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].

Summary of China Clean Tech Conference Call Industry Overview - The conference focused on the **renewable energy sector** in China, particularly the **solar** and **wind** industries, with discussions involving 12 renewable companies and two industry experts [1][2]. Key Insights Pricing Outlook - There is a **bearish outlook** on solar pricing into 2026, with expectations for further price hikes in the **Poly** and **Module** segments, projected to reach **Rmb60-80/kg** and **Rmb0.74/W** respectively, despite current spot prices being **Rmb63/kg** and **Rmb0.685/W** [2][3]. - The **solar installation** forecast for China is expected to decline by **17% year-over-year** to **235GW** in 2026, contrasting with the **-10% to 0%** guidance from solar companies [4][9]. Demand and Inventory Concerns - Downstream operators are showing low acceptance for price hikes due to a decline in renewable on-grid tariffs, leading to a cautious approach towards solar installations [3][13]. - There is a significant increase in inventory days, rising to **60 days** in December 2025 from **30 days** in September 2025, indicating potential cash burn across the industry [3][16]. Production and Cost Dynamics - Tier 1 solar players are planning to upgrade production lines to high-efficiency technologies, with expectations of reduced Poly usage in high-efficiency modules [16]. - The **cost of production** for modules has increased by **Rmb0.3/W** due to rising silver prices, but the adoption of cheaper metal technologies could offset some of these costs [16]. Regulatory Environment - The **anti-monopoly** campaign is expected to have a limited positive impact on pricing, as downstream players may still need to reduce selling prices to maintain shipments amid weak demand [7][19]. - Recent regulatory actions have targeted potential monopolistic practices within the Poly supply chain, requiring companies to submit rectification measures by January 20, 2026 [20]. Market Sentiment - There is a prevailing sentiment of caution among operators regarding price hikes, with many indicating a maximum tolerance of **5%** increase in module prices due to declining tariffs [15]. - The industry is facing a **negative demand cycle**, which is deemed unsustainable, with expectations for R&D-driven cost reductions to consolidate the market towards Tier 1 players [11][16]. Additional Observations - The **solar glass price** has seen a decline of nearly **20%** to **Rmb10.5/sqm**, with expectations of further reductions due to aggressive pricing strategies from Tier 2 players [23]. - The **inventory management** strategies of Tier 1 players are being tested, as they are currently tolerating higher inventory levels due to suspended capacities [24]. This summary encapsulates the critical insights and forecasts discussed during the conference call, highlighting the challenges and dynamics within the Chinese renewable energy sector, particularly in solar energy.

Summary of China Solar Sector Conference Call Industry Overview - The conference call focused on the **China Solar Sector**, particularly the impact of recent changes in export VAT rebate policies on solar and battery products [1][2]. Key Points Export VAT Rebate Changes - The **Ministry of Finance and State Taxation Administration of PRC** announced the abolition of export VAT rebates for solar products (excluding inverters) from **1 April 2026**, and a reduction from **9% to 6%** for battery products, including Energy Storage Systems (ESS), effective from **1 April 2026** and abolishing on **1 January 2027** [1]. - The **National Development and Reform Commission (NDRC)** stated that the objective is to eliminate preferential treatment due to excessive competition in the industry and to address overseas concerns regarding anti-dumping activities from China [2]. Impact on Companies - **Sungrow**, an inverter and ESS maker, confirmed that the new policy will not affect its inverter sales but will increase the cost of sales for its ESS exports by **3%** due to the VAT rebate cut. This is expected to lower its gross profit by **0.9%** [3]. - **Tongwei**, a polysilicon manufacturer, indicated that the export VAT rebate cut would likely lead to higher average selling prices (ASP) and estimated an increase in total operating costs by **Rmb364 million** or **0.9%**. However, the gross loss is projected to increase **1.6 times** to **Rmb592 million** in the near term [6]. - **Trina Solar**, a solar module maker, had anticipated the VAT rebate cut and included it in contracts with customers. The company reported a **37.6%** year-over-year increase in export volume to **120.3 GW** during July-November 2025, attributed to the expected cancellation of export tax rebates [7]. Market Outlook - The cancellation of export VAT rebates is expected to accelerate consolidation in the PRC solar industry by eliminating less efficient players, which could benefit industry leaders like **Tongwei** in the long term [6]. - Analysts maintain **Buy ratings** on ESS makers **Sungrow** and **Deye**, indicating confidence in their ability to navigate the changes [1]. Additional Insights - The conference highlighted the importance of adapting to regulatory changes and the potential for price adjustments in response to the new VAT policies. Companies are preparing for these changes by adjusting their pricing strategies and operational costs [7]. - The overall sentiment in the industry suggests a shift towards a more market-oriented approach, as indicated by the NDRC's comments on anti-involution measures [7]. Conclusion - The recent changes in export VAT rebate policies are expected to have a significant impact on the China solar sector, particularly affecting cost structures and pricing strategies for companies involved in solar and battery production. The long-term outlook suggests potential benefits for industry leaders as consolidation occurs in response to these regulatory changes [1][6].

