China Securities Co., Ltd.: The new energy industry experienced a slow season in January and February, and is gradually recovering as seasonal demand picks up.

China Securities Co., Ltd. released a research report stating that March is the season of recovery. The new energy industry experienced a slow season in January and February, but is gradually recovering with the repair of seasonal demand. In March, overall production of photovoltaic modules increased by more than 40% month-on-month, with leading companies increasing production by at least 50% month-on-month. In March, as downstream demand for lithium batteries picked up, leading companies are expected to achieve a month-on-month growth of 50% in production. The market has also recovered from the sentiment of only buying when prices are rising. In the last week of February, the new energy sector as a whole recovered, and many valuations may have already recovered, with upcoming support from fundamental factors such as the N-type industry chain in photovoltaics, the upstream and downstream relationships in lithium batteries and lithium mining, as well as the aggressive development of offshore wind and hydrogen energy. China Securities Co., Ltd.'s main points are as follows: In March, overall production of photovoltaic modules increased by more than 40% month-on-month, with leading companies increasing production by at least 50% month-on-month. The high month-on-month growth rate in March is not only due to the low base in February, but also due to demand exceeding expectations. After a six-month period of inventory clearance, European module stocks have now reached low levels, and with Europe entering its peak season for a year, demand is gradually starting up. The Indian market has seen an increase in demand for imported components after price reductions led to improved cost-effectiveness. Domestic businesses have resumed work after the holidays, and bidding and installation activities have gradually started. The supply and demand structure of the N-type sector is tight, and the profitability of TOPCon cells is expected to recover. The penetration rate of TOPCon cells in the end market has exceeded 80%, while the supply side penetration rate is only around 60%. With rapid increases in module production, the supply and demand structure is expected to be tight for N-type cells (especially TOPCon cells), leading to relatively firm prices for TOPCon cells. Short-term stock pressure in the silicon wafer segment will increase, and after price reductions, this will enhance the profitability of TOPCon cells. In the lithium battery sector, with downstream demand picking up in March, leading companies are expected to achieve a month-on-month growth of 50% in production, with some companies achieving even higher growth rates, returning to the levels seen in January or even above. It is expected that battery production will increase by 75% month-on-month, positive electrode by 61%, negative electrode by 43%, electrolyte by 67%, and separator by 25%. The main reasons for this include: 1) a decrease of 8%-22% in production output in February, reaching its yearly low; 2) the peak season for the automotive market in March, with many car manufacturers launching popular models with price discounts, as well as new iterations of models; 3) policies encouraging equipment upgrades, trade-ins, and other stimulants in the passenger and commercial vehicle markets. It is expected that sales will increase to 850,000 units in March, a 63% month-on-month increase, reaching levels seen in September 2023 (slightly better than the recovery rate at the same time in 2023). It is expected that in Q1 2024, total domestic electric vehicle sales will reach 2.1 million units, a year-on-year increase of 32%, a month-on-month decrease of 34%, with a total sales expectation of 11.41 million units for the year, a year-on-year increase of 21%. Selected opportunities in the recovery of new energy: - Photovoltaic N-type industry chain: Recovery in end-market demand driving the profitability of TOPCon cells, bullish on TOPCon module leaders, and related upgrades for auxiliary materials; - Carbonate and positive electrode segments in the lithium market recovery; - Bullish on leading companies with clear Q1 performance bottoming out, with valuation elasticity after clear Q1 unit profit, bullish on hydrogen energy and offshore wind. Risks: 1) Demand downstream falls short of expectations: Sales may fall short of expectations due to weak demand; production may be affected by significant fluctuations in upstream raw material prices, repeated power restrictions, and other factors, affecting the company's shipment volumes and profitability. 2) Increased industry competition leading to a decline in profitability of the industry chain: Currently, the size of the industry chain's planned production capacity is large, and in the context of slowing industry demand growth, supply expansion may lead to a decline in profitability for the industry chain. 3) Key project progress for recommended companies falls short of expectations: The progress of key projects is crucial to supporting revenue and profitability, and is a reflection of the company's growth potential. If key project progress falls short of expectations, current and future financial performance may be affected.