Our view: Xinyi Power Storage drives growth with distributed photovoltaic EPC, film, and energy storage “3E” businesses. The three major businesses collaborate, and rely on the raw material collection and brand advantages of Xinyi Group. The company's Canadian EPC business continues to grow, and the profit margin is superior to domestic. It plans to expand more high-potential overseas markets. The prospects are promising; the energy storage business cooperates with EPC to go overseas, and household energy storage products will begin to be shipped in 2023Q2; and the film business certification and introduction have been smooth, with gradual expansion. We are optimistic about the company's long-term development. It is estimated that the company's net profit from 2023-2025 will be HK$0.73, 1.17 and HK$197 million, respectively, +58.3%, +61.6%, and +67.5% year-on-year respectively. We gave the company a target price of HK$3.46, corresponding to 2023-2025 PE of 37.3x, 23.1x, and 13.8x; the target price has room for 57.8% increase compared to the current price; maintaining the company's “increased holdings” rating, investors are advised to pay attention.
2023Q3 revenue and profit both increased: 2023Q3's revenue was +18.6% year over year to HK$411 million, mainly driven by growth in electricity storage and film business; electricity storage, EPC, photovoltaic film, automotive glass repair and replacement services, and other business revenue during the period accounted for 24.0%, 37.0%, 32.3%, 3.4%, and 3.3%, respectively. The gross profit of 2023Q3 company was +4.4% year over year to HK$61.74 million; gross margin was -2.0pcts to 15.0% year on year. The first reason is that the share of industrial and commercial energy storage with slightly lower gross margin increased, the gross margin of some domestic EPC projects it undertook was lower, and the second was the increase in bank loans and financial costs. Company 2023Q3 received a government subsidy of HK$22.26 million, and net profit of the parent was +20.7% year-on-year to HK$34.55 million.
Film certification and introduction have been smooth, with gradual expansion: The company's film business set sail in 2022. Currently, Wuhu's 16GW packaging film production capacity has mass production conditions. It is expected that 45GW of production capacity will be built by the end of the year. In addition, Malaysia's 5GW production capacity has been completed, and production lines have been launched one after another in line with demand. Currently, the company's adhesive film component factory supporting certification and product introduction are smooth. The products on sale include EVA, POE, EPE film, etc. 2023Q3's film business revenue was HK$133 million, +594% year-on-year and +72% month-on-month. Backed by Xinyi Group's raw material procurement, cost control, and customer resource advantages, as film certification and introduction work continues to advance, revenue gradually increases, and subsequent unit costs are expected to decrease, leading to increased profits.
Overseas distributed photovoltaic EPC continues to grow: the company's Chinese EPC business targets industrial and commercial roofs and adopts a customer-owned model; the Canadian business operates through its subsidiary Polaron Energy and targets household and small-scale commercial scenarios, mainly leasing models. 2023Q3, the company's EPC revenue was HK$152 million, -33% year-on-year and +27% month-on-month. The company's Canadian business continues to grow, and profit margins are impressive; profit margin requirements have been set for domestic projects, and revenue has declined. Subsequent companies plan to explore other high-potential overseas markets and differentiate competition; and promote photovoltaic+energy storage EPC to develop existing customers a second time; overseas EPC business growth is expected.
Industrial, commercial and household energy storage is progressing smoothly: the company has vertically integrated the industrial chain and has a production line for lithium batteries and energy storage products in Zhangjiagang, Jiangsu. The energy storage products are all self-developed and produced from batteries, packs, battery management systems, energy management systems, and terminal integrated products, and has transitioned from supporting non-road vehicles such as forklifts to industrial, commercial and household energy storage. 2023Q3, the company's energy storage business revenue was HK$99 million, +32% year over year and +121% month on month. It is mainly driven by domestic industrial and commercial energy storage, and domestic inverter manufacturers also export household storage products to North America. Subsequent companies will promote industrial and commercial energy storage overseas; and promote photovoltaic+energy storage EPC overseas to sell their own energy storage products.
Risk warning: Product price fluctuations, overseas policy risks, orders falling short of expectations, higher costs than expected, insufficient supply of raw materials, and overcapacity in the industry.