LONGi realized 3Q20 net profit of RMB2,240mn; beat our expectation. The Company continued to deliver outstanding GPM from wafer and module at above 30%/20% respectively, despite the fact that poly-si and PV glass price experienced substantial hike during the quarter. We think LONGi’s supply chain management and insight to the market helped sustain its leading profitability. Looking ahead, we expect LONGi to accelerate wafer and module sales to 2.6bn piece and 5.8GW respectively. We raise FY20-22E EPS forecast by 8.2%-30.0% to RMB2.25/3.10/4.06, respectively. Our TP is lifted to RMB90.0 based on 29.0x FY21E PER. Maintain BUY.
- 3Q20 results beat again. 3Q external wafer/module shipment surged 23.7% /114.6% respectively to 1.57bn piece/5.91GW. Major expenses were maintained stable, while net financial turned negative as LONGi employed higher debt. Operating cash flow exhibited strong rebound as bills receivables accumulated in 1H20 were released during the quarter, and advanced customer payment from domestic clients were mostly paid in cash due to tightened module supply. 3Q20 net profit was RMB2,240mn, up 51.9% YoY and largely flat QoQ. In 9M20, LONGi realized net profit of RMB6,357mn, up 82.4% YoY, accounting for 81% of our previous 2020E earnings estimates.
- Supply chain management was a key highlight in 3Q20. Poly-si price experienced a sharp hike from Jul after supply disruption in Xinjiang. LONGi was able to manage supply shortage impacts through building low costs poly-si inventories in 1H20, and signing long term purchasing as well as upstream investments contracts to secure poly-si supply. For PV glass, we think LONGi took similar measures as poly-si, and the Company also intends to develop more new suppliers with incentives such as large-scale order or direct investments. Mgmt. disclosed 3Q20 GPM of wafer/module were above 30%/20% respectively, which were higher than our expectation.
- GPM guidance to remain stable in 4Q20. LONGi had lifted wafer price for several times in view of poly-si price hike. Mgmt. remained confident to maintain wafer sales profitability with pricing adjustments as low costs inventories were consumed. For module end, we think LONGi will be able to pass through majority of poly-si and PV glass costs change to downstream PV farm developers. Overall, we think LONGi will be able to sustain its profitability.
