Key points of investment

Competition in the main photovoltaic industry chain has intensified, and profits in all aspects of module integration are under pressure. The company's 2024H1 revenue was 47.25 billion yuan, year-on-year -11.9%, net profit to mother 1.2 billion yuan, year-on-year -68.8%, gross profit margin 8.6%, year-on-year -6.6pct, year-on-year net profit 2.5%, year-on-year -4.6pct; 2024Q2 revenue 24.17 billion yuan, year-on-month -20.7%/4.7%, net profit to mother 0.02 billion yuan, year-on-month, -98.9%, gross profit margin 7.6%, month-on-month 8.6pct/-2pct, net interest rate 0.1% to mother, -7.1pct/-5pct year-on-month.

Shipments rank among the top in the world, and 2024Q3 remains steady. The company's 2024H1 module sales were about 43.8 GW, an increase of 44%, of which the N type was about 35.9 GW; overseas shipments accounted for about 65%, accounting for about 71% of revenue. Of these, 2024Q2 shipped about 23.8 GW, an increase of 36% over the same period, an increase of 19%, and the N model accounted for about 85%. Due to the impact of 2024Q2 trade policy+delivery pace, US shipments declined slightly, and the share of China and Europe increased. The 2024Q3 production schedule is basically flat month-on-month. We expect the company to ship about 23-25 GW in 2024Q3, maintaining the annual shipment forecast of 100-110 GW, with the US accounting for 5-10%; shipments are stable in the lead.

Lay out overseas technology to go overseas, and enjoy premium prices when landing in the US. The company's production capacity for silicon wafers/batteries/modules is expected to be 120/95/130 GW by the end of 2024. The contraction in battery production capacity compared to the previous period is mainly due to the Phase 1 fire at the Shanxi base affecting the pace of 14GW battery production (Ra crystal modules have already been put into production), and phase 2 is expected to be put into operation in 2024Q4. In July 2024, it was announced that a joint venture with Saudi PIF will be invested in a 10GW battery module project. “Chinese technology+Middle East capital” will deploy Saudi technology to go overseas. Construction will commence in 2024, and mass production will begin in March 2026. The US 2GW module was put into production in 2024H1, enjoying premium prices in the high-end market.

Dynamically maintain technical advantages and continue to improve efficiency. The company's mass production efficiency reached 25.8% at the end of 2023. Through LECO and other technology optimizations, the average efficiency in June 2024 reached 26.1%, and the gold line efficiency reached 26.3%. It is expected to reach 26.5% by the end of 2024, and the average annual efficiency can be increased by 0.5 pct to 27% in the next three years; Shanxi Phase II has introduced 0BB mass production, and technology continues to lead the industry. At the same time, 2024H1 made a major breakthrough in the research and development of perovskite laminated batteries based on N-type TopCon. The conversion efficiency reached 33.24%, and the future of laminated batteries can be expected.

Expenses are clearly optimized, and fire losses affect profits. Expenses for the 2024Q2 period were 1.08 billion, 153.8%/-41%, period expense ratio 4.5%, 3.1/-3.5pct; 2024Q2 net operating cash flow -2.79 billion, -147.6%/-338.1%; 2024H1 capital expenditure was 4.4 billion yuan, or -38.4% year over year, of which 2024Q2 expenses were 1.26 billion, or -69%/-59.8%; end of 2024Q2 Inventory was 19.49 billion yuan, -3.2% compared to the end of 2024Q1. Affected by the decline in the industrial chain, 2024Q2 affected performance by 0.43 billion in asset impairment, -0.1 billion in investment income, and 0.65 billion in fire losses in Shanxi.

Profit forecast and investment rating: Based on increased competition and profit pressure, we lowered our profit forecast. We expect the company's net profit to be 1.29/3.12/3.96 billion yuan in 2024-2026 (4.2/6/8.6 billion yuan before 2026), -83%/+142%/+27% year-on-year, considering the company's leading PV position and current position at the bottom of the industry. The company's profit is expected to gradually recover in the future as production capacity clears up, and the company's profit is expected to gradually recover.

Risk warning: competition intensifies, policies fall short of expectations, etc.