J P M O R G A N Asia Pacific Equity Research 19 January 2026 China Solar Anti-Involution Key takes from expert and co calls: Uncertainty on timing but not direction; value emerges as -ves get priced in We hosted a solar industry expert call and gathered comments from polysilicon producers last week, with the following takes: 1) The SAMR's probe was triggered by complaints. Poly future price surges after the formation of 'consolidation platform'; 2) consolidated views from expert and companies are +ve bias o ...

Summary of Key Points from the Conference Call Industry Overview - The conference call discusses the **China Solar Industry**, specifically focusing on the **polysilicon sector** and the implications of the **anti-involution initiative** led by the **State Administration for Market Regulation (SAMR)** [1][4]. Core Insights and Arguments - The SAMR rejected the **CPIA's proposal** for a consolidation fund and self-imposed production quotas, citing non-compliance with anti-trust laws, which is seen as a setback for the solar anti-involution initiative [1][3]. - Despite this setback, the outlook remains optimistic, viewing the situation as a **detour rather than a u-turn** due to the high political profile of the initiative [1][4]. - Potential outcomes include government intervention to manage production quotas or the issuance of waivers by senior bureaus [1][5]. - In a worst-case scenario where higher-cost producers go bankrupt, **Daqo** and **GCL Tech** are expected to emerge as winners due to their strong financial positions [1][9]. Important Developments - A meeting was scheduled for **January 6, 2026**, where the SAMR expressed concerns about anti-trust issues and required major polysilicon producers to submit rectification plans by **January 20, 2026** [2][5]. - The establishment of a platform for consolidating polysilicon capacity was noted on **December 9, 2025**, but concerns about anti-trust compliance may hinder its effectiveness [3][5]. Pricing and Cost Insights - The estimated cost for marginal polysilicon producers is around **Rmb 50/kg**, which is slightly below current spot prices, indicating a need for prices to remain above production costs [4][8]. - The cash production costs for major polysilicon producers in 2025 are projected, with **GCL Tech** being the lowest at **Rmb 23.9/kg** and **Daqo** at **Rmb 36.2/kg** [11]. Stock Recommendations - The report maintains an **Overweight (OW)** rating on **Daqo New Energy (DQ US)** and **GCL Tech (3800 HK)**, highlighting their strong balance sheets and competitive positions in the market [9][23]. Risks and Future Considerations - There are rising risks associated with the polysilicon consolidation fund plan due to the SAMR's anti-trust concerns, which may prevent producers from coordinating production and pricing [3][5]. - If the consolidation plan fails, polysilicon producers may continue to compete freely, potentially leading to a price floor at **Rmb 50/kg** without restrictions on production or sales volume [8]. Conclusion - The solar industry in China is navigating significant regulatory challenges, but the long-term outlook remains positive, particularly for financially robust companies like Daqo and GCL Tech. The situation is being closely monitored for further developments regarding government interventions and market dynamics [1][4][9].

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Summary of Tongwei Co. Ltd. Conference Call Company Overview - **Company**: Tongwei Co. Ltd. (Ticker: 600438.SS) - **Industry**: China Utilities, specifically in the solar energy sector Key Points Industry Consolidation - The industry has reached a consensus on a buyout framework, with plans to phase out approximately **600-700kt** of marginal capacity, resulting in a retained capacity of about **2,700kt** annually [1][2] - Future production will be strictly aligned with actual demand, indicating a shift towards more disciplined capacity management [1] Joint Ventures and Financing - Around **10 producers** are anticipated to become joint venture shareholders, with equity contributions linked to market share of retained capacity [2] - Acquisition pricing will be based on the industry's average capital expenditure per ton, funded by **20-30%** equity and the remainder through acquisition loans [2] Antitrust Considerations - The primary challenge remaining is obtaining antitrust clearance from the government, which management expects to be approved by the end of the year at the earliest [2] Polysilicon Pricing Dynamics - Year-to-date, polysilicon prices have rebounded due to industry discipline, a legal ban on below-cost selling, and capped monthly shipments of approximately **100+kt** [3] - Current manufacturing-side inventories are around **300kt**, with Tongwei holding **200kt** of that total [3] - Management does not foresee inventory levels disrupting prices as long as leading producers avoid aggressive destocking [3] Long-term Pricing Outlook - Management estimates a reasonable long-term polysilicon price range of **Rmb70–80k/ton**, which translates to a unit net profit of approximately **Rmb15–20k/ton** for Tongwei [4] Demand Outlook - Management expresses caution regarding solar demand in China for **2026**, particularly following Document No.136, but anticipates potential policy adjustments if demand significantly slows in the first half of 2026 [5] Financial Metrics - **Market Capitalization**: Rmb103,411 million - **Current Share Price**: Rmb22.97 (as of November 21, 2025) - **Price Target**: Rmb21.85, indicating a downside of **5%** from the current price [7] - **Revenue Forecast**: Expected to be **Rmb92.5 billion** in 2026, with an EBITDA of **Rmb8.3 billion** [7] Valuation Methodology - The price target is derived from a discounted cash flow (DCF) methodology, using a weighted average cost of capital (WACC) of **9.5%** and a terminal growth rate of **2.0%** [9] Risks - **Upside Risks**: Higher-than-expected photovoltaic (PV) installations, less new polysilicon capacity from entrants, and faster development of next-generation solar technologies [11] - **Downside Risks**: Lower-than-expected PV installations, intensified competition, and slower overseas market exploration for its module business [11] Additional Insights - The conference call reflects a strategic shift in the solar industry towards consolidation and disciplined capacity management, which may present both opportunities and risks for investors in the sector [1][2][5]

