Introduction to this report:

23Q3 Continued removal of stocks in Europe led to a month-on-month decline in the company's revenue, but the micro-inverse pricing system and gross margin were strong. Q4 is expected to drive a month-on-month increase in Q4 revenue as domestic revenue grows.

Key points of investment:

Maintain an increase in holdings rating. Due to slight inverse industry inventory pressure and a slowdown in delivery, we lowered our expectations for the company's 2023-2025 EPS to 7.07 (-2.09), 11.07 (-2.53), and 14.98 (-4.20) yuan. Referring to the average valuations of comparable companies, and considering that the micro reverse penetration rate is expected to continue to increase, the company was given 25 times PE in 2024, corresponding to a target price of 276.79 (-40.49) yuan, maintaining an increase in holdings rating.

Europe continues to remove stocks, and the microinverse price system is strong. 23Q3 The company achieved revenue of 343 million yuan, -18.78%/-29.21% month-on-month, and net profit of 67 million yuan, -58%/-61% month-on-month. The company's Q3 gross profit margin was 49.1%, +1.21pcts/ +10.68pcts, indicating that the micro-inverse price system was strong. The Q3 net profit margin was 19.2%, the same /month on month -18.44pcts/-16.16 pcts, mainly due to fluctuations in exchange and financial interest, and the significant decline in revenue due to fluctuations in exchange and financial interest and continued expansion of cost investment.

The slight negative gross margin is strong, and Q4 is looking forward to the performance of large reserves. 1) Microinverse: 23Q1-3's microinverse and monitor business revenue was 1,165 billion yuan, yoy +37.62%, microinverse sales volume was 1.12 million units, +51% year-on-year, and gross margin remained stable, close to 50%; 23Q3 microinverse sales volume was 230,000 units, -37%/-34% over the same period; monitoring equipment sales volume was 85,000 units, and Europe's share in Q3 increased to 60% +. We expect a weak recovery in 23Q4 microreverse shipments, and expect industry dewarehousing to be completed in the 24Q1 (optimistic) to 24Q2 (pessimistic) range. 2) Energy storage: Q2 achieved revenue from the domestic large storage system of 86 million yuan, gross margin of about 11%, and limited profit contribution. Q3 confirmed revenue from domestic projects is very limited. We expect the annual large storage business to achieve revenue of 2-3 billion yuan, driving Q4 revenue growth over the month, but overall gross margin will decline.

Catalyst: Inventory removal progress has exceeded expectations, and energy storage business has accelerated release.

Risk warning: New product development falls short of expectations, and competition in the industry is intensifying.