The 3Q23 performance was slightly lower than our expectations
The company announced 1-3Q23 results: 1-3Q23 revenue of 1,408 million yuan, +50.41% year-on-year; net profit of 415 million yuan, +14.73% year-on-year. The 3Q23 single achieved revenue of 343 million yuan, -18.78% year-on-year, -29.21% month-on-month, net profit of 67 million yuan, -58.23% year-on-year, and -61.11% month-on-month. The performance fell slightly short of our expectations. We believe it was mainly due to low reverse shipping pressure due to high channel inventories.
Microreverse shipping is slightly under pressure. Due to the high inventory levels of channel providers in the European and Latin American markets and the impact of the US NEM3.0 policy on household PV installation demand, 3Q23 had microinverted shipments of 230,000 units, -35% year-on-year and -30% over the previous year; 1-3Q23 shipped a total of 1.12 million units, +52% year-on-year. In terms of shipping regions, European shipments in 3Q23 alone accounted for 60%.
The divestment of the electrical business focused on the main business, increasing profitability. The gross profit margin of the 3Q23 company was 49.1%, +1.2ppt over the previous year, +10.7ppt. We believe that the increase in gross margin was mainly due to: 1) the company divested Hangkai Electric, a subsidiary with weak profitability; 2) the cost control of the microinverse business was good. In terms of price, the value of microinverted units accounted for a low proportion of photovoltaic systems. At the same time, the main sales regions of Europe, North America and other regions paid more attention to brands and product quality, and price sensitivity was low, so the price decline was not obvious; 3) the increase in the proportion of DTU shipments with stronger profitability. Due to the impact of shipments and the company's continued expansion of new product development, the cost rate increased during the period. The cost rate for the 3Q23 period was 36.08%, up 31ppt from month to month. The increase in the cost rate was mainly due to a decline in low-reverse shipping, a decline in interest income, and a continued increase in R&D investment. The company strengthened the expansion of the large storage product range. The total investment in 1-3Q23 R&D has reached 143 million yuan, +181.52% over the same period last year.
Development trends
Focusing on inventory removal in European and Latin American markets, large storage products are expected to become a new driver for profit growth. Due to the high stocking sentiment in the European and Latin American markets, 1Q23 shipments have increased beyond expectations, while 2-3 Q23 shipments are under pressure, compounded by the NEM3.0 policy. We expect a year-on-year decline in shipments in the North American market. Looking ahead to next year, we recommend focusing on channel companies' inventory removal status and company order volume. At the same time, we are relatively optimistic that microinverters will continue to be replaced by small series inverters with high safety, high power generation gains, and high flexibility. The company has continued to strengthen research and development of large storage products since this year. According to the progress of the project system, we believe it is expected to show profit in the fourth quarter of this year. The company's energy storage products cover AC-coupled energy storage inverters, hybird inverters, energy storage systems, etc. suitable for microinverted systems. We are optimistic about the energy storage system business as the main driving force for the company's future performance growth.
Profit forecasting and valuation
Due to the impact of channel companies' high inventories, we lowered our 2023/2024 net profit by 29%/28% to 539/824 million yuan. The current stock price corresponds to 36/23 times P/E in 2023/2024, maintaining an outperforming industry rating. Considering that the long-term micro reverse osmosis rate is expected to increase and the energy storage business is gradually developing, but the industry valuation center is declining, we lowered the target price by 7% to 300 yuan, corresponding to 30 times P/E in 2024, which is 30% higher than the current stock price.
risks
Overseas PV installation demand fell short of expectations, industry competition intensified, and there was a risk of trade friction.