Matters:

The company released its 2024 semi-annual report: 24H1 achieved operating income of 3.773 billion yuan, yoy -13.75%; realized net profit to mother 0.042 billion yuan, yoy -83.41%; realized deducted non-net profit of 0.012 billion yuan, yoy -95.05%.

Among them, Q2 achieved revenue of 2.176 billion yuan, qoq +36.25%, yoy +15.79%; realized net profit of 0.025 billion yuan, qoq +54.81%, yoy -63.21%; deducted non-net profit of 0.007 billion yuan, qoq +70.23%, yoy -88.84%.

Inventory impairment affected the apparent performance in the first half of the year. It is speculated that it was mainly affected by the continued decline in battery cell prices in the industry.

In 24H1, the company calculated a total of 0.145 billion yuan in credit impairment provisions and asset impairment provisions. Of these, the greatest impact of asset impairment was inventory impairment of 0.115 billion yuan. Under inventory impairment: depreciation of 0.011 billion yuan for raw materials, 0.066 billion yuan for inventory products, 0.038 billion yuan for homemade semi-finished products. According to SMM energy storage related data, in February 2024, the average monthly price of 280Ah square lithium iron phosphate energy storage cells was 0.43 yuan/Wh, and currently most companies generally offer less than 0.35 yuan/Wh for batteries of this specification. Furthermore, during China Southern Power Grid's 0.5C 314Ah energy storage cell procurement on September 3, the unit price limit was only 0.305 yuan/Wh.

In other words, depreciation speculations on the company's inventory products and homemade semi-finished products are mainly due to the impact of battery cell price reductions. However, the current sales price of batteries is getting closer to their BOM cost. It is expected that there is limited room for subsequent price cuts, and the impact of asset impairment due to product price reductions will decrease in the future.

Shipments of 24H1 energy storage batteries grew rapidly, mainly due to the increase in large storage and communication energy storage, and household storage declined year-on-year. According to the company's semi-annual report, although 24H1's energy storage product shipments increased significantly year on year, due to the large year-on-year drop in sales prices, total revenue from the energy storage business declined by a certain margin. Among them, large-scale energy storage and communication energy storage both increased significantly in terms of shipment volume and sales revenue, and household storage shipments and revenue fell sharply year on year. The company is vigorously deploying large storage, household storage, portable energy storage, industrial and commercial energy storage, etc., and all have high-quality customer resource layouts, which are expected to fully enjoy the dividends of the rapid growth of the industry.

New battery technology is being actively deployed, and research and development work on solid-state batteries and sodium-ion batteries is continuing. On August 28, the company held an online product technology conference through the official WeChat video account and officially released two 20Ah and 2000mAh soft pack all-solid-state batteries. Also released along with solid-state batteries are new low-temperature household storage batteries and new 590Ah high-capacity energy storage cells. In addition, the company also announced its technical route for all-solid-state batteries. The company uses oxide composite solid electrolytes to build all-solid-state batteries, which achieves the intrinsic safety of batteries, and at the same time greatly reduces the cost of solid-state batteries.

Investment advice: The company has been deeply involved in the battery industry for more than 20 years, and has a layout in various aspects such as energy storage, communications, consumption, and power. In particular, the energy storage industry is currently in a stage of rapid growth, and the company is expected to enjoy industry dividends. We expect the company's 2024-2026 net profit to be 0.175/0.369/0.497 billion yuan, respectively, and the current market value corresponding to PE is 72/34/25 times, respectively. Along with the gradual stabilization of battery prices in the industry, the company's apparent profit is expected to return to a reasonable range. Furthermore, if the industrialization process of new technology accelerates, the company's long-term profit margin can be expected, but the company's PE valuation is higher than that of leading companies in the industry, and it has been lowered to a “recommended” rating.

Risk warning: Inventory price declines account for related impairment, and competition for energy storage intensifies.