CHINASOLARENERGY：TURNINGPOINTLOOKSREMOTERATHERTHANCLOSE1026

1、hold (us 35 $/kg) 30 25 20 15 - 35,000 30,000 25,000 20,000 15,000 10,000 5,000 deutsche bank markets research asia china energy alternative energy industry china solar energy date 25 october 2012 industry update eric cheng, cfa michael tong, cfa turning point looks remote rather research analyst (+

2、852) 2203 6202 research analyst (+852) 2203 6167 than close recent rebound seems to be driven by sentiment, rather than fundamentals we see an obvious rebound in the share prices of hk-listed solar names, with gcl-polys shares up 18% since the start of october (vs. 8% for hscei). true, the sector se

3、ems to be close to its trough with the polysilicon asp approaching eric- companies featured gcl-poly (3800.hk),hkd1.43 2011a 2012e 2013e the cash production cost of tier-one manufacturers. however, we see limited room for profitability to improve as fundamentals remain weak and industry oversupply i

4、s unlikely to ease in the near term. the recent rebound does not p/e (x) ev/ebitda (x) price/book (x) 11.8 8.3 1.6 11.4 1.1 11.4 1.2 look warranted in our view. we maintain a cautious stance on the sector. potential policy support from china may provide the industry a lifeline we note that the chine

5、se government is contemplating introducing additional policies to support domestic solar pv manufacturers. such policies include further promoting the use of distributed solar pv (to a target of 15gw from 10gw by 2015), speeding up grid connections and on-grid tariff settlement, as well as formalizi

6、ng the subsidies for solar power generation at retail levels. but unlikely to change the global oversupply picture in the near term such a policy response by china may help stimulate domestic demand, but we do not think it will help rectify the global demand and supply imbalance for solar pv product

7、s in the near term. the market has been expecting demand to polysilicon cost curve rankingby2q12polyproductioncost(excl.depreciation) likelypolysilicondemandof 200,000-220,000mt in2013e(incl. semiconductor demand) pick up in china, reaching at least 5gw in 2012 (vs. c.3gw in 2011), but sees increasi

8、ng risk that the actual installation would fall short of this. we expect 10 50,000100,000150,000 200,000 (metrictons) 250,000300,000350,000 new solar capacity additions of c.6gw p.a. in 2013e and in 2014e. effective polysilicon capacity still looks abundant vs. demand global solar pv demand and supp

9、ly our estimates reveal that tier-one polysilicon makers have a 230,000 ton p.a. aggregate capacity, which would be sufficient to support total demand of over (mw) 40,000 solar pv demandoutput potential (based on polysilicon supply) 30gw after excluding semiconductor demand. based on our cash cost a

10、nalysis, polysilicon asp is likely to stay at c.us$17-18/kg levels (see chart in the right-hand column), suggesting limited near term profitability improvement. demand visibility blurred due to increased trade protectionism the decision of the us dept of commerce (doc), together with the launch of a

11、n antidumping investigation by the eu, will further add to uncertainty in the sector, in our view. we see increasing risks for the ministry of commerce in china to retaliate and impose tariffs on polysilicon imports from the us and south korea. this is negative for the sector but marginally positive

12、 for gcl. 0 200720082009201020112012e2013e upcoming events: 3q12 data, chinas anti-dumping decision on polysilicon oci announced its 3q12 results on 17 october, showing an operating loss of krw17bn (excluding inventory writedown and representing a 9.5% operating loss margin) with a likely decline in

13、 factory utilization and asp in 4q12e. we believe gcls situation is unlikely to be materially different from its peers when related recent research gcl-poly - approaching bottom but recovery still looks remote eric cheng date 25 oct 2012 gcl provides its 3q12 business update in mid-november. valuati

14、on and risks our hk$1.2 target price is based on dcf, using a 12.0% wacc. key up/downside risks: change in governments solar incentive policy and global demand for solar pv products; lower-/higher-than expected decline in asp; and faster-/slower-than-expected drop in production costs. _ deutsche ban

