TF Securities: Marginal improvement in the European and American photovoltaic market, Hoymiles, deeply cultivating Europe and America, is expected to benefit fully

According to the information from Zhitong Finance and Economics APP, TF Securities released a research report stating that Europe, after a round of inventory digestion, coupled with the continuous relaxation of balcony photovoltaic installation policies in Germany, Austria, and other countries, is expected to maintain a relatively high growth rate in the industry in 2024; the U.S. market is expected to see concentrated demand release after a rate cut in September; starting from 2H2, the European and American markets are showing marginal improvement, with a focus on recommending Hoymiles (688032.SH) which is expected to benefit fully from deep cultivation in Europe and America.

Key points from TF Securities:

1. European Market: Traditional business maintains advantages, balcony photovoltaics open up new growth

Roof and balcony photovoltaics develop synchronously, with a broad market in Europe: by the end of 2023, the total installed capacity of roof photovoltaics in Europe will exceed 170GW, covering only 30% of the potential capacity. Each set of 500-700 euros brings about savings of approximately 132 euros per year. Compact in size, easy to install, easy to dismantle, directly connected to household circuits, it becomes the best choice for energy transformation for apartment residents.

Energy shortages and policy incentives accelerate the installation of photovoltaics in Europe, with vigorous development of balcony photovoltaics in Germany, Austria, etc.: the lower house of the German parliament passed a law amendment allowing apartment owners and tenants to install solar systems on balconies. The balcony photovoltaic market in Germany is growing rapidly, with an expected addition of 490,000 balcony photovoltaic systems for the whole year of 2024. In 2023, Germany added approximately 275,000 balcony photovoltaic systems put into operation, a year-on-year increase of over 300%; in 2024H1, an additional 213,000 systems, close to the installation volume of the whole previous year. We expect that the legislation to relax installation conditions will continue to release demand for micro-inverters in Germany.

Currently, the penetration rate of balcony photovoltaics in Germany is less than 2%, with ample room for growth. The installation of 20.65 million balcony photovoltaic systems in the future is expected to bring an additional 3.2 billion euros to the German micro-inverter market and over 8 billion euros to the European micro-inverter market.

Hoymiles has set up a European subsidiary to actively expand in the European market: since 2021, Hoymiles micro-inverter shipments have ranked second globally for three consecutive years, making it the best-selling micro-inverter supplier in the German balcony photovoltaic market. It has established an important partnership with VDHSolar, a top distributor of photovoltaic inverters in the Netherlands, and is expected to benefit fully from the relaxation of balcony photovoltaic installation conditions in Europe.

2. U.S. Market: Micro-inverter energy storage industry growth rate and industry space change more significantly with interest rate fluctuations, expected to recover sales growth after rate cut

The growth of the U.S. micro-inverter energy storage industry was stable before the rate hike, providing inspiration for the post-rate cut market: from 2018 to 2022, the U.S. was in the pre-rate hike stage, with the leading company Enphase's operating income showing a growth trend. The market space in the U.S. region continued to expand, with year-on-year revenue growth rates of 138%/22%/74%/56% from 2019 to 2022, showing relatively stable market size growth.

The rate hike cycle from 2022 to 2024 suppressed demand for residential photovoltaics: low financing costs in recent years have significantly boosted the loan market, promoting the prosperity of the residential photovoltaic industry (31% growth in 2021, 40% growth in 2022), but the rate hike cycle and high interest rates have suppressed installation demand, leading to two consecutive years of declining industry growth in 2023/2024.

It is expected that after the rate cut in the U.S. market, demand for micro-inverter energy storage will increase, and Hoymiles is expected to enter the market from a segmented perspective: we expect that from August 2024 to 2025, the U.S. will be in a rate-cut cycle, with a growth in installation willingness under declining interest rates, an increase in industry growth rate, and an expected expansion of space compared to 2023/2024. It is estimated that the U.S. industry space will recover to 1.5-2 billion USD in 2025 III. Hoymiles is poised to achieve high sales growth in the US market in the future

Hoymiles' micro inverter business is expected to achieve high sales growth in overseas markets: In 2023, the company's revenue reached 2.026 billion RMB, with a net profit of 513 million RMB, of which 65% of product revenue comes from overseas markets.

"Photovoltaic Energy Storage Integration" has become an industry trend, expanding the potential market space for the photovoltaic industry: Major countries around the world have already made the development of energy storage industry a key strategic focus. It is estimated that the global energy storage installation demand will continue to grow rapidly by 2024, with the global energy storage new installations expected to reach 74GW/173GWh.

With years of investment in the energy storage business, the energy storage sector has become the second growth curve for the company: The company has been strategically investing in the energy storage sector since 2017. In 2022, the energy storage business became a new addition to the company's portfolio, and in 2023, the energy storage business became the second growth curve for the company, with a year-on-year revenue growth of 354.01%. At the same time, the company has introduced a variety of energy storage products and system solutions for different scenarios, capable of meeting capacity requirements ranging from 50KWh to 100MWh for individual systems.

With a global market presence, Hoymiles continues to enrich its product portfolio. While the household energy storage market may experience a slight decline, the prospects for large-scale energy storage remain promising.

IV. Investment Recommendation: Starting from the second half of 2024, the European and American markets are expected to improve marginally. We recommend focusing on Hoymiles, which is well-positioned to benefit from deep cultivation in the European and American markets.

Industry Perspective: 1) After a round of inventory digestion in Europe, coupled with the continuous relaxation of balcony photovoltaic installation policies in Germany, Austria, and other countries, the industry is expected to maintain a relatively high growth rate in 2024; 2) The US market is expected to experience a concentrated release of demand after the interest rate cut in September.

Company Perspective: As a leading player in the domestic micro-inverter market, with 65% of revenue coming from overseas markets in 2023, the company's customers are spread across various regions including the Americas, Europe, and Asia, positioning it to fully benefit from the marginal improvement in the European and American markets.

Risk Warning: Slower-than-expected growth in photovoltaic demand; fluctuation in raw material prices; intensified competition risks; subjective nature of calculations