The company's 2023Q3 performance fell short of expectations, mainly due to high inventories of overseas microinverts and other product channels, which led to a slowdown in the company's shipments. As Q4 overseas inventory pressure gradually eases, customer demand and product delivery are expected to gradually improve; at the same time, the company is actively increasing investment in R&D, rapidly expanding energy storage systems and PCS business, contributing to new performance growth points. We lowered the company's 2023-25 EPS forecast to 7.31/11.91/16.83 yuan and gave it a target price of 298 yuan (corresponding to 25 times PE in 2024) to maintain the “buy” rating.

Q3 Performance fell short of expectations, and high inventory pressure caused a slight slowdown in reverse shipping. In 2023Q1-3, the company achieved revenue of 1,408 million yuan (+50.4% YoY), net profit of 415 million yuan (+14.7% YoY), and performance fell short of expectations; of these, 23Q3 achieved revenue of 343 million yuan (-18.8% YoY, -29.2% QoQ) and net profit of 67 million yuan (-58.2% YoY, -61.1% QoQ). The decline in performance was mainly due to high inventory of overseas microinversion and other product channels and slow shipments. The company's 2023Q1-3 gross margin was 44.3% (-2.6pcts YoY), of which the Q3 gross profit margin was 49.1% (+1.2pcts YoY, +10.7pcts QoQ). Thanks to the increase in microinversion and DTU sales, and the divestment of the low-profit Hangkai Electric complete equipment business, the company's quarterly gross margin reached a record high.

Slight reverse shipments are under phased pressure, and falling inventories are expected to accelerate growth. The company's 2023Q1-3 microinverse sales volume reached 1.12 million units, of which Q3 sales volume was about 230,000 units (-32% QoQ), mainly due to a phased slowdown in customer demand under pressure from overseas inventories, but the company maintained a high gross profit margin of around 50%, and the long-term growth trend and space are still impressive. We expect that as channel inventories continue to be removed, Q4's microinverse shipments are expected to gradually pick up, and the annual sales volume of microinverse is expected to reach around 1.4 million units. At the same time, the company has continuously upgraded microinverted products and launched a new one-drag four-phase microinverse, adapting to 182/210 high-power photovoltaic modules, which are more suitable for industrial and commercial photovoltaic power plants and other application scenarios, broadening the boundaries of microinverted applications; and for different photovoltaic application scenarios such as balconies and roofs, the company has upgraded one-to-two and one-drag-four products to further simplify users' photovoltaic installation processes and strengthen the company's product market competitiveness.

Increase investment in R&D and rapidly expand energy storage systems and PCS business. The company is actively increasing R&D investment and new business development efforts, and promoting sales of products such as household storage, large storage systems, and large storage PCS. Currently, the company has sufficient reserves of large storage projects and large storage PCS orders. Q4 is expected to release revenue and profits and contribute to long-term growth. In terms of household storage PCS, the company already has single-phase 3-6kW and three-phase 5-12kW products, and has launched a series of products for different market requirements and demand characteristics, collaborating with microinverters to form overall system solutions, further consolidating the optical storage business layout.

Risk factors: distributed photovoltaics growth falls short of expectations; industry competition intensifies; the company's new product development progress falls short of expectations; company channel expansion falls short of expectations, etc.

Investment suggestion: Considering that minor reverse shipments were slower than expected due to high overseas channel inventories, we lowered the company's 2023-25 net profit forecast to 6.1/9.9/1.40 billion yuan (original forecast value was 9.3/14.1/2.09 billion yuan). The corresponding EPS forecast was 7.31/11.91/16.83 yuan, respectively, and the current price corresponding to PE was 32/19/14 times, respectively. Combined with the current average PE of comparable companies (Sunshine Power, Deye Co., Ltd., Yuneng Technology) in 2024 based on consistent profit expectations of Wind, about 12 times, considering that the company is a high-quality leader in the microinverted circuit with long-term growth potential and is accelerating its layout in the energy storage field, it is expected to usher in high growth, giving the company 25 times PE in 2024, corresponding to a target price of 298 yuan (original target price of 334 yuan), maintaining a “buy” rating.