15、k ag/hong kong all prices are those current at the end of the previous trading session unless otherwise indicated. prices are sourced from local exchanges via reuters, bloomberg and other vendors. data is sourced from deutsche bank and subject companies. deutsche bank does and seeks to do business w

16、ith companies covered in its research reports. thus, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. investors should consider this report as only a single factor in making their investment decision. disclosures and analyst ce

17、rtifications are located in appendix 1. mica(p) 146/04/2011. 25 october 2012 alternative energy china solar energy global solar pv demand and supply dynamics the oversupply situation has remained unresolved in the past 12 months and is likely to drag on for quite a while, as demand growth stays slug

18、gish and we see limited signs of a global demand pick-up in the near term. polysilicon supply remains abundant with capacity from tier-one players already exceeding demand. we note that the market expects demand from china to continue to grow. however, we see risks that the demand pick-up may fall s

19、hort of expectation given there is still a lot of structural issues (including delay in tariff settlement and grid connections) that remain unresolved. figure 1: global solar pv demand and polysilicon supply (mw) 40,000 solar pv demandoutput potential (based on polysilicon supply) oversupply unlikel

20、y to be addressed without significant growth in demand 35,000 30,000 25,000 20,000 15,000 10,000 5,000 0 200720082009201020112012e2013e source: deutsche bank, company data figure 2: global demand for solar pv products (mw) 30,000 2% 0% rest of world we believe global solar pv demand growth will rema

21、in s. koreasluggish in 2012 and 2013 25,000 20,000 15,000 152% 52%india china japan us other eu countries 10,000 italy 5,000 germany spain 0 2006200720082009201020112012e2013e source: deutsche bank estimates, epia page 2deutsche bank ag/hong kong 25 october 2012 alternative energy china solar energy

22、 figure 3: shipment guidance for 2012e (mw)2011a2012e (low end)2012e (high end) leading players have guided 3,000 down their 2012e shipment outlook: 2,500 2,000 16% -14% 30% -11% 36% 70% -34% - trina and yingli revised down shipment guidance - ldk, ja solar, jinko, etc. are guiding negative shipment

23、 1,500 7% -16% growth 1,000 500 0 -5% trina solar suntechyinglihanwhaja solarcanadianchinarenesolajinkoldk source: deutsche bank, company data figure 4: effective polysilicon capacity (mt) 450,000 solarsunergy slowdown in capacity 400,000 350,000 300,000 250,000 200,000 150,000 100,000 50,000 0 70%

24、54% 8% expansion after massive decline in polysilicon asp (e.g. wacker has further postponed capacity addition of its tennessee plant in the us to mid-2015) 2006200720082009201020112012e2013e source: deutsche bank estimates, company data figure 5: polysilicon cost curve vs. demand our cost curve ana

25、lysis suggests that poly price is likely to be in the range of us$17-18/kg in 2012e source: deutsche bank, company data deutsche bank ag/hong kongpage 3 6% 25 october 2012 alternative energy china solar energy policy response in china likely a lifeline, rather than a big boost we note that the chine

26、se government is contemplating introducing additional policies to support domestic solar pv manufacturers. such policies include further promoting the use of distributed solar pv (to a target of 15gw from 10gw by 2015), speeding up grid connections and on-grid tariff settlement, formalizing the subs

27、idies for solar power generation at retail levels, as well as waiving the grid connection charges for some small solar systems. however, we believe there are a couple of issues that need to be addressed: tariff settlement with solar farm operators was delayed, due to insufficient funding from the re

28、newable energy fund. such a delay in cashflow will affect the actual project investment return (vs. a theoretical return of c.8% assuming 1,500 utilisation hours which does not look particularly attractive figure 6). grid connection issues would also need to be resolved, especially in remote areas w

