DEYE TECHNOLOGY(605117)：INVERTERS MAIN PROFIT CONTRIBUTOR;RIDES BOOM IN ENERGY STORAGE AND MICRO INVERTORS

1H22 results beat our expectations
Deye Technology (Deye) announced its 1H22 results: Revenue grew 23.3% YoY to Rmb2.37bn and attributable net profit rose 100.4% YoY to Rmb450mn. The results beat our expectations. In 2Q22, revenue increased 44.4% YoY to Rmb1.53bn and attributable net profit surged 155.6% YoY to Rmb318mn. The firm’s 1H22 results exceeded the upper end of the preannounced range, mainly driven by the boom in overseas household photovoltaic (PV) energy storage and microinverter markets.
Invertors main profit contributor; energy storage and microinverter remained robust. In 1H22, Deye’s revenue from inverters surged 198% YoY to Rmb1.15bn, contributing around Rmb360mn in net profit ( +400% YoY), which represented around 80% of the firm’s total net profit. In 2Q22, revenue from inverters rose 148% QoQ to Rmb820mn mainly due to significantly larger-than-expected shipments of energy storage and micro inverter products. In 2Q22, shipments of energy storage products reached 52k units, raking in Rmb450mn in revenue, up 162% QoQ. Micro inverter shipments were 161k units, contributing Rmb170mn in revenue, up 338% QoQ. By region, Brazil remains the main market for the firm’s on-grid string inverters and microinverters. The firm mainly sells its energy storage products in South Africa and the US. In 1H22, the firm’s proprietary brands accounted for 51% of its total sales.
Heat exchanger business fell notably; dehumidifier business maintained rapid growth. In 1H22, Deye’s revenue from heat exchangers dropped 30% YoY to Rmb900mn, mainly due to weakening demand from large clients and declining unit prices. The firm’s dehumidifier remained at the top of best-selling product lists (by sales) on platforms such as JD.com and Tmall, and recorded Rmb280mn in revenue, up 49% YoY.
Financials: Deye’s gross margin (GM) rose 6.7ppt YoY to 27.4% in 1H22, and grew 7.2ppt YoY (or 4.8ppt QoQ) to 29.1% in 2Q22. The GM of its inverter business climbed 4.8ppt YoY to 41.7% mainly due to depreciation of the renminbi, a rising proportion of high-GM energy-storage inverters, and economies of scale. In 1H22, the firm’s financial expenses fell significantly YoY to -Rmb63.93mn, mainly thanks to large forex gains.
Trends to watch
Household energy storage market booming; upbeat on rapid growth of Deye’s microinverter and energy storage products. Countries around the world have launched standards related to module-level rapid shutdown. Meanwhile, technological upgrades in microinverters has continued to push down cost per watt. In 2022, rising global energy costs have led to expansion of demand for energy storage. Volatile electricity tariffs in Europe and the US, and an uptrend in the distributed PV market have further highlighted its advantages (e.g. its disaster recovery ability) of household energy storage. Deye enjoys a competitive advantage in sales in overseas markets such as Brazil and the US. We are upbeat on the firm’s expansion into the European market, bringing incremental earnings. Meanwhile, the firm has benefited from rising import substitution of insulated-gate bipolar transistors (IGBT). We expect the domestic production rate of IGBT to reach 50% in 2022, pushing up the firm’s inverter capacity in 2023, breaking its capacity bottleneck.
Financials and valuation
Considering our optimism for the booming household energy storage and microinverter markets and Deye’s higher-than-expected shipments of energy storage and micro invertor products in 2Q22, we raise our 2022 and 2023 net profit forecasts 43% and 88% to Rmb1.22bn and Rmb2.14bn. The stock is trading at 41.8x 2023e P/E. We maintain an OUTPERFORM rating. Due to the higher earnings forecasts for 2022, and the robust growth of the booming household energy storage and microinverter markets, we lift our target price 60% to Rmb450, implying 50.3x 2023e P/E, offering 20% upside.
Risks
Downturns in the PV energy storage industry; more intense competition in the inverter market; overseas trade policy headwinds.
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   【免责声明】本文仅代表第三方观点，不代表和讯网立场。投资者据此操作，风险请自担。