Performance assessment goals: The cumulative revenue or net profit for 2024-2025 is not less than 20.68 billion yuan or 1.32 billion yuan; the cumulative revenue or net profit for 2024-2026 is not less than 35.04 billion yuan or 2.18 billion yuan; and the cumulative revenue or net profit for 2024-2027 is not less than 52.99 billion yuan or 3.21 billion yuan. Considering that European inventory removal and intense domestic competition may have an impact on profits in 2024, revenue and net profit are expected to return to high growth in 2025 with inventory removal and emerging market expansion. The cumulative revenue target for the first incentive period 2024-2025 is easy to achieve. Continued steady growth with the company in the future, and revenue and net profit targets for the subsequent vesting period are expected to be achieved one after another. This incentive will help the company's long-term development, stabilize talent team building, and boost company confidence.

Profit forecast and investment rating: Considering the decline in the company's inverter gross margin and the decline in energy storage battery business revenue, we lowered the company's profit forecast. We expect net profit to be 0.42/0.9/1.13 billion yuan (original value 0.65/1.05/1.37 billion yuan) in 2024-2026, -50%/+113%/+25% compared to the same period. Considering the acceleration of the company's emerging market layout, shipments are expected to continue to increase. At the same time, with interest rate cuts in Europe in 2025, demand for inverters may be significantly restored. 20x in 2025, corresponding to the target price of 74 yuan, maintaining the “buy” rating.

Risk warning: Competition is intensifying, and policies fall short of expectations.