Key points of investment:
The company is a leader in the junction box industry and pioneered the production capacity layout. Tongling Co., Ltd. launched the junction box project in 2005. It has been deeply involved in the industry for 17 years, and its market share has reached the top of the list. As of 2023Q1, the company has a daily production capacity of 100,000 sets of chip junction boxes, and is the first to lay out a fund-raising production capacity project. Benefiting from the high demand in the photovoltaic market and the fluctuating decline in raw material prices, the company's revenue grew steadily and profitability recovered in an orderly manner.
2023Q3 revenue/net profit attributable to mother was $329/37 million, respectively, or +4.45%/145% YoY.
Junction box: Demand for installed machines is increasing simultaneously, reducing costs and increasing efficiency+increased performance requirements to drive technology iteration. (1) Global installed capacity is growing rapidly, driving the boom in demand for junction boxes. It is estimated that in 2023-2025, the global demand for photovoltaic module junction boxes is estimated to be 74/94/1.13 billion units, and the CAGR for 2022 is 30.0%, and the junction box market size will reach 159.1/198.2/23.09 billion yuan. (2) The iterative acceleration of battery technology has achieved remarkable results in cost reduction and efficiency. The power and output current of N-type components have increased, and the industry is iterating on split junction boxes and chip junction boxes with better performance and better cost performance, and the industry continues to reduce costs and increase efficiency. (3) Cost is the key to competition, and multiple factors drive industry concentration development. The degree of homogenization of the industry is high, and cost competition has become a major barrier to the industry. Currently, China's PV junction box industry market is scattered, with CR2 being 21%. As downstream manufacturers increase their procurement concentration and junction box manufacturers enter the capital market one after another to raise capital and expand production, the industry concentration is expected to increase further.
Competitiveness: Chip junction boxes are continuously inserted, and vertical integration clearly reduces costs. The company has significant working capital advantages, which supports the continuous expansion of the company's scale, and independently develops chip junction boxes with good heat dissipation and current carrying performance. The gross margin of chip junction boxes is 5% higher than that of diode products. As products continue to be introduced into the market, it is expected to continue to increase the company's profits. The company has basically completed the split junction box coverage, and the cost advantage has been highlighted through vertical integration. As of Q3 2023, the company has basically achieved self-production of cables for its own use, and is expected to increase profits by 2-3 pcts.
Profit forecast: The company's 2023-2025 revenue growth rate is expected to be 45%/36%/34%, respectively, and net profit to mother is 2.20/3.11/434 million yuan, respectively. The current stock price corresponds to PE 22.8/16.1/11.5 times PE.
The 2024 PE is 20 times, corresponding to the target price of 51.8 yuan/share, and a “buy” rating.
Risk warning: Global PV installations fall short of expectations, industrial chain prices fluctuate greatly, production capacity investment falls short of expectations, and industry competition exacerbates risks