汇丰银行-中国太阳能设备行业报告：未来更新光明

www.research.hsbc.com Disclosures we prefer Longi – the cost leader in wafer – and Tongwei – the cost leader in polysilicon and cell, both rated Buy. Compared with other parts of the supply chain, we believe wafer and polysilicon cost leaders will find it relatively easier to maintain scale advantages, given the high share of fixed cost in their cost structure. We also have Buy ratings on Zhonghuan and Jingsheng. We have a Reduce rating on First Applied Material FAM as we see pressure on earnings. Why read this report  We are bullish on the global photovoltaic product market in 2019-21e as solar gets closer to competing with fossil fuels on an equal footing  Chinese producers stand to benefit as they increase their dominance of the global supply chain; we think policy concerns are overdone  We explain why Longi and Tongwei are best positioned to benefit Corey Chan* S1700518100001 * Head of A-share Infrastructure Research HSBC Qianhai Securities Limited corey.chanhsbcqh.com.cn 86 755 8898 3404 Dun Wang* S1700519060002 Analyst, A-share Infrastructure HSBC Qianhai Securities Limited dun.wanghsbcqh.com.cn * Employed by a non-US affiliate of HSBC Securities USA Inc, and is not registered/ qualified pursuant to FINRA regulations Equities ● Energy Equipment 2 larger-than-expected reduction in wafer non-Si cost; and 3 mono’s share of the wafer market growing faster than expected. Tongwei 1 Stronger-than-expected solar cell orders driven by stronger-than-expected global solar new installations; 2 ramp-up of the new polysilicon capacity sooner-than-expected; and 3 better-than-expected polysilicon pricings on industry capacity cuts. Zhonghuan 1 Stronger-than-expected wafer orders driven by better-than-expected global solar new installations; 2 making inroads in the 12’ semi wafer markets; and 3 sooner-than- expected completion of the new production facilities in Inner Mongolia and Wuxi. Jingsheng 1 Better-than-expected demand for crystal-growing equipment, spurred by stronger-than-expected capacity expansion by wafer makers; 2 new product launches; and 3 better-than-expected market share, driven by an acceleration of localization of Chinese wafer- lines owing to heightening China-US trade tensions. FAM 1 EVA film demand weaker than expected, driven by lower-than-expected global solar new installations; 2 slower-than-expected progress made in diversification into 3C and semiconductor downstream; and 3 weaker-than-expected contribution from POE film on slower-than-expected adoption of bifacial panels. Where we are different from consensus Longi Our 2020-21 earnings estimates are 4-11 above consensus as we expect faster earnings growth for its wafer and module businesses. Tongwei Our 2021 earnings estimate is 7 above consensus as we expect stronger earnings growth for its mono cell business. Zhonghuan Our 2021 earnings estimate is 9 above consensus as we expect stronger earnings contribution for its Wuxi semiconductor wafer project, slated for completion in phases in 2019-22. Equities ● Energy Equipment 2 supportive government policies; 3 vertical integration that could generate synergies; 4 evolution of technologies in favour of existing players; 5 stronger-than-expected cost reduction in the supply chain on technology improvement and economies of scale. Downside risks 1 Weaker-than-expected PV installations on slower-than-expected solar grid parity; 2 unfavourable policy shifts; 3 equity dilution risks stemming from heavy capex; 4 market-shifting new technologies unfavourable to incumbents; 5 hurdles to cost reduction in the supply chain. ESG The five companies have all set detailed guidelines for ethical management, safety management and social contributions, and also follow China’s market rules on corporate governance. Average board tenure for each of the five companies are all over two years. All five companies have independent board members accounting for over 20 of the board. We believe global governments’ efforts to deliver emission caps are positive for the solar industry. Over the past decade, global countries have set extensive, clear targets to reduce emissions as part of economic growth efforts, and/or have provided tax incentives for renewables. In China, solar capacities reached 175GW in 2018, far ahead of the original targets. Exhibit 10. ESG indicators, 2018 Longi Zhonghuan FAM Jingsheng Tongwei No. of board members 12 11 7.0 10.0 11 Average board tenure years 4.6 2.5 3.9 5.2 3.4 No. of female board members 3 5 1 2 0 Female board members 25.0 45.5 14.3 20.0 0.0 No. of independent board members 3 4 3 3 3 Board member independence 25.0 36.4 42.9 30.0 27.3 Source Wind, Company data, HSBC Qianhai Securities 11 Equ itie s ● En erg y Eq uip me nt 2 Cost of debt COD We assume the pre-tax cost of debt to be 5 and after-tax cost of debt to be 4. We use our 2020e debt-to-capital ratio of 20 as our long-term