Event: The company released its 2023 annual report and 2024 quarterly report. On April 29, the company released its 2023 annual report, achieving operating income of 129.498 billion yuan, a year-on-year increase of 0.39%; realized net profit attributable to shareholders of listed companies of 10.751 billion yuan, a year-on-year decrease of 27.41%; and realized net profit attributable to shareholders of listed companies after deducting non-recurring profit and loss of 10.834 billion yuan, a year-on-year decrease of 24.84%. At the same time, the company released its 2024 quarterly report. In the first quarter, it achieved operating income of 17.674 billion yuan, a year-on-year decrease of 37.59%; realized net profit attributable to shareholders of listed companies was 2.350 billion yuan, a year-on-year decrease of 164.61%; and net profit attributable to shareholders of listed companies after deducting non-recurring profits and losses was 2,419 billion yuan, a year-on-year decrease of 167.37%.

Strictly control financial risks and adhere to steady management and sustainable development. Facing a fierce competitive environment in the industry, such as accelerated technological iteration, rapid increase in production capacity, and continuous price decline, the company adheres to steady management, the investment principle of “no leadership, no expansion of production”, and a rational and sustainable pricing strategy to control operating risks. By the end of 2023, the company had a balance ratio of 56.87%, an interest-bearing debt ratio of 11.62%, and sufficient cash reserves. It maintained a steady financial situation and excellent resilience to risks during a period of fluctuating industry operations where prices were declining.

Shipments of silicon wafers and components are growing rapidly, and profits are being dragged down by inventory impairment factors. In 2023, the company's silicon wafer and module shipments continued to grow rapidly, achieving 125.42 GW of silicon wafer shipments, an increase of 47.45% over the previous year. Of these, foreign sales were 53.79 GW, an increase of 26.50% year on year, maintaining the number one monocrystalline silicon wafer shipment volume in the world for nine consecutive years.

The silicon wafer and silicon rod business achieved revenue of 24.519 billion yuan, a year-on-year decrease of 35.81%, and gross margin decreased by 1.74 pcts year on year to 15.88%; component shipments were 67.52 GW, up 44.40% year on year, of which external sales were 66.44 GW, up 44.17% year on year. The battery is sold abroad at 5.90 GW. The battery and module business achieved revenue of 99.199 billion yuan, an increase of 16.91% year over year, and gross margin increased 4.73 pcts year over year to 18.38%. In the first quarter of 2024, the company achieved a silicon wafer shipment volume of 26.74 GW (12.43 GW of external sales), an increase of 12.26%; external battery sales of 1.51 GW; and module shipments of 12.89 GW (12.84 GW of external sales), an increase of 16.55% over the previous year. The company shipped 4.75 GW of HPBC products, maintaining a continuous growth trend and helping to significantly increase distributed business volume. Affected by falling product prices and technological iteration, in 2023, the company calculated provisions for inventory and fixed asset price reductions of 6.757 billion yuan, of which 5.171 billion yuan was included (including about 1.35 billion yuan in additional inventory price reduction provisions due to long-term stagnation of some products due to US policy). In the first quarter of 2024, the company calculated impairment reserves of 2,649 million yuan for inventory assets and 152 million yuan for impairment of fixed assets.

HPBC battery technology continues to break through, and large-scale shipments have been recognized by customers. The HPBC technology independently developed by the company went through painstaking debugging in the first half of 2023, and achieved breakthroughs in mass production efficiency and cost reduction in the fourth quarter of 2023. The Hi-MO X6 module has a maximum conversion efficiency of 23.3%. The front barrier-free design increases light absorption by 2.27%, the relative power generation gain in low light is as high as 2.01%, and the temperature coefficient is optimized to -0.29% /℃. The low attenuation characteristics ensure that it still has 88.9% power generation efficiency after 25 years. This product has been widely recognized by customers around the world for its excellent product performance and perfect appearance, and has now steadily achieved large-scale shipments of more than 2 GW per month.

At present, the company has successfully developed HPBC second-generation products. With outstanding high conversion efficiency, low attenuation rate, and better low light performance and temperature coefficient, the module power can be increased by more than 5% compared to the standard TopCon module, increasing the power generation capacity of the power plant by 6.5% to 8% throughout the life cycle. The new product is scheduled to be launched in the second half of 2024, which will bring strong impetus to the company's continuous high-quality development through the industry cycle.

Continue to improve the global production capacity layout and actively respond to changes in trade policies in overseas markets. The company is actively expanding overseas production capacity. Projects such as 2.8 GW modules in Malaysia and 3.35 GW batteries in Vietnam are gradually put into operation on schedule, and construction of the 6.6 GW silicon rod project in Malaysia is progressing in an orderly manner. In addition, the company actively responds to overseas market trade policies, cooperates closely with the upstream and downstream of the industrial chain to promote the construction of a green and traceable supply chain system, and strengthen supply chain stability in overseas high-value markets. With the official commissioning of the company's 5GW component joint venture plant in Ohio in the first quarter of 2024, the company's shipping capacity in the US market will be enhanced.

Actively expand the hydrogen energy business, leading the industry in technology and production capacity scale. In 2023, Longji Hydrogen Energy released a new product in the ALK Hi1 series. The DC power consumption of the product for hydrogen production was reduced to 4.0 kWh/Nm3, which is at the leading level in the industry. The industry's first single-tank 3000nm3/h alkaline electrolyzer was launched, which is the largest single-tank in the industry and can effectively reduce initial investment costs; a green electricity+green hydrogen system solution was released to help China's first 10,000 ton green hydrogen demonstration project, and business expansion was carried out in various fields such as petroleum refining, synthetic ammonia, and hydrogen metallurgy. In 2023, Longji's hydrogen energy turnover exceeded 100 million yuan, becoming the largest manufacturer of alkaline electrolyzers in China. By the end of the reporting period, it had built 2.5 GW of production capacity, ranking first in the industry.

Investment advice. Under current share capital, based on the company's profitability and industry supply and demand, we expect the company's net profit to be 40.69/70.78/9.040 billion yuan in 2024-2026, corresponding to PE of 34.68X/19.94X/15.61X, maintaining the company's “buy” rating.

Risk warning: risk of technological change, risk of fluctuating raw material prices, risk of overseas operations, increased risk of industry competition, risk of demand falling short of expectations.