隆基股份：3Q20another beat;supply chain management offset material prices fluctuation

LONGi realized 3Q20 net profit of RMB2,240mn; beat our expectation. TheCompany continued to deliver outstanding GPM from wafer and module at above30%/20% respectively, despite the fact that poly-si and PV glass priceexperienced substantial hike during the quarter. We think LONGi’s supply chainmanagement and insight to the market helped sustain its leading profitability.

Looking ahead, we expect LONGi to accelerate wafer and module sales to 2.6bnpiece 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 on29.0x 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 weremaintained stable, while net financial turned negative as LONGi employedhigher debt. Operating cash flow exhibited strong rebound as bills receivablesaccumulated in 1H20 were released during the quarter, and advancedcustomer payment from domestic clients were mostly paid in cash due totightened module supply. 3Q20 net profit was RMB2,240mn, up 51.9% YoYand largely flat QoQ. In 9M20, LONGi realized net profit of RMB6,357mn, up82.4% YoY, accounting for 81% of our previous 2020E earnings estimates.

Supply chain management was a key highlight in 3Q20. Poly-si priceexperienced a sharp hike from Jul after supply disruption in Xinjiang. LONGiwas able to manage supply shortage impacts through building low costs poly-si inventories in 1H20, and signing long term purchasing as well as upstreaminvestments contracts to secure poly-si supply. For PV glass, we think LONGitook similar measures as poly-si, and the Company also intends to developmore new suppliers with incentives such as large-scale order or directinvestments. Mgmt. disclosed 3Q20 GPM of wafer/module were above30%/20% respectively, which were higher than our expectation.

GPM guidance to remain stable in 4Q20. LONGi had lifted wafer price forseveral times in view of poly-si price hike. Mgmt. remained confident tomaintain wafer sales profitability with pricing adjustments as low costsinventories were consumed. For module end, we think LONGi will be able topass through majority of poly-si and PV glass costs change to downstream PVfarm developers. Overall, we think LONGi will be able to sustain its profitability.