Sinolink: The reduction of export tax rebates is a significant long-term positive, signaling active demand in the domestic market.

Sinolink released a research report stating that the export tax rebate rate for photovoltaics has been reduced from 13% to 9%, which was both expected and unexpected. In the short term, a small number of orders may suffer minor profit losses, but in the medium to long term, this will have a positive impact on boosting overseas and domestic market prices, stimulating potential demand release, alleviating trade friction risks, and accelerating the elimination of outdated production capacity. China Power Construction's 51GW component joint procurement increased by 24% to reach a record high, signaling positive domestic demand. The sector's Q3 performance has solidified, indicating an economic turning point, with a focus on the three investment themes of "undervalued opportunities, new technology growth, and survival of the fittest." Sinolink's core viewpoints on photovoltaics and energy storage are as follows: Photovoltaics & Energy Storage The reduction of the photovoltaic export tax rebate rate from 13% to 9% was both expected and unexpected. In the short term, there may be slight profit losses, but in the medium to long term, it will have significant positive effects on boosting prices in overseas and domestic markets, stimulating potential demand, alleviating trade friction risks, and accelerating the elimination of outdated production capacity. The adjustment is expected to be implemented from December 1, 2024. The photovoltaic manufacturing industry in China has faced challenges due to severe oversupply of homogenized production capacity, resulting in losses. The adjustment of the export tax rebate rate was somewhat anticipated by the industry, but the timing of the policy change was somewhat unexpected in the current market context focused on supply-side restrictions. The impact of the policy change includes possible profit and cash flow losses for orders shipped after December 1, 2024, as well as potential price increases for future orders. The adjustment is seen as a move to pre-emptively address potential changes in international trade tariffs. Overall, the adjustment is expected to have a positive impact on the sector in the long run. China Power Construction's announcement of a 51GW component joint procurement and a 16GWh energy storage system tender for 2025-2026 further signals positive domestic demand. This follows recent initiatives aimed at promoting renewable energy in China, indicating a shift towards supporting domestic demand for these technologies. Looking ahead, the focus in the photovoltaic and energy storage sector will be on improving market conditions, technological advancements, policy developments, and performance results, with a continued emphasis on investment themes related to undervalued opportunities, new technology growth, and market consolidation.Stable trend is significant, focusing on certain links in the supply chain (such as silicon materials, battery cells) or inventory (glass, with recent reports of production halts for kilns for maintenance). If there is a decline in production or an acceleration towards the end of the year, it could indicate a turning point. Additionally, after the industry-wide reduction in production and inventory at the end of the year, if Q1 demand remains weak, the probability of unexpected signals such as production and price adjustments in components will increase.2) Technological progress is still an eternal topic in the industry. During the cross-year time window, signals or trends related to enterprise capital expenditure plans, technology routes, and R&D directions for the next year tend to be more frequent. Margin changes related to battery technology routes, metal reduction costs, etc. are still the focus of attention. Recently, international markets have seen a rise in patent litigation related to battery component technology, which may somewhat impact the decision-making for expanding production by enterprises. 3) Domestic/International Policies: Domestically, the focus is on the Ministry of Industry and Information Technology's follow-up of the "Conditions for Photovoltaic Manufacturing Industry (2024)" to be finalized, as well as the progress of demand-side policies related to market trading, and carbon footprint calculation. Internationally, amidst the pessimistic sentiment towards the U.S. market, attention is on the preliminary results of anti-dumping tax rates for four Southeast Asian countries to be announced at the end of November (earlier than expected anti-subsidy rates), as well as the recovery of U.S. market orders after the imposition of anti-dumping tariffs. 4) Performance-wise, the market still expects some pressure on Q4 (shipment structure, year-end depreciation)/Q1 (traditional off-season) sector performance, with a focus on potential unexpected outcomes. Investment advice: Actively pay attention to the three main themes of "undervalued sectors, new technology growth, and survival of the fittest". 1) High-quality industry leaders with low static PB or expected PE ratios. 2) Manufacturers of new technology equipment/consumables with a stronger "growth" label. 