Key points of investment

Based on the vertical integration of photovoltaics, the performance is basically in line with expectations. The company was founded in 2005, mainly in the cell business, and began vertical photovoltaic production in 2012. The company is making steady progress, building an “integrated two-wing” business system, and gradually expanding businesses such as energy storage and photovoltaic equipment. The company's 2024H1 revenue was 37.36 billion yuan, down 8.5%, net profit to mother -0.87 billion yuan, down 118.2%, gross profit margin 3.9%, 15.4pct, net profit to mother -2.3%, and 14.1 pct; of these, 2024Q2 revenue was 21.39 billion yuan, +5%/+33.9%, net profit to mother -0.39 billion yuan, year-on-month, -117.5%/+18.9%, gross profit margin 3.1%, month-on-month At 16.5pct/-2pct, the performance was basically in line with expectations.

There was a high increase in 2024Q2 shipments, and low price orders+high-cost N models put pressure on profits. 2024H1's components achieved revenue of 35.3 billion yuan, a decrease of 10%, and battery module shipments exceeded 38 GW (including 1 GW for personal use), an increase of 40%, of which 2024Q2 shipments were about 23 GW, +75%/+53% year over month; in addition, while the company's TopCon production capacity climbed, 2024Q2Topcon shipments accounted for 63.5%, an increase of 14 pct, but some high-cost and inefficient cells still caused losses. In the second half of 2024, the company will control low orders+continue to reduce N-type costs. We expect the company's annual shipments to be 80-90GW, an increase of 60%. We are optimistic that the company's profit will gradually recover after the industry's production capacity is cleared.

2024Q2 operating cash flow was positive, and the expense ratio declined month-on-month during the period. The company's expenses for the 2024H1 period were 2.36 billion yuan, an increase of 38.7%, an increase of 6.3%, and an increase of 2.2 pct, of which the 2024Q2 period expenses were 1.02 billion yuan, +73.1%/-23.8%, and the period expense ratio was 4.8%, +1.9pct/-3.6pct compared to the same period; 2024H1 net operating cash flow - 1.86 billion yuan, a decrease of 138.5%, of which the 2024Q2 net operating cash inflow was 1.68 billion yuan, 42.6%/+147.5%; 2024H1 capital expenditure was 8.27 billion yuan, up 27.5%, of which 2024Q2 capital expenditure was 3.99 billion yuan, -17.2%/-6.6% year over month; 2024Q2 final inventory was 13.06 billion yuan, down 19.8% from the end of 2024Q1.

Profit forecast and investment rating: Considering the intensification of industry competition and the continued decline in prices, we lowered the company's profit forecast. We expect the company's net profit to be 1.25/2.15/3.41 billion (original value was 3.2/4.7/7.1 billion yuan), -118%/+272%/+59% year-on-year, considering the company's leading position in PV, and its current position at the bottom of the industry. The company's profit is expected to gradually recover in the future, and we maintain a “buy” rating.

Risk warning: Competition is intensifying, and policies fall short of expectations.