Tianfeng: Optimistic about new technologies in the photovoltaic industry and the direction of supply-side reforms. Strongly recommend global energy storage leaders.

Tianfeng released a research report stating that it is optimistic about new technologies and supply-side reform directions in the photovoltaic industry. The performance of the sector is expected to reach a relative bottom in Q1 2025, with clear signs of marginal improvement, and companies with incremental logic in the second half of the year. In terms of energy storage, they recommend leading global energy storage system companies in terms of market share. The acceleration of energy storage project planning in Asia, Africa, and Latin America is expected to be significant in the second half of 2024, and the bank predicts that demand for energy storage in Southeast Asian countries, India, Africa, and other regions will also accelerate in 2025. They recommend companies that have already entered the markets of Asia, Africa, and Latin America, as they are expected to benefit from the incremental market growth in these regions. One of the characteristics of the US energy storage market is its excellent competitive landscape and strong profitability. Key points from Tianfeng: Photovoltaics: Optimistic about new technologies and supply-side reform directions 1. New technologies: The main contradiction in the current photovoltaic industry is the slowdown in demand growth and excess supply. New technologies can not only accelerate the elimination of outdated capacity but also bring forward the time point for clearing supply. In a weak demand background, the increase in the penetration rate of new technologies is the fastest-growing segment. In terms of new technologies, they will focus on BC and HJT lines in 2025. BC has obvious advantages in production power, and after scale cost reduction, it has reached a crossover point in terms of profitability with TOPCon. Since the second half of 2024, the development of TOPCon technology has been slow. However, N-type BC has a 1% higher production power compared to TOPCon, and the power of the same type of module is 30~35W higher. Although TOPCon can still improve efficiency through technological progress in the future, it will require additional process steps and modification costs. Especially in the front passivation of TOPCon, it needs to add LPCVD, laser equipment, which makes the process steps and investment amount of TOPCon aligned with BC technology. However, there is always an efficiency gap expected. Therefore, BC may become the choice to further improve efficiency. With the current power conditions, BC has a theoretical premium of more than 0.10 yuan/W over TOPCon. Although the current cost of BC is still high, with scale cost reduction (LONGi Green Energy Technology aims to ship 30GW by 2025, Shanghai Aiko Solar Energy aims to ship 20GW), efficiency improvement, and cost reduction of technology, BC components are expected to break even or even exceed TOPCon in terms of profitability, becoming the next-generation mass production technology for crystalline silicon. They are optimistic about LONGi Green Energy Technology and Shanghai Aiko Solar Energy leading in BC mass production, and suggest focusing on Wuhan DR Laser Technology Corp. and LAPLACE Renewable Energy Technology, which benefit from the clear increase brought by BC production expansion. HJT is expected to achieve a breakthrough in overseas production capacity from 0 to 1. 1) Overseas HJT production expansion will not face the same patent barriers as TOPCon. 2) Choosing HJT overseas can maximize the advantages of HJT technology steps and high automation level, reduce labor costs, environmental costs, and minimize the disadvantage of high investment amount in HJT equipment due to high overseas land, factory, and other costs. 3) HJT silicon wafers are thinner, with obvious advantages in silicon cost due to higher overseas silicon material prices. 4) Markets such as the United States primarily use Utility Solar, where HJT's high double-sided rate is naturally suitable for flat terrain areas. 5) Overseas is expected to achieve a breakthrough with HJT from 0 to 1. 2. Supply-side reform: Global demand growth is expected to be around 10% in 2025, significantly slower than in 2024, with the supply side still in excess. The main marginal change in the photovoltaic industry in 2025 comes from supply-side reform, which is also one of the main investment strategies. Stock price review: After the sharp rise in the photovoltaic sector in October 2024, it gradually entered the period of policy implementation. Although industry self-regulation has begun, in December, there was no more policy catalyst in the industry, and the low bid price of the Guodian Xinjiang Bazhou project raised doubts in the market about the effectiveness of industry self-regulation, leading to a decrease in the stock prices of the photovoltaic sector since October. The price increase in the off-season has already shown the effectiveness of industry