29、ith a rapid growth in solar farm installations. also, the grid companies may need to be incentivized to take more solar power. figure 6: bond yield vs. project irr (mainland china) 10% 8% 4% 2% 0% china groundpboc benchmark rate project return looks attractive in mainland china, at rmb1/kwh fit. how

30、ever, the actual return is likely to be lower, due to potential curtailment issue (especially in the western provinces in china). 1q112q113q114q111q122q123q124q12e source: deutsche bank estimates, pboc figure 7: installation cost breakdown in china labor 12% module cost accounts for less than 50% of

31、 total installation cost module 42% cables, mounting system etc. 28% bos 11% source: company data, deutsche bank; note: for 20mw pv system page 4 inverter 7% deutsche bank ag/hong kong jul-09 aug-09sep-09 oct-09 nov-09dec-09 jan-10feb-10mar-10apr-10 may-10 jun-10 jul-10 aug-10sep-10 oct-10 nov-10dec

32、-10 jan-11feb-11mar-11apr-11 may-11 jun-11 jul-11 aug-11sep-11 oct-11 nov-11dec-11 jan-12feb-12mar-12apr-12 may-12 jun-12 jul-12 aug-12 jul-09 aug-09sep-09 oct-09 nov-09dec-09 jan-10feb-10mar-10apr-10 may-10 jun-10 jul-10 aug-10sep-10 oct-10 nov-10dec-10 jan-11feb-11mar-11apr-11 may-11 jun-11 jul-11

33、 aug-11sep-11 oct-11 nov-11dec-11 jan-12feb-12mar-12apr-12 may-12 jun-12 jul-12 aug-12 25 october 2012 alternative energy china solar energy solar pv product price and cost trend the spot polysilicon price has reached a new low in recent weeks (of less than us$20/kg and currently us$16-17.kg figure

34、12). we believe the price of solar pv products is unlikely to have any meaningful rebound as we see little chance that the demand and supply imbalance can be resolved in the near term. profitability is likely to stay depressed for most players as a result. it seems that some companies in mainland ch

35、ina will continue to receive financial support (e.g. ldk has recently secured new equity funding and domestic banks are still willing to extend on-shore loans). this would delay the industry consolidation and the phase-out of non-competitive capacities. demand visibility remains blurred with increas

36、ed trade protectionism (e.g. the decision of the us department of commerce, together with the launch of the anti-dumping investigation by the eu). we see increasing risks for the ministry of commerce in china to retaliate by imposing tariffs on polysilicon imports from the us and south korea (gcl ma

37、y benefit in this case, though). figure 8: chinas poly imports have reached us$24.2/kg.figure 9: while poly exports are less than us$30/kg 9,000 8,000 7,000 6,000 5,000 import (tons, lhs)import asp (us$/kg, rhs) 80 70 60 50 40 600 500 400 300 export (tons, lhs)export asp (us$/kg, rhs) 80 70 60 50 40

38、 4,000 3,000 2,000 1,000 - 30 20 10 0 200 100 - 30 20 10 0 source: deutsche bank, china customs figure 10: poly imports breakdown by region (past 12m) source: deutsche bank, china customs figure 11: poly exports breakdown by region (past 12m) others 13% us 6% others japan 0% 4% s. korea 8% us 38% ge

39、rmany 21% source: deutsche bank, china customs deutsche bank ag/hong kong s. korea 28% source: deutsche bank, china customs taiwan 82% page 5 jul-10 aug-10sep-10 oct-10 nov-10dec-10 jan-11feb-11mar-11apr-11 may-11 jun-11 jul-11 aug-11sep-11 oct-11 nov-11dec-11 jan-12feb-12mar-12apr-12 may-12 jun-12

40、jul-12 aug-12sep-12 may-11 jun-11oct-11 nov-11 jan-11feb-11jan-12feb-12 may-12 jun-12 jul-11 mar-11apr-11 dec-10dec-11aug-11sep-11 mar-12apr-12 jul-12 nov-11 jan-11jun-11jan-12jan-10feb-10mar-10apr-10 may-10 jun-10 jul-10 aug-10sep-10 oct-10 nov-10dec-10 jan-11feb-11mar-11apr-11 may-11 jun-11 jul-11