Industry Outlook - Tongwei 对太阳能行业缓解持续的供应过剩和扭转亏损的努力充满信心 [1] Company Perspective - Tongwei 的董事长表达了对太阳能行业前景的乐观态度 [1]

Summary of the China Solar Sector Conference Call Industry Overview - The conference call focused on the **China Solar Sector**, particularly the polysilicon industry and its consolidation efforts [1][2]. Key Points 1. **Government Rejection of Proposal**: The PRC government rejected the initial proposal for the foundation of an industry consolidation fund aimed at acquiring and shutting down low-efficiency polysilicon production capacity, raising investor concerns about the consolidation of the solar sector [1][2]. 2. **Market Reaction**: Following the news, share prices of 16 Chinese solar companies under coverage dropped by an average of **5%** [1]. 3. **Revised Proposal Expected**: The proposal for the consolidation fund will be revised and resubmitted to the government, with expectations that the capacity to be acquired and shut down may be scaled down [2][3]. 4. **Current Industry Measures**: Other anti-involution measures, such as output caps on high energy consumption production lines and prohibiting sales prices below cost, remain valid [1][5]. 5. **Cyclical Perspective**: The worst phase for the solar sector appears to be over, with industry participants reducing capital expenditures (capex) and improving cash flow amid rising sales prices [5]. Company-Specific Insights 1. **GCL Technology**: - GCL Poly indicated that the consolidation fund aimed to acquire and shut down **2.0 million metric tons (MT)** of low-efficiency capacity, with operational capacity expected to be no more than **1.5 million MT** post-consolidation [3]. - Acquisition costs were guided at **RMB 600-800 million** per **10,000 MT**, with discounts for high energy consumption standards [3]. - Target price set at **HK$1.72**, based on a DCF valuation, reflecting a **20%** premium over its 10-year historical average [7]. 2. **Trina Solar**: - Aiming to reach breakeven in **2Q/3Q 2026** after reporting net losses of **RMB 1,598 million** in **2Q 2025** and **RMB 1,283 million** in **3Q 2025** [6]. - Targeting **8 GWh** of energy storage system (ESS) sales in **2025**, with plans to increase to **15-16 GWh** in **2026** [6][13]. - Target price set at **RMB 25.00** based on DCF valuation [13]. 3. **Ningbo Deye Technology**: - Target price of **RMB 102.0/share**, reflecting sustainable growth in energy storage demand [9]. - Risks include lower-than-expected demand and increased price competition [10]. 4. **Sungrow Power Supply**: - Target price of **RMB 240.00**, based on DCF valuation, with key risks including slower solar installation growth and intensified trade tensions [11][12]. Risks Identified - **GCL Technology**: High risk due to share-price volatility, with potential downsides from slower polysilicon capacity reduction and higher power costs [8]. - **Ningbo Deye Technology**: Risks from lower-than-expected energy storage demand and increased competition [10]. - **Sungrow Power Supply**: Risks from slower solar installation and energy storage demand [12]. - **Trina Solar**: Risks from slower global solar and ESS installation growth [15]. Conclusion The conference highlighted significant challenges in the Chinese solar sector, particularly regarding government policies on consolidation and the financial health of key players. The outlook remains cautious, with potential for recovery as companies adjust their strategies and operations in response to market conditions.