Core Viewpoint - China's market regulator has issued warnings to polysilicon producers regarding potential monopoly risks due to consolidation efforts in an oversupplied market [1][2]. Group 1: Regulatory Actions - Six companies, including Tongwei Co. and GCL Technology Holdings, were summoned by the State Administration for Market Regulation to discuss coordination on production capacity, sales volume, and prices [2]. - The regulatory intervention follows the establishment of a fund aimed at allowing major producers to acquire outdated capacity from smaller rivals, which was intended to alleviate a supply glut [3]. Group 2: Market Reactions - Following the regulatory news, shares of Tongwei fell over 3% in Shanghai, while GCL's shares dropped more than 4% in Hong Kong [2]. - Analysts from BofA Global Research expressed skepticism about the polysilicon acquisition plan, suggesting it may be overly aggressive [4]. Group 3: Industry Challenges - The polysilicon sector is facing prolonged losses, with some solar companies indicating that the recent surge in polysilicon prices is unsustainable without recovery in other supply chain prices [5]. - Analysts anticipate a redistribution of profits across the solar supply chain rather than concentration solely in the polysilicon segment [6]. Group 4: Key Data Points - Polysilicon prices in China increased by 9.8% to 10.5% in the week leading up to Wednesday [6]. - Full-year polysilicon output in China was reported at 1.32 million tons, a decrease of 28% year-over-year [6]. - January's output is projected to be 106,000 tons, down 5% from the previous month [6]. - Wafer prices rose by 8.4% to 9.2% in the week through Thursday, supported by reduced output and costs [6]. - Wafer output in December was 47.7 gigawatts, down 14.2% from the previous month [6].

Summary of China Solar Power Conference Call Industry Overview - The conference call focused on the **China Solar Power** industry, specifically discussing solar product prices, installation forecasts, and market dynamics. Key Points Solar Product Prices - Weekly solar product prices have seen a **1-2% increase** week-over-week (wow) for upstream polysilicon materials and downstream solar modules, while solar cell prices declined by **1%** [1] - Average market prices for n-type grade rod-type polysilicon rose to **Rmb53.4/kg**, and granular silicon to **Rmb50.5/kg** [2] - N-type wafer prices remained unchanged at **Rmb1.38/W** for 182mm products and **Rmb1.68/W** for 210mm products [3] - Average prices for TOPCon modules increased by **1.5%** to **Rmb0.68/W** for utility-scale projects and **4.2%** to **Rmb0.70/W** for distributed projects [4] - Solar glass prices remained stable at **Rmb11.0/m2** for 2.0mm and **Rmb18.3/m2** for 3.2mm products [5] Installation Forecasts - The annual module output in China for 2025 was reported at **563.2GW**, a **1.2% decrease** year-over-year (yoy) [4] - Solar installation demand is expected to remain muted in January until new project construction begins after the Chinese New Year [1] - Citi forecasts a **24% decrease** in PRC solar installations to **220GW** in 2026 due to reduced returns from larger-than-expected renewable market-based tariff cuts [1] Inventory and Production Dynamics - Polysilicon inventory at producer plants increased by **1%** to **306k tonnes** as of December 31 [2] - Downstream wafer plant inventory rose by **5.3%** month-over-month (mom) to **219k tonnes** [2] - Wafer inventory climbed **6.9%** wow to **23.2GW** as of December 31 [3] - The average inventory period for solar glass increased by **2.8%** to **39.1 days** as of December 31 [6] Company Preferences and Risks - In the PRC solar sector, the preference is for inverter companies like **Sungrow** and **Deye**, which are expected to benefit from high demand growth in energy storage systems [1] - Caution is advised regarding solar glass makers due to low average selling prices (ASP) and high inventory levels [1] - Key risks for **Deye** include lower-than-expected energy storage demand and increased price competition among inverter peers [19] - For **Sungrow**, risks include slower-than-expected solar installations and intensified trade tensions affecting exports [21] Valuation Insights - **Deye's** target price is set at **Rmb102.0/share**, based on a discounted cash flow (DCF) model, reflecting sustainable growth in energy storage demand [18] - **Sungrow's** target price is **Rmb240.00**, also based on a DCF valuation, indicating long-term potential returns [20] Additional Important Information - The conference call highlighted the importance of monitoring market dynamics and potential risks in the solar sector, particularly in light of changing tariff structures and inventory levels [1][19][21]

Core Insights - TOYO Co., Ltd has signed a sales contract with a U.S. polysilicon manufacturer to secure domestically sourced critical raw materials for its solar manufacturing operations, enhancing its dual-source strategy and ensuring a stable supply [1][2] Group 1: Agreement Details - The sales contract is for one year and aims to strengthen TOYO's ability to meet the growing demand in the U.S. solar market [2] - The partnership establishes a diversified polysilicon supply chain, supporting TOYO's cell manufacturing in Ethiopia and module production in the United States [2][4] Group 2: Strategic Advantages - The U.S. polysilicon supplier is recognized as a leading producer, providing significant scale and reliability [3] - Sourcing polysilicon domestically aligns with U.S. regulatory expectations and supports TOYO's operational and market objectives [3][4] - The combination of U.S.-sourced polysilicon and non-Foreign Entity of Concern (FEOC) overseas supply creates a robust dual-source supply chain to meet U.S. solar demand [4] Group 3: Market Positioning - The agreement enhances TOYO's U.S. expansion by increasing access to domestic materials, positioning the company to deliver cost-effective and sustainable solar solutions [5] - TOYO aims to become a full-service solar solutions provider, integrating various stages of the solar power supply chain [5]

