20210901-招银国际-隆基股份-601012.SH-2Q21_results_beat__cost_pressures_to_passthrough_in_2H21_5页_847kb

CMB International Securities | Equity Research | Company Update Summary

Core Content

LONGi Green Energy (601012 CH) reported its 2Q21 results, which exceeded expectations, despite facing a challenging operating environment. The company effectively managed upstream cost pressures through a series of price hikes and leveraged its Poly-Si inventory to maintain gross profit margins. The 1H21 net profit reached RMB4,993 million, up 21% YoY, indicating a largely flat performance in 2Q21 compared to 1Q21.

Key Financial Highlights

• Revenue (1H21): RMB35 billion, up 67% YoY, driven by a 152.4% increase in module sales volume.
• Net Profit (1H21): RMB4,993 million, up 21% YoY.
• Gross Profit Margin (1H21): Declined only 0.9ppt QoY, thanks to cost pass-through and inventory management.
• Target Price (TP): Revised to RMB105, reflecting a 39.6x FY22E PER.
• Current Price: RMB89.86, with a 12-month upside of +16.8%.

Main Points

1. Cost Management and Profitability

• LONGi successfully passed through cost pressures to downstream customers via multiple price hikes.
• The company's wafer margin was surprisingly strong in 1H21, with an estimated ASP increase of over 42%.
• The cost pass-through mechanism is expected to continue into 2H21, as wafer prices remain at a year high.

2. Operational Performance

• The company maintained its full-year shipment targets of 80GW wafer and 40GW module.
• 1H21 wafer shipment reached 5,328 million pieces, with a run rate of 45.6%.
• Module shipment increased by 152.4% YoY to 15,270 MW, with a run rate of 41.5%.
• Management noted challenges in module sales due to price increases reaching a critical level of RMB1.80/watt, which could suppress demand.

3. Earnings Outlook

• The analyst raised FY21-23E earnings by 4.3%, 5.2%, and 6.5% respectively, based on revised price assumptions and improved cost pass-through.
• FY21E net income is estimated at RMB10,794 million, FY22E at RMB14,353 million, and FY23E at RMB17,453 million.

4. Valuation and Recommendations

• LONGi's valuation is considered slightly rich, with a 38x FY21E P/E and 34x FY22E P/E.
• Despite this, the company is still viewed as being on a rapid expansion path.
• The analyst maintains a BUY rating with a revised TP of RMB105.

Key Information

1. Shareholding Structure

• Li Zhenguo: 15.0%
• Li Chunan: 11.0%
• Free float: 50.4%

2. Stock Performance

• 1-month return: 4.1%
• 3-month return: 22.9%
• 6-month return: 20.2%
• 12-month return: 98.9%

3. Financial Summary

• Revenue: Expected to grow from RMB90,817 million in FY21E to RMB132,103 million in FY23E.
• Net Income: Projected to increase from RMB10,794 million in FY21E to RMB17,453 million in FY23E.
• EPS: Expected to rise from RMB2.35 in FY21E to RMB3.22 in FY23E.
• P/E Ratio: 39.6x FY22E, with a 12-month target price of RMB105.
• P/B Ratio: 34x FY22E, with a 33.9x FY22E P/B.
• Net Cash from Operations: RMB10,815 million in FY21E, increasing to RMB21,008 million in FY23E.
• Net Debt/Equity Ratio: Net Cash, indicating strong liquidity.

4. Balance Sheet

• Total Net Assets: RMB45,897 million in FY21E, increasing to RMB74,863 million in FY23E.
• Shareholders' Equity: RMB45,048 million in FY21E, expected to reach RMB73,836 million in FY23E.
• Current Ratio: Improved from 1.52 in FY19A to 1.66 in FY23E, reflecting stronger liquidity.
• Inventory Turnover Days: Decreased from 83.0 to 73.8 in FY21E, indicating better inventory management.

5. Strategic Moves

• LONGi is expanding into hydrogen equipment and solutions, aiming to establish a 1.5-2GW manufacturing capacity by end-2022.
• The company is combining its solar technology with hydrogen equipment to explore new business opportunities.

Risk Factors

• PV installation demand may weaken in 4Q21.
• A potential wafer price war could disrupt the cost pass-through mechanism.

Analyst Certification and Ratings

• The analyst certifies that the views expressed are based on personal analysis and not influenced by compensation.
• The report does not constitute an offer or solicitation to buy or sell any security.
• CMBIS recommends investors to consult with financial advisors before making decisions.

Conclusion

LONGi's performance in 2Q21 exceeded expectations, supported by effective cost management and a strong position in the solar industry. The company is on track to meet its full-year shipment targets, with a clear strategy to expand into hydrogen equipment. The analyst maintains a BUY rating, with a revised target price of RMB105, citing continued profitability and growth potential.