self-regulation. The photovoltaic industry is still in an overall loss-making state, and achieving self-regulation is in the best interest of all market participants. Since the middle and late December, the price increase in the off-season has already demonstrated the effect of self-regulation, and the rise in prices of batteries, films, and glass will also help transmit costs down to the component level. The bank is optimistic about future component prices and may see clearer signals in future tender bids. The performance of the sector is expected to reach a relative bottom in Q1 2025, with clear signs of marginal improvement, and companies with incremental logic in the second half of the year. Most companies are expected to reach a relative bottom in Q1 2025 (the delivery price of component companies is expected to converge to spot price levels in Q1 2025). Component companies may see a turning point/reversal of difficulties, with silicon materials, silicon wafers, and batteries expected to show significant performance differentiation. By finding clear signs of marginal improvement in Q1 2025, companies with changes/incremental business in the year are likely to benefit from demand, price increases, policies, and performance resonances. In specific areas, they recommend focusing on XINYI SOLAR for photovoltaic glass (short-term production capacity is rigid, and post-holiday prices are expected to rise), Shuangliang Eco-Energy Systems and Hainan Drinda New Energy Technology for silicon wafers & batteries (inventory rates are expected to reach relative bottom levels, and profitability is expected to see the first turning point), and GCL TECH for silicon materials (prices have reached relative bottom levels, and the worst period is over), as well as Hangzhou First Applied Material for films with significant cost advantages. 3. Structural highlights of demand: Although the overall demand is lackluster, there are still bright spots in specific markets such as India and the Middle East, where overseas battery cell supply remains tight. They recommend focusing on Arctech Solar Holding, which benefits from high growth in the Asia, Africa, and Latin America markets, as well as Hengdian Group DM, which is pioneering the overseas battery capacity layout.EGC Magnetics, Hainan Drinda New Energy Technology.Energy storage: recommend three main lines of global energy storage leaders, Asia-Africa, and the US market 1. Demand side: Traditional market uncertainties are increasing, and focus is more on structure than total volume; the Asia-Africa market has strong certainty in marginal improvement. Chinese energy storage demand still needs to track PV installations; in the US market, pessimistically, the US energy storage installed capacity is expected to decline by 2026 (but still higher than 2023 levels), and then return to a growth trend in 2027-2028; traditional household energy storage demand in Europe is slowing down, while large-scale and commercial energy storage demand are expected to grow. Marginal driving factors for the upward demand for solar storage in the Asia-Africa market include gradual implementation of developed countries' funding support, downstream demand stimulated by declining PV investment costs, distribution of distributed solar and storage demand due to weak power grids and high PV economics, and policy support and sovereign fund promotion. 2. Pay attention to the two changes on the supply side, with large-scale energy storage seeing a grid-structured type and household energy storage adapting to Asia-Africa demand. 1) With the continuous increase in the penetration rate of new energy, the transition from "following the grid" to "constructing the grid" has gradually become an industry consensus and one of the trends in the future development of energy storage technology. Grid-structured energy storage technology is a must to support the construction of a new type of power system, to deal with the challenges brought by the "dual high" power grid (high proportion of clean energy, high proportion of power electronics devices) such as random generation, volatility, low inertia, and decentralization, and to achieve frequency stability, voltage stability, and power angle stability support. Grid-structured energy storage systems are more suitable for new power systems, especially in regions with high proportion of new energy and poor grid stability, such as the Northwest region, Xinjiang, and Tibet, where some provinces have already mentioned the importance of grid-structured energy storage. 2) Compatibility with diesel generators and lead-acid batteries, shorter off-grid switching time, off-grid loading capacity, and lower cost-effective low-voltage systems are becoming trends that are more suitable for the Asia-Africa market demand. Risk warning: Downstream demand falls short of expectations, policy implementation falls short of expectations, technological iterations fall short of expectations, competition intensifies risk, and calculations are subjective and for reference only.