debt-to-capital ratio; 3 Operating cash flow to grow 11 per annum We expect operating cash flow before changes in working capital to expand at a CAGR of 11 in 2018-29e, reflecting solid growth in demand; 4 Capital expenditure capex We assume high capex of around RMB6bn per annum in 2019-21e, reflecting the expansion of its wafer/cell/module capacities; we assume steady capex of around RMB1-2bn per annum in 2022-29e, reflecting steady investment in maintenance; 5 Terminal growth rate at 2, and we assume the company reaches a steady growth period after 2029. With our TP implying upside of 62, we initiate with a Buy rating. Downside risks Weaker-than-expected PV demand Risk of equity dilution from fundraising exercise Greater-than-expected cuts to wafer ASP Buy Corey Chan | corey.chanhsbcqh.com.cn | 86 755 8898 3404 Tongwei 600438 CH Current price RMB14.2 Target price RMB19.4 Up/downside 36 Our TP of RMB19.4 is derived from our discounted cash flow DCF valuation model. Key assumptions in our DCF valuation model include 1 Cost of equity COE We use a COE of 11.8. This is derived from a risk-free rate of 2.5, a market risk premium of 6.5, and a beta of 1.42. 2 Cost of debt COD We assume the pre-tax cost of debt to be 5 and after-tax cost of debt to be 4. We use our 2020e debt-to-capital ratio of 42 as our long-term debt-to-capital ratio. 3 Operating cash flow to grow 9 per annum We expect operating cash flow before changes in working capital to expand at a CAGR of 9 in 2018-29e, reflecting solid growth in demand. 4 Capital expenditure capex We expect a capex of RMB13bn in 2019e, driven by cell and solar farm capacity expansion. Thereafter, we expect capex to drop to around RMB2- 3bn per annum in 2020-29e, reflecting steady maintenance capex. 5 Terminal growth rate at 2, and we assume the company reaches a steady growth period after 2029. With our TP implying upside of 36, we initiate with a Buy rating. Downside risks Weaker-than-expected polysilicon prices Ramp-up of the new polysilicon capacity taking longer-than- expected Weaker-than-expected PV demand Risk of equity dilution from fundraising exercise. Evolution of the cell technology which could undermine investment in PERC Greater-than-expected cuts to cell ASPs Buy Corey Chan | corey.chanhsbcqh.com.cn | 86 755 8898 3404 Zhonghuan 002129 CH Current price RMB9.60 Target price RMB14.3 Up/downside 49 Our TP of RMB14.3 is derived from our discounted cash flow DCF valuation model. Key assumptions in our DCF valuation model include 1 Cost of equity COE We use a COE of 9.2. This is derived from a risk-free rate of 2.5, a market risk premium of 6.5, and a beta of 1.03. 2 Cost of debt COD We assume the pre-tax cost of debt to be 5 and after-tax cost of debt to be 4. We use our 2020e debt-to-capital ratio of 38 as our long-term debt-to-capital ratio. 3 Operating cash flow to grow 11 per annum We expect operating cash flow before changes in working capital to expand at a CAGR of 11 in 2018-29e, reflecting solid growth in demand. 4 Capital expenditure capex We assume steady capex of around RMB5bn per annum in 2019-29e, reflecting high investment in new projects and capacity expansion. 5 Terminal growth rate at 2, and we assume the company reaches a steady growth period after 2029. With our TP implying upside of 49, we initiate with a Buy rating. Downside risks Weaker-than-expected PV demand China-US trade tension which could hinder equipment procurement from US suppliers Risk of equity dilution from fundraising exercise Weaker-than-expected semi demand Greater-than-expected cuts to wafer ASP Buy Corey Chan | corey.chanhsbcqh.com.cn | 86 755 8898 3404 Equities ● Energy Equipment o v e r c a p a c i t y s t a r t s t o b u il d C h i n a c a p a c i t y r a mp d r iv e s d o w n p r ic in g P h a s e 1 P h a s e 2 P h a s e 3 P h a s e 4 C h in a d o m in a t e s s u p p l y a n d d e ma n d R o W d r iv e s r e b o u n d Equities ● Energy Equipment - 0 . 1 0 0 . 2 0 0 . 3 0 0 . 4 0 0 . 5 0 0 . 6 0 0 . 7 0 0 . 8 0 0 . 9 0 1 . 0 0 2 0 1 3 2 0 1 5 2 0 1 7 2 0 1 9 E 2 0 2 1 E Wa f e r n o n - S i c o s t R M B / W - 0 . 0 5 0 . 1 0 0 . 1 5 0 . 2 0 0 . 2 5 0 . 3 0 0 . 3 5 0 . 4 0 0 . 4 5 0 . 5 0 2 0 1 7 2 0 1 8 2 0 1 9 E 2 0 2 0 E 2 0 2 1 E T o n g w e i I n d u s t r y a v e r a g e R M B / W 2 0 . 0 0 2 0 . 0 0 1 5 . 0 0 1 0 . 8 1 0 . 0 7 . 5 7 . 1 6 . 5 6 . 2 0 . 0 0 5 . 0 0 1 0 . 0 0 1 5 . 0 0 2 0 . 0 0 2 5 . 0 0 R E C U S J a p a n H e m l o c k U S Wa c k e r C h e m i e U S a n d G e r ma n y O C I K o r e a G C L P o ly C h in a T B E A C h i n a D a q o C h in a T o n g w e i C h in a A v e r a g e v a r ia b le c o s t U S D / k g 27 Equities ● Energy Equipment Services June 2019 2. It generates synergy as a lot of the tasks along the supply chain such as marketing and service are repetitive. 