Backed by strong photovoltaics (PV) installation demand worldwide, solar component makers’ ambitious capacity expansion plans and emerging disruptive technologies, Chinese solar power equipment suppliers are set to be the key beneficiaries of the downstream capex up-cycle. We rate solar power equipment sector OUTPERFORM and initiate coverage on two domestic leaders Jingsheng (300316 CH) and S.C New Energy (300724 CH) with BUY.
- Global new PV installation embracing another boom. The arrival of grid-parity era has become a key driver for major countries to boost the application of solar power. CMBI renewable team estimates that base-case global PV new installed capacity will surge 112% to 1,064GW in 2020E-25E vs. 503GW in 2014-19, setting the scene for a promising equipment demand growth.
- Equipment suppliers to benefit from solar component makers' ambitious capacity expansion. In order to gain market share and enhance cost competitiveness through economies of scale, Chinese solar component makers have lined up ambitious capacity expansion plans. Based on our project-by-project estimates, major domestic solar component makers have scheduled 221GW capacity additions for wafers and 320GW for PERC cells. We estimate, under the base-case scenario, the scheduled expansion plan will translate into RMB 34bn annual equipment demand during 2020E-22E, 32% higher than that in 2019. We expect further announcement of capacity expansion plan by solar component makers will offer additional upside to our estimates.
- Further upside on demand driven by next-gen technologies. For solar cells, we expect the potential wider application of HJT (Heterojunction Technology), in three to five years, to spur more equipment demand as it requires completely different set of equipment from current production lines at higher CAPEX per GW (~RMB 500mn vs. ~RMB 250mn of PERC). Chinese cell makers’ scheduled new HJT capacity plan can spur 29% upside to our base-case scenario for solar cell production equipment demand. On the wafer side, the emerging ultra-large format (182mm and 210mm) will bring about upgrade and replacement of equipment along the whole industry chain.
- The emerge of world class equipment players. China has basically achieved self-sufficiency in solar power equipment production regarding current mainstream technologies, and is experiencing equipment localization for next-gen technologies. Jingsheng and S.C New Energy have established their leadership in silicon crystal growing equipment and solar cell equipment in China, with 11% and 9% shares in China PV equipment market in 2019, respectively. We believe both companies will become the key beneficiaries of the upcoming capex up-cycle.
- Key risks: 1) Weaker-than-expected downstream capacity expansion; 2) Technology risks; 3) Deterioration of customer relationship or clients’ financial condition.
- Initiate with BUY on Jingsheng. We believe Jingsheng, as a dominant crystal growing equipment supplier, is set to capture the strong downstream demand by leveraging its solid relationship with PV wafer oligarch Zhonghuan (002129 CH, NR), its diversified customer base and its leading-edge R&D capabilities. We project Jingsheng’s net profit to grow at 34% CAGR over FY19-22E. Our TP of RMB 40.20 is based on 45x FY21E P/E, equivalent to its historical average plus 0.5SD, to reflect current up-cycle.
- Initiate with BUY on S.C New Energy. We like S.C for its market leadership, its broad product offerings that cover ~70% equipment CAPEX for mainstream PERC technology, as well as its early-mover advantage in developing HJT production equipment, that enables it to enjoy the uptrend of equipment demand regardless of potential change in technology. We project an impressive net profit CAGR of 47% in FY19-22E. We set our TP at RMB 138.00, implying 49x FY21E P/E.
