Policy+economy promotes the development of optical storage in Europe, and the household storage penetration rate is expected to continue to increase. Against the backdrop of renewable energy transformation goals and continuous improvement in the economy of photovoltaic power generation and photovoltaic distribution and storage, global optical storage installations continue to grow, with Europe leading the household energy storage market. In the short term, the Russian-Ukrainian war triggered Europe's pursuit of low-cost energy and energy independence. According to SPE statistics, new household storage capacity in Europe increased by more than 70% year-on-year in 2022.

Energy prices declined in 2023, but the trend of high household storage capacity continued. Germany, the leading European household storage country, had 5.01 GWh of household storage installed capacity throughout the year, +163.7% over the same period last year. In the long term, the payback period and stability of photovoltaic distribution and storage are superior to photovoltaic power generation, supporting the continuous increase in the European household storage penetration rate, and the household storage development market is broad.

Inverters and energy storage batteries are key components of the energy storage system. I am optimistic that short-term inverters will go overseas to recover. From the perspective of energy storage system costs, energy storage battery packs account for nearly 60% of the cost, and energy storage PCS accounts for 10-20%. The company chose two high-value components, energy storage inverters and battery packs, to focus on string inverters with a high market share and are more suitable for household storage development. At the same time, it is developing energy storage battery packs by superimposing external batteries and self-developed BMS, which have the advantage of track selection and broad long-term incremental space. In the short term, European inventory removal has entered a critical period. Since the end of '23, signs of improving inventories have gradually become clear. In November, the number of inverters exported to Europe increased by 42.2% month-on-month. The Red Sea incident at the end of the year led to a lengthening of the shipping cycle and an increase in shipping costs, further stimulating inventory digestion in the European region. Demand for short-term domestic inverters exported to Europe is expected to rise again.

The company has leading market channels, and product self-adaptation enhances competitiveness. (1) The company's products are mainly aimed at overseas markets, and were the first to obtain entry barriers to the European market, focusing on Europe, the world's largest household storage market. 2023H1, the company achieved sales revenue of 3.163 billion yuan in Europe, accounting for 93.04% of revenue. The company uses a combination of its own brand and ODM sales method. Hanwha Group, the leading ODM customer, has a high brand influence, which can fully help the company expand its market share of its products in Europe. (2) In terms of products, the company uses a specific adaptation model. Self-developed inverters are equipped with self-developed energy storage batteries to form a closed system, which shows strong R&D capabilities and can maximize the efficiency of the energy storage system. All-in-one energy storage products are easy to install and beautiful, and the gross margin level is high. (3) In terms of virtual power plants, the megawatt-scale distributed optical storage interconnection system developed and implemented by the company was successfully applied to the British power FM scenario, and it is expected that the development of Dongfeng virtual power plants will become a new performance growth point.

Investment advice: Based on the future development logic and performance expectations of the company's various sectors, the company is expected to achieve operating income of 4.471, 48.86, and 5.824 billion yuan in 2023-2025, and achieve net profit of 10.53, 10.30, and 1,217 billion yuan, with year-on-year increases of -7.1%, -2.2%, and 18.1%. The corresponding EPS is 6.58, 6.44, 7.60, and the corresponding PE is 11X, 11.3X, and 9.5X, respectively. First coverage, giving a “buy” rating.

Risk warning: demand for installed storage alone falls short of expectations; overseas market expansion is slow; overseas inventory digestion is slow; raw material price fluctuation risk.