3Q24 results exceeded our expectations

The company's 1Q-3Q24 revenue was 54.35 billion yuan, -9.4% year-on-year, net profit -0.48 billion yuan, year-on-year, -107.2%, gross profit margin 5.4%, year-on-year -14.5pct, year-on-year net interest rate -0.9%, year-on-year -12.2pct; of these, 3Q24 revenue was 16.99 billion yuan, -11.2%/-20.5%, net profit to mother 0.39 billion yuan, -80% month-on-month, profit margin 8.7% Compared to -12.4/+5.6pct, net interest rate to mother was 2.3%, and -7.9/+4.1pct year-on-month. The performance exceeded our and market expectations, mainly due to 3Q's cost improvements and US shipping contributions.

Development trends

3Q24 significant cost improvement and performance reversal: The company sold 55-57GW of 1Q-3Q components, of which the 3Q sales volume was 18-19 GW, with a confirmed return of 18.38 GW. We calculated a net profit of about 0.02 yuan/W per watt, a significant increase of about 0.035 yuan/W over the previous period, mainly due to: 1) The new TopCon production capacity gradually climbed in the early stages, and the yield utilization rate improved; 2) Upstream sales were lower than cash costs, and the external battery cost was reduced; 3) 3Q auxiliary materials were significantly reduced, and the component side benefited significantly; 4) 3Q4 US shipments of 1.5 GW contributed to profit.

Operating cash flow continued to be positive, with abundant cash and steady operation: 3Q24 operating cash flow of 2.092 billion yuan, a slight increase over the previous month, continued to maintain good operating conditions; net cash from fund-raising activities - $-2.72 billion, mainly an increase in other cash related to financing activities; and net cash flow from investment activities - -7.898 billion yuan, mainly due to the implementation of additional production capacity. 3Q cash and equivalents decreased by $8.557 billion. As of 3Q24, the monetary capital on the account was 24.197 billion yuan, cash+receivables > short-term debts+ payables, and the operating situation was steady.

The company has strong steady-state management capabilities, and industry pricing power is concentrated in components: Historically, the company has excellent cost control and operating capabilities, and unit costs and profits have been in the first tier of the industry all year round. Profitability was affected in the first half of the year due to problems such as industry price fluctuations and rising production capacity. We expect that this negative factor will gradually improve in the future. Recently, there has been a lot of discussion in the industry about industry self-regulation and supply-side reforms. We believe that the component pattern will be further concentrated on leaders. At the same time, the profit distributed by components in each link of the main industry chain will increase, and leading component companies will become stronger.

Profit forecasting and valuation

We raised our 2024 net profit forecast from -1.51 billion yuan to -1.02 billion yuan due to improvements in the three-quarter report exceeding expectations, and the trend of focusing the pattern and profits towards the leading industry, maintaining the 2025 profit forecast of 2.68 billion yuan.

Considering that the inflection point of supply and demand in the industry is approaching, the company has improved significantly. We have maintained an outperforming industry rating and raised our target price by 69% to 22 yuan, corresponding to the current 21% increase space, corresponding to 27.1 times P/E in 25 years.

The current stock price corresponds to 22.4 times P/E in 25 years.

risks

PV demand fell short of expectations, and the implementation of supply-side policies fell short of expectations.