Q2 Performance is under pressure, mainly due to inventory impairment

According to the company's semi-annual report, 1H24 achieved operating income of 38.529 billion yuan, a decrease of 40.41%, and net profit to mother of 5.243 billion yuan, a decrease of 157.13%. 24Q2 achieved operating income of 20.855 billion yuan, a decrease of 42.6%, an increase of 18%, net profit to mother of 2.893 billion yuan, a decrease of 152.21%, and a decrease of 23.1%. The pressure on Q2 performance was mainly due to falling prices in the industry chain, which caused more inventory price depreciation and loss of 2.97 billion yuan in asset impairment. Considering the continued decline in prices in the photovoltaic industry chain, we lowered the company's 24-year silicon wafer and module business price, gross margin and shipping assumptions, and lowered the company's 24/25/26 EPS to -0.97/0.79/1.18 yuan (previous value: 0.73/0.95/1.05 yuan). Referring to Wind's consistent expectations, this is 9 times the company's 25-year PE average. Considering the company's prominent position as a leader in integrated components and the leading HPBC technology layout, I am optimistic that the company will maintain its leading position in the industry. The company will be given 21 times PE in 25 years, corresponding to a target price of 16.59 yuan (previous value 19.71 yuan), and maintain a “buy” rating.

PV leaders have steady shipments and strong cost control capabilities

1H24 delivered 44.44 GW of silicon wafers, including 21.96 GW of export sales; 2.66 GW of batteries; 31.3 GW of module shipments, an increase of 18%. Among them, sales in the Asia-Pacific region increased by more than 140% year on year, and BC modules shipped about 10 GW. The PV product 1H24 achieved revenue of 36.708 billion, a decrease of 42.54%, gross margin of 6.46%, and a drop of 12.43 pct. Affected by falling prices in the industrial chain, profitability was under pressure.

The company's ability to control costs is strong. The cost rate was 8.61% during the 24Q2 period, down 1.88pct from month to month, of which the management fee ratio was 3.71%, down 1.76pct from month to month. The company has sufficient capital reserves. As of the end of Q2, the monetary capital was 54.484 billion yuan, while short-term loans were only 0.3 billion yuan, and the non-current liabilities due within one year were only 3.068 billion yuan, and the balance ratio was 59.16%, which is at the low level of the industry; the company's financing channels are unobstructed. As of the end of Q1, the domestic credit limit of the company's bank was 101.27 billion yuan, and the unspent amount was 60.126 billion yuan, which helped support the company to cross the bottom cycle of the industry.

Leading BC technology+industrialization to create a differentiated competitive advantage

The company adheres to a differentiated layout strategy and released Hi-MO9, a double-sided component product based on HPBC 2.0 battery technology in May '24. The mass production power is 660W, which is more than 30W higher than TopCon modules of the same specification. The cost is expected to be basically the same as TopCon modules on the battery side. With the advancement of BC second-generation battery projects such as 12.5GW in Xixian New Area and 12GW in Tongchuan, HPBC 2.0 products will be launched on a large scale by the end of 24. The BC production capacity is expected to be 70 GW by the end of 25, of which the second-generation BC is about 50 GW, and the domestic battery base plans to fully migrate to BC products by the end of '26. Currently, the second-generation BC components have signed an order of 1 GW. We are talking about an order of 5 GW, all of which are European customers. We are optimistic that the company will rely on BC's technical reserves and first-mover advantage to form a differentiated competitive advantage with efficient components from other technology routes.

Risk warning: competition in the industrial chain intensifies; downstream demand falls short of expectations; BC technology development falls short of expectations, etc.