3) Stable and dominant players in various sectors. Wind Power: Three Gorges Group announced the procurement notice for the Qingzhou Qi EPC project tower and supporting accessories in Yangjiang, signaling positive progress in a key offshore wind project in Guangdong. The Fujian Development and Reform Commission published the competitive allocation announcement for offshore wind projects in 2024, including 5 sites totaling 2.4GW. The first phase of the onshore construction for the Shanghai Jinshan offshore wind farm project has obtained a construction permit, officially entering the construction phase. With accelerating construction of offshore wind projects towards the year-end, it is predicted that the installed capacity of offshore wind power will reach 14-17GW by 2025. The offshore wind project in China has experienced a flurry of activity this week. The Three Gorges Group's electronic procurement platform released a notice for the procurement of towers and supporting accessories for the Qingzhou Qi offshore wind project in Yangjiang, including 500MW and a total of 39 tower and accessory sets, with an equipment delivery deadline set for "no fewer than 8 tower sets meeting shipping conditions by March 20, 2025 and complete delivery by May 30, 2025." Positive progress has been seen in key offshore wind projects in Guangdong. The bidding for offshore wind projects in Fujian province in 2024 has started, with 5 offshore wind sites totaling 2.4GW in installed capacity. The Shanghai Housing and Urban-Rural Development Management Official Account released a message confirming that the first phase of the Jinshan offshore wind farm project has obtained a land-based construction permit, officially entering the construction phase. The construction of offshore wind projects is accelerating towards the year-end. Based on the progress of various projects, it is predicted that the installed capacity of offshore wind power in 2025 will be between 14-17GW. Since September, the bidding for offshore wind projects in China has accelerated. From September to November (as of the 17th), the bidding scope for offshore wind projects in China is approximately 3.3GW, and bids with delivery times specified indicate that all deliveries/full capacity grid connections will be completed by 2025. Based on the progress of various offshore wind projects in China, assuming that projects that have completed bidding for turbines/EPC facilities by the current node will achieve full capacity grid connections in 2025 (excluding those with delivery dates specified in 2026), it is estimated that the installed capacity of offshore wind power in China in 2025 will reach 17GW. Even if some projects such as Longyuan Sheyang, Fanshi II, and Three Gorges Dafeng projects are unable to achieve full capacity grid connections next year due to the large project size, the installed capacity of offshore wind power in China in 2025 could still reach 14GW. The trend of high growth in offshore wind power installation in 2025 is clear. It is recommended to focus on companies that will benefit deeply from the accelerating construction of offshore wind projects, such as submarine cable and tower sections. At this point, the focus is on the following three themes: 1) Accelerated construction of offshore wind power in China - Logic: Short-term optimism for the acceleration of offshore wind projects in the later part of the 14th Five-Year Plan, as well as the quick release of demand after the approval of offshore usage in Guangdong and Jiangsu, bringing performance elasticity. Long-term optimism for the increase in value of the offshore wind industry chain under the certainty of the 15th Five-Year Plan. Catalysts: Bidding and construction progress of key projects in Guangdong and Jiangsu, inflection points of key companies, issuance of policies regarding offshore usage in deep sea, and the release of offshore wind plans for coastal provinces during the 15th Five-Year Plan. 2) Improvement in profitability of complete machines and components - Logic: The stable bidding prices for onshore wind turbines in China, expected improvement in price competition under the backdrop of a self-discipline industry voluntary code, and an increase in the bidding scale of wind turbines by 93% in the first three quarters of the year, with an increasing proportion of large-scale wind turbines, indicating a potential rebound in prices for components like blades and castings. Catalysts: Progress in price negotiations between components and machinery enterprises at the end of the year, improvement in raw material prices, and better-than-expected wind power installation data. 3) Overflow of overseas orders - Logic: Europe's offshore wind construction is entering a new growth cycle, with a significant gap between supply and demand in local single piles and submarine cable sections, offering opportunities for top domestic companies to benefit from overflow orders. Catalysts: Disclosure of key company orders and better-than-expected international interest rates. Electric Grid: Siemens Energy disclosed its Q4 FY2024 financial report, with performance exceeding market expectations. The electric grid business achieved revenue of 2.7 billion euros in Q4, a year-on-year increase of 34%, net profit of 277 million euros, a year-on-year increase of 75%, and new orders of 5.4 billion euros, a year-on-year increase of 136%, with a total order backlog reaching 33 billion euros. In terms of