The company announced third-quarter results: 24Q3 revenue of 3.367 billion yuan, -49.44% YoY, +23.26%; net profit to mother -0.082 billion yuan, YoY -110.46%, +91.47% month-on-month; deducted non-net profit -0.088 billion yuan, -111.48% YoY and +91.29% month-on-month. 24Q1-Q3 revenue was 10.347 billion yuan, or -44.93%; net profit to mother - -1.339 billion yuan, or -195.47% year over year; deducted non-net profit - -1.488 billion yuan, or -213.33% YoY.

We believe that the company's silicon wafer production capacity market share is leading. The product technology meets the needs of downstream battery customers such as TopCon/HJT. Equipment performance is about to increase. The sharp narrowing of Q3 losses indicates that the company's business conditions have improved markedly. It is expected that 25-26 results will usher in a strong recovery and maintain an “increase” rating.

Loss per watt has been reduced, gross margin has been corrected, and rate control is good

24Q3 gross margin was 11.3%, +28.6pct month-on-month; net profit margin -2.5%, +32.8pct month-on-month. The gross margin was corrected year on year, and the net profit margin was drastically recovered month-on-month. On the one hand, due to the month-on-month improvement in single-watt losses in the silicon wafer business, on the other hand, the volume of hydrogen energy equipment released contributed to considerable profits. The company's expense ratio for the Q3 period (excluding R&D) was 7.4%, +4.2% year-on-month, and -2.7% month-on-month; among them, the sales/management/finance expense ratios were 2.0%/2.5%/2.9%, +1.21/1.29/1.68pct, and -0.27/-0.83/-1.62 pct month-on-month, and the rate was well controlled month-on-month.

Operating cash flow recovers, inventory decline narrows

In 24Q3, the company's operating cash flow was 0.205 billion yuan (Q2 was -1.514 billion yuan), and the company began to speed up downstream payments in the industrial chain, return capital reserves, and withstand the downward cycle. In 24Q3, the company's inventory depreciation losses decreased month-on-month. Asset impairment losses were -0.068 billion yuan, and credit impairment losses were -0.079 billion yuan. Compared with H1 asset impairment of -0.438 billion yuan, a sharp narrowing was achieved.

Continued expansion of overseas markets

24Q1-Q3 achieved a breakthrough in hydrogen energy equipment going overseas, giving full play to the advantages of the collaborative layout of the equipment business. In the first three quarters, Shuangliang Group formally signed a strategic cooperation agreement with MMEC in the UAE, and plans to carry out in-depth cooperation in clean energy technology research and development, project implementation, and market expansion. The Middle East is a blue ocean market for photovoltaics, and many PV module manufacturers have laid out production capacity in the Middle East. As a supplier of photovoltaic equipment, the company is expected to benefit from modules going overseas and opening up profit margins.

Profit forecasting and valuation

We maintain the company's 24-26 net profit forecast of 1.996/0.666/1.703 billion yuan. Referring to the company's 25-year Wind unanimously expected PE 24 times, considering the company's imminent release of green electricity hydrogen production equipment and the high demand for traditional equipment business, we gave the company a 25-year PE valuation of 25 times, with a target price of 9.0 yuan (previous value of 5.4 yuan), maintaining a “gain” rating.

Risk warning: Silicon wafer price fluctuations exceed expectations; downstream demand falls short of expectations, etc.