3Q24 results are in line with our expectations

The company announced 1-3Q24 results: revenue of 4.641 billion yuan, +11.21% year on year, net profit of 0.752 billion yuan, corresponding to profit of 1.91 yuan; single 3Q24 achieved revenue of 1.807 billion yuan, +30% year over year, -8% month on month, net profit of 0.317 billion yuan, net profit to mother of 0.317 billion yuan, corresponding to profit of 0.8 yuan per share, in line with our expectations.

Development trends

Profitability is steady, and operating efficiency is improved. 3Q24's gross sales margin was 36.43%, +2.78ppt year over month, and -1.41ppt. We believe that the slight month-on-month decline in gross margin was mainly due to changes in the regional structure of product sales. The year-on-month increase in net interest rate reflects the optimization of the company's cost control and operational efficiency. The Q3 net margin was 17.53%, +8.59ppt year over year, and +0.58ppt month-on-month. In terms of expenses, 1-3Q24 sales/management/R&D/finance expenses were 3.39/0.183/0.291/0.246 billion yuan, respectively, +32.3%/+22.3%/+158.57%. The increase in sales expenses was mainly due to the company expanding its market share in emerging markets such as Asia, Africa, and Latin America this year, increasing expenses such as overseas service fees, marketers' remuneration, and exhibition fees. The sharp increase in financial expenses was mainly due to the increase in interest expenses of the company increasing the size of loans. 1-3Q24 accrues credit impairment losses of 0.026 billion yuan and asset impairment losses of 7.28 million yuan. The company's asset impairment loss calculation has been drastically reduced year-on-year. Furthermore, the number of inventory turnover days for 1-3Q24 is 163 days, which is a significant decrease compared to 2023, reflecting the improvement in the company's inventory removal.

Shipments in the Asian, African, and Latin American markets continue to rise, and demand for connecting to the grid is expected to recover after the European summer vacation. Q3 Demand declined slightly due to factors such as European holidays, mixed ups and downs in the new markets of Asia, Africa, and Latin America, and delivery delays due to the domestic typhoon. As short-term factors are eliminated and channel inventory returns to normal, we expect the company's market share to continue to increase in Q4 and 2025. On the one hand, as a leading manufacturer of distributed optical storage, the company has a perfect global layout to seize opportunities in the emerging markets of Asia, Africa, and Latin America. Currently, we expect the company to account for 30% of shipments in Asia, Africa, and Latin America. According to Wood Mackenzie, the company has increased the product power range and extended to industrial and commercial small ground scenarios. The 150KW industrial and commercial models were successfully shipped this year. At the same time, we are optimistic that the company will rely on high-quality optical storage inverter products to meet the needs of the Southeast Asian market. Orders from high-profit overseas markets, such as improving channel construction, continue to grow.

Profit forecasting and valuation

Maintain the profit forecast of 0.902 and 1.516 billion yuan in 2024 and 2025, and maintain the industry's performance rating. Considering the recovery in market sentiment in the PV sector and the recovery in demand sentiment after European inventory removal, we raised the target price by 34% to 95 yuan, corresponding to 25 times the price-earnings ratio in 2025. There is 28% upward room compared to the current stock price, and the current stock price corresponds to 33 and 20 times the price-earnings ratio for 2024 and 2025.

risks

There is a risk of trade policy fluctuations, the risk that demand for storage will fall short of expectations, and industry competition will increase the risk.