41、 aug-11sep-11 oct-11 nov-11dec-11 jan-12feb-12mar-12apr-12 may-12 jun-12 may-11may-12 feb-11mar-11feb-12mar-12 aug-11sep-11dec-11 jun-12 jul-11 oct-11apr-11apr-12 aug-12sep-12 jul-10 aug-10sep-10 oct-10 nov-10dec-10 jan-11feb-11mar-11apr-11 may-11 jun-11 jul-11 aug-11sep-11 oct-11 nov-11dec-11 jan-1

42、2feb-12mar-12apr-12 may-12 jun-12 jul-12 aug-12sep-12 25 october 2012 alternative energy china solar energy figure 12: spot polysilicon price trend poly silicon (us$/kg) figure 13: change in poly price vs. gcls share price polysilicon spot price (us$/kg, rhs) 85 75 65 55 45 35 25 15 6.0 5.5 5.0 4.5

43、4.0 3.5 3.0 2.5 2.0 1.5 1.0 gcl share price (hk$, lhs) 90.0 80.0 70.0 60.0 50.0 40.0 30.0 20.0 10.0 source: deutsche bank, various market sources figure 14: average prices from polysilicon to module source: deutsche bank, datastream poly silicon (us$/w)156 multi wafer (us$/w) current spot price (us$

44、/w): (us$/w) 1.80 1.60 1.40 156 multi solar cell (us$/w)silicon solar module (us$/w) - 0.22(156-multi wafer) - 0.38 (156-multi cell) - 0.67 (module) 1.20 1.00 0.80 0.60 0.40 0.20 - source: deutsche bank, various market sources figure 15: polysilicon production cost vs. spot pricefigure 16: avg. modu

45、le production cost vs. asp (us$/kg) avg. poly production costpoly spot price (us$/w)avg. total module costmodule asp 90 80 70 60 50 40 30 20 10 source: deutsche bank, various market sources page 6 1.80 1.70 1.60 1.50 1.40 1.30 1.20 1.10 1.00 0.90 0.80 0.70 0.60 0.50 source: deutsche bank, various ma

46、rket sources deutsche bank ag/hong kong oct-11apr-11 nov-11aug-11sep-11dec-11jan-12 apr-12jan-11jun-11 may-11may-12 jun-12 jul-11 jan-10feb-10mar-10 apr-10 may-10 jun-10 jul-10 aug-10sep-10 oct-10 nov-10dec-10 jan-11feb-11mar-11 apr-11 may-11 jun-11 jul-11 aug-11sep-11 oct-11 nov-11dec-11 jan-12feb-

47、12mar-12 apr-12 may-12 jun-12feb-11feb-12mar-11mar-12 25060% 25 october 2012 alternative energy china solar energy figure 17: wafer processing cost vs. total costfigure 18: non-silicon module cost vs. total cost (us$/w) 0.80 0.70 avg. processing cost (wafer)avg. wafer cost (us$/w) 1.40 1.30 avg. pro

48、cessing cost (module)avg. total module cost 1.20 0.60 0.50 0.40 0.30 0.20 0.10 source: deutsche bank, various market sources figure 19: inventory turnovers among peers 1.10 1.00 0.90 0.80 0.70 0.60 0.50 0.40 source: deutsche bank, various market sources 200 150 inventory turnover in 3q11 (days, lhs)

49、 inventory turnover in 1q12 (days, lhs) % of inventory in revenue in 2q12 (rhs) inventory turnover in 4q11 (days, lhs) inventory turnover in 2q12 (days, lhs) 50% 40% 30% balance sheets have deteriorated in general for most players after the sharp asp decline in the past year. given that the market o

