1H24 results are in line with market expectations
The company announced 1H24 results: operating income of 0.906 billion yuan, +34.40% year on year; net profit to mother 0.236 billion yuan, +35.51% year over year. Looking at 2Q24 alone: operating income of 0.455 billion yuan, +39.51% year over month, +1.02% month on month; net profit to mother 0.101 billion yuan, +25.12% year on year, -25.22% month on month. The results are close to the upper limit of previous forecasts and are in line with market expectations.
Development trends
TopCon equipment inspection continues to advance, and gross margin remains strong. This year, against the backdrop of pressure on the operation of the main downstream industry chain, the company continued to promote acceptance payments for TopCon equipment. The gross profit margin of 1H24's main solar cell laser processing equipment was 47.91%, +5.08ppt; the company's overall gross profit margin was 48.06%, which was basically the same year on year, fully demonstrating the company's technical strength and market competitiveness.
Fee control is stable, and impairment losses affect 2Q24 net interest rate performance. The sales/management/R&D/finance expense ratios of 1H24 were 2.8%/3.8%/15.4%/-2.1%, respectively, compared to -0.75/ -0.79/+1.08/ -0.07ppt. Overall cost control was good, and R&D investment increased, indicating that the company continues to promote research and development of new products and processes, laying the foundation for receiving orders in the next cycle to gain a leading edge. 1H24's net interest rate was 26.1%, but 2Q24's net interest rate was 22.2%, year-on-year -2.55ppt, and month-on-month, mainly because the company increased the calculation of impairment losses. 1H24 had a credit impairment loss of 34.43 million yuan and an asset impairment loss of 6.6 million yuan. We judge that when the company faces certain downstream business risks, it is prudent to calculate bad debt provisions.
LIF became TopCon's standard technology, and inventory and contract liabilities increased. By the end of 1H24, the company's inventory was 1.979 billion yuan, an increase of 0.535 billion yuan over the previous year; the contract debt was 1.905 billion yuan, an increase of 0.522 billion yuan over the previous year, reflecting the company's active orders. We judge that the company's mass production orders in '24 mainly came from TopCon LIF, and we expect to sign about 300GW+ new orders throughout the year.
Focus on equipment growth brought about by the field of new technology for a long time. In the TopCon field, the company continues to refine equipment such as thinning and double-sided Poly to reduce costs and increase efficiency; in the BC field, the company lays out laser equipment at the core of the battery end and new process equipment for laser welding at the module end, waiting for the industry to expand production to accelerate.
Profit forecasting and valuation
Taking into account the risk of bad debt impairment losses, we reduced 2024/2025 net profit by 5.7%/10.8% to 0.601 billion yuan/0.753 billion yuan. The current stock price corresponds to the 2024/2025 price-earnings ratio of 20.5 times/16.3 times.
Due to the stabilization of the valuation center of the industry, it remains ahead of the industry rating and the target price of 52.49 yuan, corresponding to 23.9 times the 2024 price-earnings ratio and 19.0 times the 2025 price-earnings ratio. There is 16.6% room for growth compared to the current stock price.
risks
Risk of bad debts on in-hand orders; demand for new technology is slower than expected.