capacity, Siemens Energy plans to invest 1.1 billion euros in capacity expansion, with two new factories set to start production in 2026, and an 85GVA increase in transformer capacity. The company predicts a year-on-year revenue growth of 23%-25% for the 2025 fiscal year, with a focus on various strategic initiatives.Profit margin of 10%-12%, revenue is expected to maintain low double-digit growth until the 2028 fiscal year, with profit margin increasing to 13%-15%, and the overseas power equipment market continuing to be in a high boom.On November 12th, Siemens Energy released its Q4 FY2024 financial report. The grid business is the company's fastest growing business area, with its grid solutions/products ranking first or second in the global market, maintaining a leading position in the industry. Siemens Energy stated that, considering factors such as population growth, higher living standards, and the trend towards electrification, it is expected that global electricity demand will reach 31,000 TWh by 2024 and further increase to 36-39,000 TWh by 2030. Additionally, driven by the integration of renewable energy, the replacement of aging infrastructure, and the rapid growth in data center demand, the global grid market size is expected to reach 201 billion euros by FY2030, with a compound annual growth rate of 12%. For the grid business: 1) Revenue & Profit: Achieved revenue of 2.7 billion euros in Q4, a year-on-year increase of 34%, and a net profit of 277 million euros, a year-on-year increase of 75%; 2) Orders: New orders for Q4 reached 5.4 billion euros, a year-on-year increase of 136%, with a cumulative order backlog of 33 billion euros; 3) Capacity: Investment of 1.1 billion euros for capacity expansion, with 2 new factories scheduled to start production by 2026 and a transformer capacity increase of 85GVA; 4) Performance Guidance: Revenue growth of 23%-25% year-on-year in FY2025, profit margin of 10%-12%, with revenue achieving low double-digit growth by FY2028 and profit margin increasing to 13%-15%. On November 12th, Zhang Zhigang, Chairman of State Grid Corporation of China, met with the President of Singapore Energy Group Huang Tianyuan at the company's headquarters. Zhang Zhigang expressed his anticipation for both parties to strengthen communication and cooperation in stable project operation and third-party market development, achieving mutual benefits and enhancing the international influence of both parties. Huang Tianyuan stated that Singapore Energy Group is committed to promoting the transformation toward renewable energy and clean energy, increasing investment efforts, and steadily expanding business development scale. They hope to further collaborate closely with State Grid Corporation of China, deepen communication and cooperation, expand cooperation areas, and tap into market potential. Looking ahead to the fourth quarter: In terms of overseas markets, orders for power transformers, high-voltage switches, and smart meters signed in 2023 are expected to enter a concentrated delivery phase; domestically, UHV and transmission and transformation projects are experiencing intense bidding, with DC projects being delivered one after another. The offshore new energy and industrial sectors also have room for improvement, reiterating the potential for exceeding expectations in both domestic and overseas markets. Major enterprises in the transmission and transformation sector generally met or exceeded expectations in the first half of the year, and with the realization of orders in the second half of the year, there is optimism for further elasticity in the sector. For 2024, it is recommended to focus on four structural investment themes in the power equipment sector: 1) Internationalization of Power Equipment - Logic: The export prospects for Chinese power equipment (smart meters, transformers, combination appliances, etc.) are significantly increasing, with serious mismatches between supply and demand overseas. Some electrical equipment is in a large-scale replacement phase, and leading companies that have actively entered overseas markets in the past are likely to undergo a round of valuation reconfiguration. Later catalysts: Overseas network investment plans and implementation solutions in key areas, export data from the General Administration of Customs surpassing expectations, individual stocks exceeding expectations in overseas orders/shipping/performance. 2) Ultra-High Voltage Lines & Main Networks - Logic: Strong demand for external transmission of wind and solar farms, with multiple line gaps still existing. At the same time, the construction of main networks and the development of supporting power sources, such as new energy, are seeing an upswing in bid scales. Catalysts: Newly disclosed lines, improvement in direct penetration rates, bid amounts exceeding expectations, individual stocks winning bids or exceeding performance expectations. 3) Electricity Market Reform - Heavy policies related to the 2023 electricity reform have been intensively issued, with the policy momentum expected to continue to increase in 2024. The electricity reform has entered a period of clear guidance, and it will become a main trend for at least the next two years, pushing the industry into a second growth curve. Subsequent related detailed policies are expected to create new catalysts. 