Description of the event

Hemai Co., Ltd. released its 2023 three-quarter report. The first three quarters of 2023 achieved revenue of 1,408 million yuan, an increase of 50% over the previous year; net profit of 415 million yuan, an increase of 15% over the previous year; of these, 2023Q3 achieved revenue of 343 million yuan, a decrease of 19% over the previous year, a decrease of 29% over the previous year; and net profit of 67 million yuan, a decrease of 58% over the previous year, a decrease of 61% over the previous year.

Incident comments

Microinverse and DTU business. We expect the company's Q3 microinverse sales volume to decline month-on-month, and DTU is expected to increase month-on-month. Affected by high channel inventories in the industry, the company's Q3 micro-inverse demand was relatively lackluster. In terms of price and profit, the unit price of Q3 products is expected to be stable month-on-month, and gross margin is expected to remain stable.

Other businesses, overall performance in Q3 was stable. Among them, the large storage business is expected to contribute a small amount of revenue, the complete electrical equipment business is expected to contribute a small amount of revenue, and the distributed power generation business is expected to contribute a small amount of revenue.

In terms of other data, the Q3 company's expenses rate for the period was 36.1%, a sharp increase of 31 pct over the previous month. The reasons may be: 1) the month-on-month decline in revenue, which did not effectively dilute costs; 2) the exchange losses; 3) the increase in per capita remuneration; and 4) the increase in R&D investment. At the end of 2023Q3, the company's inventory was 840 million yuan, an increase of 3%, which is relatively stable.

Looking ahead, we expect Q4 microreverse shipments to increase month-on-month as the peak season effect increases. Recently, the company's micro-reverse orders have improved month-on-month. It is expected that channel inventory removal will be completed in the first half of next year. At that time, the company's order demand will reach an inflection point in growth. The annual large reserve revenue is expected to increase significantly year on year, continuing to contribute to the increase in revenue and profit.

We expect the company to achieve profits of 590 million and 920 million yuan respectively in 2023-2024, corresponding to PE of 34 and 22 times. Maintain the buy rating.

Risk warning

1. The competitive pattern deteriorated;

2. PV installation falls short of expectations.