Debang Securities: Focus on the overall valuation improvement opportunities in the photovoltaic market, with fundamental improvements adding icing on the cake.

DB Securities released a research report stating that after more than two years of correction, the photovoltaic sector has fully responded to negative news in the market, and the overall photovoltaic market is about to usher in an opportunity for valuation improvement. Currently, the capacity of various links in the industrial chain is still growing, prices in the industrial chain are gradually decreasing, gradually entering the bottoming phase, and both supply and demand sides of the policy are working to support the fundamental bottoming of the photovoltaic sector. In the first nine months of this year, the newly added photovoltaic installations in China maintained growth, and from January to September 2024, the newly added power generation capacity in China was mainly photovoltaic; in the first nine months of 2024, the overseas market demand did not decrease, and the export of photovoltaic components in China showed an increase in quantity and a decrease in price. The main points of DB Securities are as follows: In the first nine months of this year, the newly added photovoltaic installations in China maintained growth, and from January to September 2024, the new power generation capacity in China was mainly photovoltaic. On October 21st, the National Energy Administration released the national electricity industry statistics for January-September. From January to September 2024, China's newly added photovoltaic installations were 160.88GW, a year-on-year increase of 24.77%. Among them, in September, a new photovoltaic installed capacity of 20.89GW was added, a year-on-year increase of 32.38%. In the first nine months of 2024, the new power generation capacity in China was mainly photovoltaic, with a total of 242.58GW of new power generation capacity added from January to September 2024, an increase of 31.65GW year-on-year. Among them, hydropower added 7.97GW, an increase of 0.09GW year-on-year, thermal power added 33.43GW, a decrease of 6.01GW year-on-year, nuclear power added 1.19GW, the same as last year, wind power added 39.12GW, an increase of 5.64GW. CECEP Solar Energy added 160.88GW, an increase of 31.94GW year-on-year. Looking at the proportions of new power generation capacity of various types in the first three quarters of 2024, photovoltaic installations were in an absolute leading position, with proportions of photovoltaic, wind, nuclear, thermal, and hydropower being 66.32%/16.13%/0.49%/13.78%/3.29%. In the first three quarters of 2024, in the newly added photovoltaic installations, distributed photovoltaic installations slightly exceeded centralized photovoltaic installations, with commercial and industrial distributed installations performing better. In terms of the structure of photovoltaic installations, in the first three quarters of 2024, China's newly added centralized photovoltaic installations were 75.66GW, accounting for 47.03%, distributed installations were 85.22GW, accounting for 52.97%, among which residential photovoltaic installations were 22.8GW, accounting for 14.17%, and commercial and industrial photovoltaic installations were 62.42GW, accounting for 38.8%. As of the end of the first three quarters of 2024, China's cumulative grid-connected photovoltaic installations were 772.25GW, with centralized photovoltaic installations accounting for 430.35GW, or 55.73%, distributed photovoltaic installations accounting for 341.91GW, or 44.27%, with residential photovoltaic installations accounting for 138.52GW, or 17.94%, and commercial and industrial photovoltaic installations accounting for 203.39GW, or 26.34%. Compared with the end of 2023, the proportion of distributed photovoltaic installations has increased. In the first three quarters of 2024, overseas market demand did not decrease, and the export of photovoltaic components in China showed an increase in quantity and a decrease in price. According to relevant media and data from the General Administration of Customs, China exported approximately 186.77GW of components in the first three quarters of 2024, up 18% from the same period last year, but the export value was $22.769 billion, a decrease of 30.28% from the same period in 2023. From January to September 2024, the export value of Chinese photovoltaic components decreased significantly year-on-year, mainly due to a large drop in the prices of photovoltaic components compared to the same period last year. According to relevant media reports, the cumulative amount of shipments in the European market from January to September was approximately 77.7GW, a 9% decrease compared to the same period last year; the cumulative amount of shipments in the Asia-Pacific market was approximately 54.13GW, a 62% increase compared to the same period last year. The cumulative amount of shipments in the American market was approximately 24.31GW, a 10% increase compared to the same period last year; in the Middle East market, the cumulative amount of shipments was approximately 22.89GW, a 122% increase compared to the same period last year; in the African market, the cumulative amount of shipments was approximately 7.74GW, an 18% increase compared to the same period last year. The capacity of various links in the industrial chain continues to grow, prices in the industrial chain are gradually decreasing, gradually entering the bottoming phase. According to the CPIA, in the first half of 2024, China's production of polysilicon was approximately 1.06 million tons, a year-on-year increase of approximately 60.6%; silicon wafers production was approximately 402GW, a year-on-year increase of approximately 58.9%; cell production was approximately 310GW, a year-on-year increase of approximately 37.8%; module production was