Inverter structure upgrades are abundant in handheld power station projects

Event: The company released its 2018 semi-annual report, achieving operating income of 3.9 billion yuan, a year-on-year increase of 10%, and net profit attributable to shareholders of 380 million yuan, a year-on-year increase of 3.8%. The net profit attributable to shareholders after deducting non-recurring items was 340 million yuan, a year-on-year increase of 1.0%. In the second quarter, the company achieved revenue of 2.19 billion yuan, a year-on-year decrease of 4.6% and a month-on-month increase of 28.4%. The net profit attributable to shareholders was 180 million yuan, a year-on-year decrease of 24.9% and a month-on-month decrease of 10.9%.

The overall gross profit margin increased slightly, and the growth of the three rates dragged down the growth of net profit: the company's overall gross profit margin in the first half of the year was 29.3%, an increase of 1.9 percentage points year-on-year, mainly due to the 2 percentage points increase in the gross profit margin of the system integration business and the increase in the proportion of the power business and energy storage business with higher gross profit margins. However, affected by the increase in the management expense rate and sales expense rate, the three rates in the first half of the year reached 16.3%, an increase of 3.4 percentage points year-on-year.

The inverter structure has been upgraded, the unit price has remained the same, and the gross profit margin has slightly declined: In the first half of 2018, the inverter achieved operating income of 1.64 billion yuan, a year-on-year increase of 0.1%, and a gross profit margin of 31.7%, a year-on-year decrease of 2.1 percentage points. The company shipped about 8GW of inverters in the first half of the year, which was basically the same as the previous year. The unit price after tax was about 0.2 yuan/W. Due to the increase in the proportion of string inverters, the average unit price was basically the same as the previous year. Among them, domestic shipments were 6GW, and domestic photovoltaic installations in the first half of the year were 24.3GW. The company's market share was 25%, which was basically the same as in 2017.

EPC has many projects on hand, and performance growth is guaranteed: in the first half of 2018, the system integration business achieved revenue of 1.81 billion yuan, a year-on-year decrease of 1.2%, roughly corresponding to 300 MW projects, and a gross profit margin of 23.5%, an increase of 2 percentage points year-on-year. The company has developed a total of 1013.9MW photovoltaic power station projects, of which 937.2MW photovoltaic power station projects have been connected to the grid and 76.7MW are under construction. At the same time, the inventory of "completed unsettled assets formed by completion contracts" is 1.13 billion yuan, indicating that the company has a large number of power station projects that have been connected to the grid but have not yet recognized revenue.

The company's new business has begun to gain momentum, and subsequent performance growth points are diversified: the company's total revenue in the first half of the year increased by 10% year-on-year. While its main businesses of "power station integration" and "inverter" declined and remained flat year-on-year respectively, this was mainly due to the significant growth in its power generation and energy storage businesses, which increased by 261.5% and 428.2% year-on-year respectively. With the gradual increase in the company's grid-connected power stations and the acceleration of the market brought about by the reduction in energy storage costs, subsequent performance growth points will be more diversified.

Earnings forecast and investment advice: EPS is expected to be 0.74 yuan, 0.81 yuan and 0.90 yuan in 2018-2020, corresponding to PE of 10 times, 9 times and 8 times respectively. For the first coverage, it is given an "overweight" rating.