Summary of GCL Technology Conference Call Company Overview - **Company**: GCL Technology (3800.HK) - **Industry**: Polysilicon production within the China solar sector Key Points and Arguments 1. **Polysilicon Capacity Reduction**: GCL expects that no more than 1.5 million metric tons (MT) of polysilicon capacity will remain operational post-consolidation, significantly lower than the previous estimate of 2.0-2.5 million MT. Approximately 2.0 million MT of excessive capacity will be acquired by the industry consolidation fund [1][2] 2. **Cost Efficiency**: GCL's unit production cost is reported to be lower than most peers by more than RMB 10/kg, with a unit cash production cost of RMB 24.16/kg in 3Q25, reflecting a year-over-year decrease of 27.2% and a quarter-over-quarter decrease of 4.5% [7][1] 3. **Earnings Guidance**: Management has guided for an improvement in earnings, with EBITDA expected to rise quarter-over-quarter in 4Q25E, supported by increased sales prices due to anti-involution measures in the solar sector [8][1] 4. **Industry Consolidation Fund**: The consolidation fund is expected to acquire and shut down approximately 2.0 million MT of low-efficiency capacity, aligning operational capacity with annual demand. The acquisition cost is estimated between RMB 600 million to RMB 800 million per 10,000 MT [2][1] 5. **Cash Reserves**: GCL has sufficient cash reserves, bolstered by a share placement that is expected to yield net proceeds of HK$5.4 billion, allowing the company to participate in the consolidation fund [9][1] 6. **Valuation and Target Price**: The 12-month target price for GCL is set at HK$1.72, based on a discounted cash flow (DCF) valuation, indicating a potential return of 24.6% from the current price of HK$1.38 [3][10] 7. **Earnings Summary**: - 2023A: Net Profit of RMB 2,510 million, EPS of RMB 0.095 - 2024A: Net Loss of RMB 4,750 million, EPS of RMB -0.180 - 2025E: Net Loss of RMB 2,043 million, EPS of RMB -0.076 - 2026E: Net Profit of RMB 282 million, EPS of RMB 0.010 - 2027E: Net Profit of RMB 2,526 million, EPS of RMB 0.089 [5][1] Additional Important Information 1. **Risks**: The stock is assigned a high-risk rating due to potential volatility. Risks include slower-than-expected capacity reductions, lower demand for polysilicon, and higher power costs [11][1] 2. **Management Statements**: The Chairman of GCL Group, Mr. Zhu Gongshan, indicated that 17 leading polysilicon companies have largely agreed to form the consolidation consortium, with completion expected by the end of 2025 [2][1] 3. **Production Cost Reduction Goals**: GCL aims to further reduce its unit cash cost by 5-10% year-over-year in 2026, alongside a target to lower selling, general, and administrative (SG&A) expenses [7][1] This summary encapsulates the critical insights from the conference call regarding GCL Technology's operational strategies, financial outlook, and market positioning within the polysilicon industry.

Core Insights - The domestic polysilicon market is experiencing a weak and stable trend, with slight increases in transaction activity and a stable pricing environment due to supply-side production cuts and supportive policies [1][2]. Group 1: Pricing Trends - The transaction price range for n-type reprocessed material is between 49,000 to 55,000 yuan/ton, with an average price of 53,200 yuan/ton, remaining flat week-on-week [1]. - The transaction price range for n-type granular silicon is between 50,000 to 51,000 yuan/ton, with an average price of 50,500 yuan/ton, also remaining flat week-on-week [1]. - The overall polysilicon market is still in a state of oversupply despite the supply contraction, with high industry inventory and weak end-user demand limiting price increases [2]. Group 2: Supply Dynamics - Currently, there are 11 domestic polysilicon producers, with two major companies expected to reduce production and undergo maintenance, leading to a significant estimated decrease in total output by 12.4% month-on-month [2]. - The production plan for domestic polysilicon in November is expected to drop below 120,000 tons, primarily due to rising electricity costs during the dry season in the southwestern region [1]. Group 3: Policy Developments - The new national standard for energy consumption limits for polysilicon and germanium products is in the consultation phase, which is expected to promote capacity clearance and industry upgrades once officially implemented [1].