50、utlook remains bleak, working capital management would be the key to stay afloat. 100 20% 50 0 10% 0% trina solar suntechyinglihanwhaja solarcanadianchinarenesolaldkjinko source: deutsche bank, company data deutsche bank ag/hong kong solarsunergy page 7 25 october 2012 alternative energy china solar

51、 energy key players and stock performance figure 20: comparable trading analysis price% tomkt cap 2012 evpeev/ebitdaev/ebitev/salesp/bvroe tickercurrencypriceratingtargettarget (us$ mn) (us$ mn)2012e 2013e2012e 2013e2012e 2013e2012e 2013e2012e2012e 2013e polysilicon gcl-poly daqo oci rec wacker chem

52、ie memc 3800.hk dq.us 010060.ks rec.ol wchg.de wfr.us hk$ us$ kor nkr us$ 1.40 0.8623 163500 1.251 46.40 2.45 hold nr nr nr sell buy 1.20 na na na 37.00 9.00 -14% na na na -20% 267% 2,795 30 3,532 468 3,163 566 7,194 446 4,103 1,147 3,714 2,118 nm na 23.5 na 20.0 127.1 nm na 17.9 na 19.8 na 11.3 21.

53、5 5.4 9.3 4.1 7.2 11.3 12.4 4.7 7.4 3.8 na 30.2 na 14.5 na 12.7 28.9 34.7 na 11.0 na 11.9 na 2.2 3.9 1.3 0.9 0.7 0.8 2.4 1.9 1.3 1.0 0.7 na 1.1 na 1.1 0.3 0.9 1.0 -0.9 na 4.7 -39.9 4.4 1.3 -2.4 na 5.9 -6.6 4.4 na median23.521.71.01.31.0 wafer note: estimates for non-rated compani

54、es based on consensus. price as at 22 october 2012 figure 21: 1-month relative performancefigure 22: 1-year relative performance -49% -20% -22% -27% -33% -34% daqo first solar gcl-poly jinko yingli green -3% -4% -5% -6% -10% -7% -11% -11% -8% -12% -12% 17% 14% 4% 5% 2% trina solar china sunergy sunp

55、ower hanwha renesola motech canadian solar wacker chemie neo solar oci gintech memc suntech power ja solar ldk rec q-cells-116% -30% -29% -55% -39% -62% -56% -56% -42% -66% -53% -68% -69% -70% -72% -81% -76% -78% -85% -86% -87% -90% canadian solar oci gcl-poly gintech wacker chemie trina solar renes

56、ola neo solar sunpower motech yingli green hanwha jinko first solar memc suntech power china sunergy rec ja solar ldk daqo q-cells -60%-40%-20%0%20%40%-140%-120%-100%-80%-60%-40%-20%0%20%40% source: deutsche bank, bloomberg finance lp page 8 source: deutsche bank, bloomberg finance lp deutsche bank

57、ag/hong kong 25 october 2012 alternative energy china solar energy latest key solar news solar woes to hit wackers sales and earnings. wacker chemie reported 3q12 sales of eur1.2bn, less than analysts consensus of eur1.19bn. 3q12 ebitda was eur204m, compared with consensus of eur201m. the company pr

58、edicts sales and core earnings would fall significantly this year, burdened by the solar industrys ongoing crisis. fy12 ebitda is expected to fall to eur750m (usd972m), down from eur1.1bn in fy11. fy12 sales are expected to reach eur4.6-4.7bn, down from eur4.9bn in fy11. (source: reuters, 25 october

59、 2012). falling prices and declining sales hit recs 3q12 results. rec has revealed that its revenues from continuing operations for 3q12 fell 24% yoy to nok1.51bn. 3q12 ebitda came in at a loss of nok184m (usd32m) compared to a profit of nok267m in 2q12. rec also revealed it is considering a merger and is in talks with several possible partners. (source: pv-tech, 25 october 2012) jiangxi state-owned assets contribute to rescue ldk solar. on 22 october, ldk announced that it has entered into a share purchase agreement with investment firm heng rui xin energy (hrx). under the agreement, hrx wil