CITIC SEC: Acceleration of the elimination of outdated production capacity due to the cancellation of tax rebates for photovoltaic exports, Recommending investment opportunities in photovoltaic and storage energy.

CITIC SEC released a report stating that starting in April, the export tax rebate for value-added tax on products such as photovoltaics will be cancelled. In the short term, it is expected that photovoltaic and energy storage companies will face increased export costs, leading to a decrease in profitability. It is anticipated that during the window period, the shipment volume of photovoltaic modules will rapidly increase, and it is estimated that after the export tax rebate goes into effect, the export volume of photovoltaic modules may decrease by 5%-10%. In the long term, the report believes that the situation of "cannibalization" caused by low-price disorderly competition in the past will be alleviated in the photovoltaic industry. Technological innovation and brand building are expected to become the main directions, and the clearance of outdated production capacity will accelerate. Leading companies' market share is expected to continue to increase, and the photovoltaic industry is poised to enter a new stage of high-quality development. The report recommends investment opportunities in the photovoltaic and energy storage sectors. Key points from CITIC SEC: Event: On January 9, 2026, the Ministry of Finance and the State Administration of Taxation issued a notice adjusting the export tax refund policy for products such as photovoltaics. This includes the cancellation of the export tax rebate on value-added tax for photovoltaic products from April 1, 2026, and the reduction of the export tax rebate rate for battery products from 9% to 6% from April 1, 2026, to December 31, 2026. Starting on January 1, 2027, the export tax rebate on battery products will be cancelled. Short-term impact: The window period may see a rapid increase in component exports to overseas markets, leading to short-term industry demand recovery. In the short term, the cancellation of the export tax rebate will directly increase the cost of exporting products for photovoltaic component companies. According to SMM estimates, leading companies are expected to lose 1-2 billion yuan in tax rebates per year, resulting in a reduction of 46-51 yuan in profit per 210R photovoltaic module exported. In the short term, the report expects overseas terminal companies to rapidly increase order demand during the window period before the formal implementation of the tax rebate cancellation in April, leading to a rapid increase in component exports and potentially driving short-term industry demand growth. Long-term impact: The clearance of outdated production capacity is expected to accelerate, and brand building and technological innovation will become the main focus. According to SMM estimates, the cancellation of the export tax rebate will lead to a 5%-10% decrease in the export volume of photovoltaic components, resulting in a decline in profitability for companies. However, in the long term, the report predicts that the cancellation of the export tax rebate will quickly increase global photovoltaic component prices, reducing China's advantage in low-cost photovoltaic components. In this context, industry technological innovation and brand building will become the main focus areas, and high-efficiency components such as BC and TOPCon 3.0 are expected to command higher premiums and become the mainstream choice for subsequent overseas exports. The clearance of outdated domestic production capacity is expected to accelerate, with leading companies poised to further expand their market share based on brand and technological advantages, leading to a significant improvement in the industry's past vicious competitive situation. Energy storage: Profit impact is expected to be limited, and leading companies will face little difficulty in price increases. In extreme cases where price transmission is completely blocked, with battery production cost calculated at 0.35 yuan/Wh, the report estimates that the profit impact per watt-hour in 2026 and beyond will be 0.8/3. Considering the generally good price transmission mechanism overseas, particularly in high-barrier markets such as the US and Australia where price sensitivity is low and Tesla's products command a significant premium over Sungrow Power Supply products, the report believes that leading companies will have little difficulty in passing on price increases. The core of the policy lies in optimizing supply by canceling subsidies and raising the threshold for overseas exports, benefiting industry leaders with overseas production capacity, accelerating the clearance of outdated production capacity, and long-termally contributing to optimizing the supply structure. The global energy storage market has been booming since 2025, with orders overflowing from leading companies confirming demand, and the report predicts global energy storage additions of 255/407/538GWh for 2025-2027, with a CAGR of 45.3% in that period. Against the backdrop of a global electricity shortage, China's advantages in the energy storage supply chain are highlighted, and the report is optimistic about leading companies' overseas energy storage prospects and high profitability realization. Investment strategy: CITIC SEC recommends focusing on investment opportunities in the photovoltaic industry along the following three main threads: 1) Focus on leading large energy storage companies benefiting from overseas and domestic high-demand prosperity, as well as targets for household energy storage and commercial energy storage benefiting from surging demand in Australia and Ukraine and industry reversal; 2) The report predicts that leading companies in various segments of the industry chain are expected to maintain their lead with scale and technological advantages, while the clearance of outdated production capacity in the industry's tail end is likely to accelerate. It recommends focusing on leading companies in the main industry chains and auxiliary material companies; 3) New technologies have always been a driving force for the continued development of the photovoltaic industry in the medium to long term. Companies that lead in deploying new technologies are expected to lead the way out of the industry's winter. The report recommends focusing on the direction of upgrading to high-efficiency battery components, the direction of cheap metal slurry with potential for scale substitution amid rapidly rising silver prices, as well as the direction of calcium titanium batteries that may see industrialization from scratch. Risk factors: Slower-than-expected growth in photovoltaic installations; intensified market competition; policy implementation falling short of expectations; increased barriers to overseas trade; and slower-than-expected progress in clearing industry production capacity, among others.