Investment advice

The company is a leading microinverter company in China. By building a 3X3 product matrix, the three major business formats of microoptical storage, household optical storage, and industrial and commercial optical storage have been linked. We believe that Microreversal is a high-quality circuit with a high return on investment and long-term growth in the photovoltaic industry. Recently, the company has gained strength in the new low-light storage market. The balcony and DIY markets have great long-term potential, and the company's competitive advantage is obvious, and the beta+α attributes are prominent.

rationales

Micro-optical storage: Balcony light storage is economical and convenient. I am optimistic that this market will radiate from Germany to the European, African, and Latin American markets. There is plenty of room for long-term growth, and the company's competitiveness compared to peers is obvious. Recently, balcony light storage has become popular in Germany. We believe that the core driving factor in the market is the demand for electricity savings from tenants who cannot install rooftop optical storage. The stimulus factors are low initial investment in equipment, high return on investment due to reduced installation costs, and policies (Solarpaket I was officially approved in Germany in May this year) to improve the convenience of installation and grid connection. We estimate that the return on investment of balcony optical storage is 35%, the payback period is 2-4 years. Tenants can pay back during the rental period, and the yield of balcony optical storage is higher than 18ppt of roof optical storage under the same electricity price conditions.

We estimate that in 2024/2025/2026, Germany added 0.64/1.05/2 million sets of balcony light storage machines, and the corresponding micro reverse market space was 0.096/0.147/0.28 billion euros, respectively. The limit assumes that all German tenants install balcony optical storage, then the German balcony light storage space is 2 billion euros. In addition, balcony optical storage products have off-grid properties and are also suitable for use in regions with unstable electricity supply such as Asia, Africa, and Latin America. We believe that the company is competitive compared to overseas manufacturers and domestic manufacturers, as reflected in: 1) seizing the opportunity and having a clear first-mover advantage; 2) strong brand power, high gross margin for the middle and high-end customer groups; 3) EZHI products are optical storage hybrid inverters with differentiated designs; 4) reuse of original micro-inverse channels. The company currently accounts for 20% of the market share of balcony optical storage in Germany. We are optimistic that EZHI volume sales will drive the company's market share to increase.

Household optical storage: The company's slightly inverted basic market is stable, and is expected to benefit from a 25-year recovery in European and American demand, based on: 1) the industry experienced channel inventory elimination in 23 or 24 years, and manufacturers' shipments are expected to return to normal; 2) European and American electricity prices are still in a high position. Combined with the implementation of US interest rate cuts, the economy of optical storage installations is still there. The company has been deeply involved in the micro reverse market for many years and is a leading domestic micro reverse enterprise. In 1Q23, it began to adopt a series of measures to reduce inventory pressure. We believe that the company's inventory removal is improving, and the number of inventory turnover days is declining. We expect the company's shipment volume to increase by 20%/30% year on year in 2024/2025. Industrial and commercial optical storage: based on the domestic market, achieving breakthroughs in overseas markets. Centralized delivery of the company's 3Q24 industrial and commercial reserves has driven a sharp increase in revenue. We are optimistic that the company will have plenty of domestic orders in hand. In the second half of this year, it will achieve a breakthrough from 0 to 1 in the overseas industrial and commercial storage market, and the increase in overseas shipments will drive up the gross margin center.

Profit forecasting and valuation

The profit forecast for 2024 and 2025 remains unchanged, and the rating is outperforming the industry. Considering that the company's low-light storage business is highly competitive, the target price was raised 17% to 80.5 yuan, corresponding to 35 times P/E in 2025. There is 32% room to rise compared to the current stock price. The current stock price corresponds to 35/26 times P/E for 2024/2025.

risks

Demand for optical storage falls short of expectations, market competition increases risks, and trade policy fluctuations risk.