3Q24 results fall short of market expectations

The company announced 3Q24 results: revenue of 0.553 billion yuan, up 12.3% and 16.7%; net profit to mother of 0.017 billion yuan, reversing losses year on year and up 10.2% year on year; losing 6.726 million yuan after deducting non-net profit loss, reducing losses year on year and month on month. The company's 3Q24 performance fell short of market expectations due to the fact that the recovery slope of European household storage demand is still slow and combined sales prices have declined.

Development trends

Shipments of energy storage systems continued to pick up month-on-month, but the downstream recovery slope is still slow. We estimate that shipments of the company's 3q24 energy storage system were 0.4-0.45 GWH, up about 30.8% from month to month, showing a continuous positive trend; although the elimination of household storage inventories in Europe is nearing its end, the demand recovery slope is not steep due to falling electricity prices and high interest rates; 4Q24 is affected by European holidays, usually during the low season for home storage machines, and we expect the company's shipments to continue to rise steadily. Overall, we believe that in the context of Europe's energy transition, household storage still has potential for development. As Europe enters the interest rate cut cycle, household savings financing costs will improve, and some countries, such as the Netherlands, plan to cancel the household photovoltaic net metering plan 1 to encourage personal use and increase household storage plans, which is expected to accelerate the recovery of household savings in Europe.

The sales price of energy storage systems has declined month-on-month, and profit levels have also declined somewhat. We estimate that the sales price of the company's 3Q24 energy storage system was about 1.32 yuan/Wh, down 10.8% month-on-month, mainly due to a decrease in the price of midstream and upstream raw materials; due to the drop in sales prices, the company's 3Q24 comprehensive gross margin fell 5.5 ppt to 33% month-on-month. We estimate that a single watt-hour operating deduction of non-profit was about 3 cents, a decrease of less than 1 cent month-on-month.

Rates have improved, asset depreciation has dragged down apparent profits, and there is plenty of net cash on hand. The company's 3Q24 sales/management/R&D rates fell by 3.8 ppt/0.7pp/3.5ppt, respectively, benefiting from the recovery in revenue scale and significant rate improvements; 3Q24's accrued asset impairment of 21.39 million yuan, mainly due to inventory price drop losses and contract asset impairment; as of the end of 3Q24, the company's net cash (monetary capital minus long and short-term debt) was about 3.5 billion yuan. Abundant cash is expected to support the company through the cycle.

Profit forecasting and valuation

Considering the uncertainty of the recovery pace of European household storage and price cuts, we lowered the company's 2024/2025 profit forecast by 54%/32% to 0.077/0.291 billion yuan, but we are still optimistic about the development prospects of household storage under the European energy structure transformation. Under the interest rate cut cycle, it is expected that demand will continue to be activated, and the company will benefit from a recovery in European home storage with greater profit flexibility. At the same time, we have maintained the company's target price of 50 yuan and outperforming the industry rating. The current stock price/target price corresponds to 40.8x 2025 /42.1x P/E with 3.3% upside.

risks

Global demand for household storage fell short of expectations, raw material prices fluctuated greatly, profits declined due to increased market competition, and exchange rates fluctuated sharply.