On the evening of May 20, Sungrow Power Supply Co.Ltd(300274) rarely issued a “voluntary disclosure announcement”, specifically explaining the reasons for the decline in performance in 2021.
In the announcement, the company analyzed the factors swallowing profits from the power station investment and development business, energy storage business and other three aspects, saying that “in view of the above reasons for the decline of profits in 2021, the company has summarized relevant experiences and lessons, and will vigorously improve the fine management level of power station development, energy storage and other projects in the future, avoid project operation risks, and strengthen the collection of payment and improve the internal management efficiency of the company”.
Benefiting from the high outlook of the industry, Sungrow Power Supply Co.Ltd(300274) has maintained rapid growth from 2020 to the first three quarters of 2021. The growth rate of non net profit deduction reached 103% in 2020 and 34% in the first three quarters of 2021. Therefore, the company’s share price has stepped out of a super performance of 20 times in two years. However, in the fourth quarter of 2021, the deduction of non net profit suddenly burst into a direct loss, resulting in a 28% decline in the deduction of non net profit in the whole year of 2021. The market was in doubt, and the company’s share price also corrected. In addition, the first quarterly report continued to perform poorly, and the former big white horse fell by nearly 70% in half a year.
three aspects analysis of the reasons for the decline
said lessons learned
Sungrow Power Supply Co.Ltd(300274) said in the announcement that recently, the company has noticed through telephone, media and other channels that investors and media continue to express concern about the reasons for the year-on-year decline of the company’s profit in 2021 and relevant accounting treatment. The company has explained the main reasons in the investor exchange meeting after the disclosure of the 2021 annual report, “In order to facilitate investors to further understand the company and safeguard the interests of investors, the company now further explains the matters concerned by investors and the media.”.
Specifically, the reasons given by the company for the year-on-year decline of profits in 2021 are as follows:
\u3000\u30001. Power station investment and development business: ① due to the delayed grid connection of the company’s Vietnam project due to the epidemic, it is necessary to implement the new electricity price in 2022. Therefore, an impairment loss of 150 million yuan is accrued and included in the asset impairment loss in the income statement. ② The Myanmar project of the company was cancelled under the influence of the coup, and the total preliminary development cost was about 90 million yuan, which was included in the sales cost of the income statement.
\u3000\u30002. Energy storage business: affected by the epidemic and shipping schedule, the company’s supply was delayed, and the US energy storage project received a contract deduction of 170 million yuan. According to the relevant requirements of accounting standards, the deduction belongs to variable consideration, which directly offsets the sales revenue of energy storage business, and the gross profit margin and profit of energy storage business are affected.
\u3000\u30003. Others: ① in order to maintain product competitiveness, the company continued to increase R & D investment. In 2021, the R & D cost was 1.16 billion yuan, an increase of 350 million yuan year-on-year. ② In order to explore the market and make layout in advance, the company has greatly increased the personnel salary and consulting service fee (including the preliminary development cost of the above Myanmar project). The sales cost in 2021 was 1.58 billion yuan, with a year-on-year increase of 610 million yuan. ③ The increase in sales scale, poor collection and other comprehensive factors led to a year-on-year increase of 160 million yuan in the company’s provision for bad debts of accounts receivable in 2021.
According to the company, in view of the above reasons for the decline of profits in 2021, the company has summarized relevant experiences and lessons, and will vigorously improve the fine management level of power station development, energy storage and other projects in the future, avoid project operation risks, increase the collection of payment and improve the internal management efficiency of the company.
performance suddenly changed
from 20 times in two years to 70% in half a year
Why is Sungrow Power Supply Co.Ltd(300274) ‘s annual report so popular?
The main reason is that the company’s previous performance was beautiful and its share price soared, but it changed its face sharply overnight in the fourth quarter of 2021, and the share price was deeply adjusted to secure a group of investors. However, the company’s performance in the first quarter of this year was still low.
Founded in 1997, Sungrow Power Supply Co.Ltd(300274) is the world’s leading photovoltaic inverter, with a global market share of 30% in 2021. Benefiting from the ultra-high prosperity of the industry, despite the impact of covid-19 epidemic, its performance still increased rapidly in 2020, with the growth rate of operating revenue reaching 48%, while the growth rate of deducting non net profit increased by 104%. In 2021, the first quarterly report, the semi annual report and the third quarterly report are still triumphant, and the growth of revenue and net profit is relatively rapid. In the third quarterly report of 2021, the revenue increased by 29% and the deduction of non net profit increased by 34%.
Its share price took off from the first quarter of 2021. Before June 2020, Sungrow Power Supply Co.Ltd(300274) still hovered around 10 yuan, with a minimum of 9 yuan. In just over a year, its share price rose sharply by nearly 20 times through two consecutive waves. At the end of July 2021, its share price reached 180 yuan, a record high, and its market value reached more than 260 billion yuan.
However, just when the market expected it to hand over a good answer in 2021, the company suddenly changed its performance. The growth rate of operating revenue was 25%, which did not fall too much, but the growth rate of deduction of non net profit fell sharply, suddenly falling by 28%. In other words, the deduction of non net profit in a single quarter in the fourth quarter actually recorded a loss of about 120 million yuan. In the annual report of 2021, the company simply mentioned the reasons for the decline without detailed analysis. Therefore, investors continue to ask and question.
In the first quarter of 2022, the company’s performance was still poor, with the revenue increasing by 36% and the net profit deducted continued to decline by 2%.
Almost synchronized with the change of performance, Sungrow Power Supply Co.Ltd(300274) share price began to decline from the high level in November 2021, and there were also two waves of obvious decline. It once fell from the high level of 180 yuan to 56 yuan in half a year, with a decline of nearly 70% in half a year. The market value evaporated about 180 billion, falling below 100 billion. As of the closing on May 20, the company’s share price rebounded to 85 yuan, with a market value of nearly 130 billion.
static valuation nearly 100 times
company throws out repurchase and equity incentive
Although the company’s share price has been significantly corrected, it is still not cheap compared with the performance. If calculated according to the deduction of non net profit of RMB 1.335 billion in 2021, the static P / E ratio is as high as 95 times. Even if calculated according to the deduction of non net profit in the first quarter of 2022, the dynamic P / E ratio is 84 times. What compound growth rate does such a high valuation need to digest?
The company seems to know the heart of the market and has done some expectation management in order to boost investor confidence. On May 13, Sungrow Power Supply Co.Ltd(300274) simultaneously announced a repurchase plan and an equity incentive plan.
The number of restricted shares to be granted under the incentive plan is 6.5 million, which is not much. The grant price of restricted shares (including reserved shares) granted is 35.54 yuan / share, with a 50% discount according to the current market price. Focus on the performance assessment objectives: the operating revenue in 2022 will increase by more than 40% compared with that in 2021, or the net profit attributable to the owners of the parent company in 2022 will increase by more than 70% compared with that in 2021. According to the assessment conditions of net profit, when there is little growth in the first quarter, it means that the growth rate of total net profit in the next three quarters should be doubled.
In 2023, 2024 and 2025, we also continue to set no low net profit growth targets: take the net profit of 2021 as the base, increase by 110%, 150% and 190% respectively.
At the same time, the company announced that it planned to buy back part of the company’s A-shares of RMB common shares with its own funds in the form of centralized competitive trading. The total amount of funds to be repurchased shall not be less than 500 million yuan (inclusive) and not more than 1 billion yuan (inclusive), and the price of repurchased shares shall not exceed 100 yuan / share. The implementation period of repurchased shares shall be within 12 months from the date when the board of directors deliberated and approved the share repurchase plan.
