Zhongjin: The profitability of the photovoltaic industry chain in Q3 is still at a low level, and prices in the peak season of Q4 are expected to rebound slightly to cash costs.

CICC released a research report stating that in terms of pace, the prices of the photovoltaic industry chain in Q3 are expected to stabilize, and the inventory devaluation situation will improve slightly, but profitability is still at a low level. Prices in the Q4 peak season are expected to rebound slightly to the cash cost, but attention should be paid to the devaluation of industry fixed assets. 1Q25 is the traditional off-season, and the supply-demand relationship and operating conditions are expected to improve starting from 2Q25. Among the targets, attention is on CSI Solar Co., Ltd. (688472.SH) with potential in the United States, JA Solar Technology(002459.SZ), which is gradually climbing in production capacity and repairing profitability, polysilicon technology with cost leadership and quality improvement, and Zhejiang Chint Electrics(601877.SH) with improved gross margin for low-voltage electrical appliances and expectations for improved station development. CICC pointed out that in 1H24, the performance of the photovoltaic main production, small auxiliary materials, and station development sectors all met market expectations from the profit statement perspective. The sector's performance met market expectations, with the main industry chain experiencing a significant negative growth due to increased competition, performing weaker than inverters, equipment, and other links. Small auxiliary materials were somewhat suppressed by the main chain, with profitability and accounts receivable under pressure. Station development was affected by the slower pace of distributed entry into the market. The operating cash flow of the main industry chain is under significant pressure, with more industry asset impairments. Operating pressure has led enterprises to increase new borrowings, industry cash on hand, while still high, is differentiated, and the return rate has declined significantly. Under the background of declining capital expenditure and new production expansion in response to operating pressure, industry capital expenditures and new expansions have significantly decreased. Polysilicon: The operating rate is gradually decreasing and differentiating, Tongwei Co., Ltd. maintains a high level, but other companies are below 80%, with the industry concentration passively increasing; the entire industry is operating at a loss at the cash cost level, and after prices hit bottom, the profitability gap becomes apparent, with few leading companies operating at a loss; CICC believes that based on the cash cost line, prices are expected to return to around 42 yuan/kg (excluding tax). Silicon wafers: In the first half of the year, some companies adopted a high operating rate strategy, resulting in high industry inventories and fast price declines, with many asset impairment losses recorded; CICC believes that prices will stabilize in 3Q-4Q, expected to decrease impairment losses, but due to a relatively flat cost curve, profitability is expected to remain low. Battery cell/module integration: Rapid expansion in the early stage has led to a rapid decline in battery cell profitability, with battery cell companies under pressure in 1H24. Under low profitability, battery cell expansion slows down, with leading capacity in a relatively better supply-demand structure compared to other links. With demand in 1H24 growing by more than 30% year-on-year, in an environment of intensified industry competition, the integration of components is more concentrated, but profitability varies due to market, new capacity operation capabilities, etc. Companies that focus on high-quality markets and have good management capabilities under stable conditions are worth watching. Small auxiliary materials: In the silver paste segment, the increase in silver prices boosts gross margins, while receivables impairment drags down performance; in the junction box/frame/ribbon segment, profitability is generally declining, with the frame segment showing relatively stable performance. Station development and operation: In the first half of the year, sales were slowed down by expectations of entry into the distributed market, and poor power generation due to weather conditions. Subsequent improvement is expected as market entry and station development sales improve. Risk factors: Photovoltaic demand falls short of expectations, risks from international photovoltaic trade policies, and further pressure on the supply-demand structure.