Sungrow: Photovoltaic industry continues to heat up

Company Profile

The company is a leading enterprise in photovoltaic inverters, and its shipments have been among the top three in the world for the past three years. In 2016, its global market share reached 14%. In 2013, the company extended its downstream power station system integration based on its inverter technology and customer accumulation. From 2013 to 2016, the compound growth rate of the power station system integration business exceeded 70%. In the first half of 2017, the company built more than 1GW of grid-connected power stations through the EPC/BT model.

The domestic competition landscape of inverters is stable, and overseas markets are continuously expanding.

The domestic inverter competition landscape is clear. The company's inverters have maintained the largest domestic market share for many years. The steady growth of downstream installed capacity demand ensures the steady development of the company's domestic business. In the first half of 2017, the company's photovoltaic inverter output was close to 10GW, and the inverter business revenue increased by 39.8% year-on-year. Among them, overseas inverters grew rapidly, with revenue increasing by 52.9% year-on-year. The cost of photovoltaic systems has dropped rapidly, and photovoltaic installations in emerging markets represented by India and South America have grown rapidly. The company's inverter product prices are significantly superior to those of European and American manufacturers, and the overseas inverter business is expected to achieve rapid growth. Relying on a deep understanding of electrical systems, the layout of power station system integration

The company's power station system integration business adopts the BT/EPC model, and its gross profit margin remains stable at 15-20%. The company has expanded various power station construction models and actively participated in the leader project and photovoltaic poverty alleviation. In the first half of 2017, the total installed capacity of poverty alleviation power stations reached 470MW. Grid parity will force the construction cost of photovoltaic power stations to drop, and put forward higher requirements for system integrators' solution design and construction quality management. Power station EPC contractors with design, construction and management capabilities are expected to gain a larger market share.

Vigorously expand dealer channels and create new highlights for household systems

The company is optimistic about the broad space of household photovoltaic systems and is planning to expand into the domestic household market. The company's household inverters have been installed in more than hundreds of thousands of units worldwide and have been widely recognized by the market. The company has continuously optimized the design of household systems by mastering core inverter technology. The company plans to establish a 3,000-county-level distribution network and a 100,000-township-village network within two years from 2018 to 2019. We believe that as a leading inverter company, the company has technology, capital, brand and strong resource integration capabilities. With the completion of the dealer network layout, the company's household system sales are expected to provide important support for future performance growth.

Valuation and Rating

We expect the company's EPS to be 0.69, 0.92 and 1.11 yuan in 2017-2019 respectively, giving a PE level of 21 times in 2018, corresponding to a target price of 19.50 yuan, and give it an "overweight" rating for the first time.

Risk Warning:

Photovoltaic power station installation capacity did not meet expectations, and household system expansion did not meet expectations