Key points of investment:

While maintaining the rapid growth of the traditional photovoltaic inverter business, the company is vigorously developing the energy storage converter and system integration business. Taking advantage of the optical storage industry, it has gradually established a brand reputation in major markets at home and abroad with its technical advantages and many years of market channel layout, and structural profitability is expected to improve.

Industry outlook: Starting in 2022/Q4, an important development period where total demand increases and diversity is highlighted, the prices of the main raw materials for optical storage systems have dropped sharply, and the prices of components and lithium carbonate have dropped by 58%/83% respectively, driving the initial investment cost of the system to break through historic lows, and potential demand is expected to be fully released. As the business model of optical storage projects gradually matures and becomes economical, traditional major markets such as China, the United States, and Europe have reached scale, with a total installed capacity increase of 108% year-on-year, accounting for 73% of the global market. At the same time, the scale is expected to maintain a steady growth trend. At the same time, emerging markets such as the Middle East, Southeast Asia, and South Africa are rapidly rising, which may contribute space for new demand growth.

The company's layout of photovoltaics: Overseas and distributed inverter market development results show that domestic centralized ground power plants are the main target market for the company's photovoltaic inverters, and have relative technical advantages in the field of high-power inverters. According to International Energy Network statistics, the company ranked 3rd and 5th respectively in domestic inverter bidding projects that determined the winning bidder and capacity from 2022 to 2023. In order to broaden and further balance various market segments, the company has included distributed business on a strategic track to break through major customers; overseas, the company has completed distributed product certification in major European countries, actively broadened channels in markets such as the Middle East and India, and is expected to form large-scale shipments in 2024.

Energy storage based on the company's layout: Domestic leaders are expected to achieve breakthroughs in high-profit markets such as North America. The company has relative technical and brand advantages in the large-scale domestic energy storage PCS market. According to EESA statistics “ranking of Chinese companies' domestic energy storage third-party high-power PCS shipments of 215kW or more”, the company ranked first in the country in 2021-2023. With the brand reputation established over many years of hard work, we are actively developing the energy storage system solution business and accelerating the domestic and international layout of household, industrial and commercial energy storage systems. The company's high-power PCS has received several orders for 100 megawatt projects in North America, achieving a good start in the North American market.

Profit Forecasts, Valuations, and Ratings

We expect the company's revenue for 2024-2026 to be 73.7/98.7/11.89 billion yuan, respectively, with year-on-year growth rates of 49.5%/33.9%/20.5%, net profit to mother of 5.2/7.3/1.04 billion yuan, year-on-year growth rates of 81.1%/41.5%/42.4%, EPS 1.45/2.05/2.91 yuan/share, respectively, and a 3-year CAGR of 54.0%. The company's technical advantage is prominent in the PV inverter inventory competition. The energy storage business is growing rapidly, and the company's overseas business is expected to expand one after another. We will give the company 24 times PE in 2024, with a target price of 34.70 yuan/share, giving it a “buy” rating.

Risk warning: Storage capacity alone falls short of expectations; production capacity release for IGBT and other components falls short of expectations; overseas market development speed is lower than expected.