Financial Data and Key Metrics Changes - Daqo New Energy reported revenues of $244.6 million for Q3 2025, a significant increase from $75.2 million in Q2 2025 and $198.5 million in Q3 2024 [13] - The company achieved a gross profit of $9.7 million, compared to a gross loss of $81 million in Q2 2025 and a gross loss of $60.6 million in Q3 2024, resulting in a gross margin of 3.9% [13][14] - Adjusted net income attributable to shareholders was $3.7 million, a turnaround from an adjusted net loss of $57.9 million in Q2 2025 and $39.4 million in Q3 2024 [16] - EBITDA for the quarter was $45.8 million, compared to negative $48 million in Q2 2025 and negative $34 million in Q3 2024, with an EBITDA margin of 18.7% [16] Business Line Data and Key Metrics Changes - Total polysilicon production for Q3 2025 was 30,650 metric tons, slightly above the guidance range of 27,000-30,000 metric tons, with sales volume rising sharply to 42,406 metric tons from 18,126 metric tons in the previous quarter [6][7] - Production costs decreased by 12% to $6.38 per kilogram in Q3 2025, down from $7.26 per kilogram in Q2 2025, with cash costs reaching a record low of $4.54 per kilogram [7][15] Market Data and Key Metrics Changes - Polysilicon prices rose significantly, reaching RMB 49-RMB 55 per kilogram by the end of Q3 2025, up from RMB 32-RMB 35 per kilogram in June [10] - The monthly supply of polysilicon in Q3 remained in the range of approximately 100,000-130,000 metric tons, indicating a tightening market [8] Company Strategy and Development Direction - The company aims to enhance its competitive edge through higher efficiency N-type technology and optimizing its cost structure via digital transformation and AI adoption [11] - Daqo New Energy is well-positioned to capture long-term growth in the global solar PV market, supported by China's ambitious environmental targets announced at the UN Climate Summit [8][9] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the recovery of the solar PV industry, citing improved market conditions and a rebound in polysilicon prices [5][11] - The company anticipates a production volume of approximately 39,500-42,500 metric tons in Q1 2026, with a full-year production estimate of 121,000-124,000 metric tons for 2025 [8] Other Important Information - As of September 30, 2025, the company had a cash balance of $552 million and total financial assets readily convertible into cash of $2.21 billion, reflecting a solid financial foundation [5][6] Q&A Session Summary Question: On gross margins and future trends - Management confirmed positive gross margins for Q3 2025, driven by increased selling prices and reduced costs, and expects Q4 margins to remain positive [22][23] Question: Industry overcapacity and actions to balance supply and demand - Management acknowledged ongoing overcapacity but indicated that companies would not operate at full utilization until demand increases, focusing on balancing production with market conditions [25] Question: Consolidation agreements and compliance mechanisms - Management stated that discussions on consolidation are ongoing, with a focus on reaching a consensus to improve industry health and sustainability [33] Question: ASP expectations post-consolidation - Management expects ASPs to remain stable in Q4 2025, with potential increases following the completion of consolidation efforts [38] Question: Share buyback program status - Management indicated that share repurchases would commence once there is clarity on the consolidation's financial implications [40][43] Question: Production costs and electricity consumption - Current unit electricity consumption is reported to be in the range of 52 to 55 kWh per kilogram of polysilicon [48] Question: Production plans and demand outlook - Management raised production plans for Q4 2025, citing confidence in demand recovery and cost reduction strategies [50][51] Question: Solar installations forecast for 2026 - Management expects solar installations in China to remain stable, with growth projected to around 270 to 280 GW in 2026 [61]

Company Overview - Daqo New Energy Corp. (DQ) is a leading Chinese polysilicon producer, specializing in ultra-high-purity materials for solar photovoltaic applications, with a combined annual capacity of 305,000 metric tons, ranking third globally and commanding 18-20% of the market [2][5] Financial Position - DQ maintains a strong financial position with $2.06 billion in cash and zero debt, allowing it to operate at a reduced 34% utilization while awaiting a cyclical recovery [3] - The company's market capitalization stands at $1.7 billion, with substantial asset backing from its 72.4% ownership of Xinjiang Daqo New Energy, listed on the Shanghai STAR Market, valued at $5.8 billion [5] Competitive Advantage - DQ's technological edge in N-type polysilicon for high-efficiency solar cells, combined with cost leadership from a proprietary modified Siemens process, enables profitability even in severe market downturns [3] - The global polysilicon industry is undergoing consolidation, benefiting low-cost, technologically advanced players like DQ as weaker competitors exit the market [5][6] Strategic Initiatives - The company has long-term supply agreements with top-tier solar manufacturers and a disciplined approach to production and capital allocation, exemplified by a $100 million share repurchase program [4] - DQ is well-positioned to expand market share and generate robust cash flows as prices normalize toward $7–8/kg, creating significant shareholder value [6] Market Performance - DQ's stock has appreciated about 50% since a previous bullish thesis was published, reflecting operational resilience and strong market positioning [7]