4) Grid Transformation - Logic: Policy-wise, in early March and April, the top-level issued the "Guiding Opinions on High-Quality Development of Distribution Networks" and the "Implementation Measures for Division of Distribution Areas for Incremental Distribution Business". Catalysts: Top-level policies, provincial tendering processes surpassing expectations, individual stock winning bids or increasing market share. Hydrogen Energy and Fuel Cells Another pure hydrogen energy company has gone public, igniting industry enthusiasm with the prospect of a surge in fuel cell vehicle sales, and driving a rebound in sector sentiment. The Ministry of Finance has issued an advance reward of 1.625 billion yuan, with national funds assisting companies in recovering earlier than expected, accelerating the surge in fuel cell vehicles in 2025. Another pure hydrogen energy company has gone public, reigniting industry enthusiasm. On November 15th, GUOFUHEE (02582) officially began trading on the Hong Kong Stock Exchange at a price of 65 Hong Kong dollars per share. A total of 6 million H-shares were sold globally, with 725,300 shares publicly offered in Hong Kong, accounting for 12.09%, and 5,274,700 internationally offered shares, accounting for 87.91%. Over half of the funds raised in this IPO will be used to expand the company's production capacity, about 33.9% will be allocated to enhance R&D capabilities, and the remaining approximately 10% will be used for operational funds and general corporate purposes to support business growth. As a leading company in hydrogen energy storage and transportation equipment, GUOFUHEE is another pure hydrogen energy company to go public following SINOHYTEC and SINOSYNERGY. Additionally, the top fuel cell system company, which has also successfully passed the listing hearing on the Hong Kong Stock Exchange, has reignited the wave of pure hydrogen energy companies going public, driving the rebound of industry sentiment. At the same time, the industry fundamentals are stable, with the "Hydrogen Industry Development Medium and Long-Term Plan (2021-2035)" expecting the market to reach at least 50,000 vehicles by 2025, with a current gap of 25,000 vehicles; coupled with subsidies issued to demonstration cities, the rapid construction of hydrogen energy demonstration cities opening up application scenarios, and the cost reduction of fuel cell vehicles, under the triple catalyst of target pressure + subsidy issuance + anticipat... (The translation appears to be incomplete)Allocate financial assistance, allocate a reward fund of 1.625 billion yuan for the second year of fuel cell vehicle demonstration applications, an increase of 42% compared to the 1.142 billion yuan in the first year, covering 25 cities in 10 provinces and regions including Beijing, Tianjin, Hebei, Inner Mongolia, Shanghai, Zhejiang, Jiangsu, Shandong, Henan, and Ningxia. The new additions from the first year include Beijing Economic Development Zone, Handan, Xinji, Suzhou, Luoyang, Jiaozuo, and Ningdong Energy Chemical Base. Among them, Tangshan received 398.3 million yuan, Shanghai 313.49 million yuan, Zhengzhou 263.68 million yuan, Beijing 243.08 million yuan, and Tianjin 112.07 million yuan, ranking in the top five. The second year subsidy announced this time, combined with the first year subsidy announced in April this year, totals approximately 2.767 billion yuan. The national funds allocated are helping companies to recover, and the speed of the second round of subsidies exceeded expectations, solidifying the confidence of downstream fuel cell enterprises, accelerating the mass production of fuel cell vehicles by 2025.The trading logic of the hydrogen energy sector lies in the expectation of further policy support and the expectation of continuous growth in overall trading volume: 1) The hydrogen energy sector is expected to be further regulated from a policy perspective; 2) The overall sector drive is gradually shifting from the cost side to the demand side; 3) The closed-loop business model of "green electricity, green hydrogen + fuel cell vehicle operation" is expected to take shape. Upstream: Accelerating economic feasibility, expected to be driven by bidding and consumption integration; Midstream: Pipeline planning and liquid hydrogen standards are implemented, with the three major oil companies promoting development; Downstream: Fuel cells are thriving, and the continuous reduction in high-speed tolls is expected to drive the sector further. Risk warning: Policy adjustments, lower than expected implementation effectiveness: Although grid parity has been gradually achieved in photovoltaic power generation, energy transformation and the dual carbon target task still highly depend on policy guidance. If the introduction of relevant policies and their implementation effectiveness is lower than expected, it may affect the development of the related industry chain. Intense price competition in the industry chain exceeds expectations: Against the backdrop of clear dual carbon targets, the expansion of production capacity in the new energy industry has accelerated significantly, and there are signs of a large influx of cross-border capital, which may lead to a risk of temporary competitive landscape and deteriorating profitability in some sectors due to the degree of excess capacity exceeding expectations.