approximately 271GW, a year-on-year increase of approximately 32.2%. The capacity of major links in the industrial chain continues to grow. Prices in the industrial chain are gradually decreasing, gradually entering the bottoming phase. From December 27, 2023, to November 6, 2024, according to relevant media reports, the average price of polysilicon decreased from 65 yuan/kg to 40 yuan/kg, a decrease of 38.46%; monocrystalline P-type silicon wafer-182mm decreased from 2 yuan/piece to 1.15 yuan/piece, a decrease of 42.5%; monocrystalline P-type silicon wafer-210mm decreased from 3 yuan/piece to 1.7 yuan/piece, a decrease of 43.33%; monocrystalline N-type silicon wafer-182mm decreased from 2.2 yuan/piece to 1.2 yuan/piece, a decrease of 45.45%; monocrystalline N-type silicon wafer-210mm decreased from 3.25 yuan/piece to 1.45 yuan/piece, a decrease of 55.38%; monocrystalline Perc solar cell wafer-182mm decreased from 0.36 yuan/W to 0.275 yuan/W, a decrease of 23.61%; monocrystalline Perc solar cell wafer-210mm decreased from 0.37 yuan/W to 0.28 yuan/W, a decrease of 24.32%; TOPCon solar cell wafer-182mm decreased from 0.47 yuan/W to 0.275 yuan/W, a decrease of 41.49%; photovoltaic glass-3.2mm film-coated decreased from 26.5 yuan/square meter to 21.25 yuan/square meter, a decrease of 19.81%; photovoltaic glass-2.0mm film-coated decreased from 17.5 yuan/square meter to 12.5 yuan/square meter, a decrease of 28.57%. The industrial chain continues to The segment fell into losses, but the profit margin of some segments improved significantly in Q3 compared to Q2.Due to the impact of the decline in prices along the industrial chain, the income and profits of multiple links in the photovoltaic industry chain have all decreased. We selected representative companies from various links of the industry chain to form a sample for a review of the market situation in the first three quarters of 2024, as shown in the table below. The sample stocks participating in the statistics achieved operating income of 510.815 billion yuan in Q1-Q3 of 2024, a year-on-year decrease of 26.60%, and achieved a net profit of -11.753 billion yuan, a year-on-year decrease of 115%. Looking at each link, the main industry chain and auxiliary materials links generally performed poorly, with significant decreases in income and net profit for silicon materials, silicon wafers, battery wafers, components, film, glass, etc. The inverter link saw a slight increase in revenue and net profit, while the silver paste link showed an increase in revenue without an increase in profit. From the perspective of gross profit margin and net profit margin, among the various segments of the sample stocks constituting Q1-Q3 of 2024, the gross profit margin and net profit margin of each segment have both decreased year-on-year, but there has been a significant improvement in the chain compared to Q3 of 2024. After more than two years of adjustment, the photovoltaic sector's PB valuation is currently in the lower range of the past ten years. As of November 11, 2024, the Wind Photovoltaic Index (884045) has experienced a maximum retracement of 64.21% from its highest point to date. The current PB is 2.28, which, from a ten-year perspective, is at the 29.35th percentile, still in the lower range of the past ten years. After more than two years of adjustment, pessimistic expectations have been adequately priced in, and the sector currently has a high margin of safety. Policy efforts on both the supply and demand sides are bolstering the fundamentals of the photovoltaic sector. The China Photovoltaic Industry Association held a special symposium on preventing industry "cannibalistic" vicious competition in Shanghai on October 14, 2024. Entrepreneurs and representatives discussed strengthening industry self-discipline, preventing "cannibalistic" vicious competition, enhancing the market's survival of the fittest mechanism, and smoothing the exit of backward and inefficient capacity for the healthy and sustainable development of the industry. The Association, through summarization, statistics, analysis, and organization, calculated the component costs for October 2024, with the hope of providing the market with authoritative cost data for reference by the entire industry and government regulatory departments to promote the healthy development of the industry. Six departments, including the National Development and Reform Commission, issued the "Guiding Opinions on Vigorously Implementing Renewable Energy Replacement Actions." Multiple policies aim to promote the good development of the photovoltaic industry from both the supply and demand sides. Investment recommendation: When the fundamentals are at the bottom, the sector's adjustment is sufficient, and market risk appetite is increasing, it is recommended to focus on the following main themes: 1) Leading companies with relatively high annual performance certainty: Sungrow Power Supply (300274.SZ), Ningbo Deye Technology (605117.SH), etc.; 2) Inverter segment: Ginlong Technologies (300763.SZ), Jiangsu Goodwe Power Supply Technology Co., Ltd. (688390.SH), Sineng Electric (300827.SH), Shenzhen Sinexcel Electric (300693.SZ), Hoymiles Power Electronics Inc. (688032.SH), Yuneng Technology (688348.SH), etc.; 3) Leading companies with profitability expected to gradually recover: LONGi Green Energy Technology (601012.SH), TCL Zhonghuan Renewable Energy Technology (002129.SZ), JA Solar Technology (002459.SZ), Trina Solar Co., Ltd. (688599.SH), CSI Solar Co., Ltd. (688472.SH), etc.; 4) Auxiliary materials segment with good competitive landscape and larger stock elasticity: Changzhou Fusion New Material (688503.SH), Shanghai Hiuv New Materials Co., Ltd (688680.SH), Arctech Solar Holding (688408.SH), etc. Risk warning: Risks of intensified industry competition, changes in industry policies, and risks of slowing industry growth.