3. It allows upstream players to know and address market demand better, and to develop business objectives in line with that of the users. Given these benefits, top solar supply chain players including Longi, Zhonghuan, Tongwei, JA Solar, Trina Solar, GCL Poly, Canadian Solar, Jinko Solar, and Risen Energy, have been extending their businesses along the supply chain. Longi expanded into solar cell and module manufacturing by acquiring Lerri Solar in 2014. As of end-2018, the company has a module capacity of 8.8GW. It supplied 7.3GW of modules in 2018, or a 7 market share globally. As the largest mono wafer supplier globally, the company is able to self-supply wafers to its modules, which leads to lower costs and better margins for its modules compared with that of its peers Exhibit 48. Longi’s weak spots, in our view, are polysilicon and cell. The company does not produce polysilicon and its 6GW cell capacity at end-2018 can hardly satisfy its own wafer supply of 18GW in 2018. As such, co-operation with polysilicon and cell players becomes critical. On 3 June 2019, Longi announced a strategic co-operation with Tongwei in polysilicon and wafer. According to the announcement, Tongwei will take a 30 stake in Longis 15GW mono wafer project in Yinchuan, while in return Longi will take a 30 stake in Tongweis 50,000 tonnes Baotou polysilicon project. We believe the partnership is beneficial to both parties as it helps Longi to secure upstream polysilicon supply for its wafers and helps Tongwei to secure a major customer for its polysilicon. Longi’s Yinchuan project, slated for completion around 2020, will need to consume c50,000 tonnes of polysilicon per annum, an exact match for the production at Baotou Ph1-2. Zhonghuan moved into cell and module manufacturing by acquiring a 90 stake of Gdsolar in July 2018. The RMB644m consideration was settled via issuing 84m shares to the seller at RMB7.67/share. Zhonghuan will build 5GW of shingled-cell module capacity on Gdsolar’s existing plant and upgrade Gdsolar’s existing HJT cell line. Exhibit 48. PV module GM Longi’s higher than peers thanks to its self-supplied wafers Source Company data, HSBC Qianhai Securities Solar technology trends The PV panel manufacturing process can be broken down into four parts polysilicon, wafer, cell, and module. There have been competing technologies in each part, like mono-Si vs. multi- Si in wafer processing, and p-type vs. n-type in cell production. In this section, we analyze the 27 31 24 18 17 16 13 6 0 0 5 1 0 1 5 2 0 2 5 3 0 3 5 2 0 1 6 2 0 1 7 2 0 1 8 L o n g i C h i n t C E C E P S o l a r E n e r g y P V m o d u le G M Top solar supply chain players have been extending their businesses along the supply chain Equities ● Energy Equipment Services June 2019 28 technology trends of various parts of the manufacturing process as we view the technology trends as one of the biggest uncertainties for companies in the solar supply chain. We believe there is more uncertainty concerning the technology trends of cell and module than with wafer and polysilicon. It is difficult to identify the winner in the cell industry as there are at least five competing cell technologies to choose from. In our view, in order of technology risk, cell module polysilicon mono wafer.  How does a solar cell work When the sunlight hits the surface of a solar cell, photons are absorbed as energy. This activates the electrons breaking free from the silicon atoms, creating pairs of negatively-charged electrons and positively-charged electron hole. By adding tiny amounts of the right elements to the top and bottom sides of a silicon wafer, a P-N junction can be formed that stops electrons that are knocked below it from going back to the atoms they came from. The roaming electrons are then attracted to the positively charged area N and the electron holes to the negatively charged area P, developing an electric voltage across the cell. Exhibit 49. An illustration of the working mechanism of a solar cell Source HSBC Qianhai Securities Polysilicon purification modified-Siemens method has become the mainstream Polysilicon is the upstream of the solar supply chain. Polysilicon can be produced from metallurgical-grade silicon through chemical purification or physical methods. At present, the modified-Siemens method a chemical method, adopted by over 90 of the polysilicon production facilities globally, is the mainstream production method. We see it as the most competitive method. The modified-Siemens method produces the high quality polysilicon 9- 11N required for mono wafers. Compared with the Fluidized bed reactor method, a traditional chemical method, the modified-Siemens method has lower production cost and higher levels of safety. We expect the modified-Siemens method to remain the mainstream way of producing polysilicon in the medium term. N - typ e sil ic o n P P - typ e sili co n B - Ba c k ele c trode Ant i - reflectio n co ating Front ele c trode - Sun li gh t