Summary of China Renewable Energy Conference Call Industry Overview - The conference call focused on the **China Renewable Energy** sector, specifically the solar energy market in China. Key Points Solar Capacity Forecasts - The forecast for **PRC solar installation** in 2025 has been slightly raised to **290GW** from **280GW** based on ongoing projects, while the forecast for **2026** has been lowered to **220GW**, representing a **24% year-over-year decline** from **250GW** [1][2] - Major Independent Power Producers (IPPs) like **China Huaneng Group** and **National Energy Investment Group** are cautious about solar capacity additions during the **15th 5-year period (2026-2030)** due to profitability issues from recent projects [1] Profitability Concerns - Recent solar projects have been less profitable due to **tariff cuts** and high **depreciation expenses** from installations made in **2022-2023** when module prices were elevated [1][2] - The average on-grid tariff has decreased significantly, impacting the financial viability of new installations [2] Market Dynamics - The solar sector is noted for its **cooperative attitude** among enterprises, which is seen as a positive aspect amidst market challenges [1] - There is a potential negative impact on **Energy Storage System (ESS)** demand due to the anticipated reduction in solar installations in **2026** [2] Module Pricing and Production - **China's solar module export value** decreased by **16.8% year-over-year** to **US$21,873 million** in the first 11 months of 2025, with a slight recovery in November showing an **18% year-over-year increase** [3] - The **module production volume** is expected to decline further, with a projected drop of **10.9% year-over-year** in December due to a lack of domestic installation rush [6] Inverter Market - **China's inverter export value** increased by **26% year-over-year** in November, with significant demand from regions like **Oceania** and **Europe** [7] Company-Specific Insights Preferred Companies - The report expresses a preference for companies involved in **Energy Storage Systems (ESS)** and **polysilicon production**, specifically naming **Sungrow**, **Deye**, **Tongwei**, and **GCL** as favorable investment opportunities [1] Valuation and Risks - **Ginlong Technologies** has a target price of **Rmb55.00** per share based on a DCF valuation, with a WACC of **10.1%** [19] - **Ningbo Deye Technology** has a target price of **Rmb102.0** per share, with a WACC of **8.4%** [21] - **Sungrow Power Supply** has a target price of **Rmb240.00**, with a WACC of **7.0%** [23] - **Tongwei** has a target price of **Rmb30.00** per share, with a WACC of **9.2%** [25] Risks - Key risks for these companies include lower-than-expected solar installations, increased competition, and potential trade tariffs against Chinese products [20][22][24][26] Conclusion - The solar energy market in China is facing challenges with profitability and installation forecasts, but there are still opportunities in specific segments like ESS and polysilicon production. The cautious outlook from major IPPs indicates a need for strategic investment in the sector.

Summary of the China Solar Industry Conference Call Industry Overview - **Industry**: China Solar Industry - **Date**: 19 December 2025 Key Points Polysilicon Market - The price of monograde polysilicon remained stable at Rmb52/kg as of the week starting 15 December, despite a previous increase to above Rmb65/kg with limited transactions [1] - Inventory levels for polysilicon were flat at 25kt week-over-week [1] - Monthly polysilicon production is forecasted to increase by 4% month-over-month to below 120kt (52GW) in December due to mild production resumption [1] Cell and Module Prices - N-type wafer prices remained unchanged at Rmb1.18/1.50 per piece for M10 and G12 [2] - The average utilization rate in the industry decreased by 5% week-over-week, with Tier 1 companies operating at 50%/48% and integrated manufacturers at 50-70% [2] - Cell prices for tunnel oxide passivated contacts (TOPcon) rose by 7.1% week-over-week to Rmb0.30 for both M10 and G12, primarily due to increased silver prices [2] - Module prices remained stable at Rmb0.69/Rmb0.76 per watt for TOPcon and back contacts [2] - Module production is expected to decline by 12% month-over-month to 44-45GW in December [2] Solar Glass Market - Solar glass prices decreased by 2.1% for 2.0mm and 1.3% for 3.2mm, reaching Rmb11.50 and Rmb18.50 per square meter, respectively [3] - Inventory levels for solar glass increased by 8.6% week-over-week to 35.92 days [3] - The price of soda ash remained unchanged at Rmb1,300 per ton [3] Industry Self-Discipline Initiatives - A new round of industry self-discipline and anti-involution efforts is being planned by leading solar companies, following the establishment of a polysilicon buyout fund platform on 9 December [4] - Major proposals include production regulations, lifting technology and energy consumption standards, cancelling export tax rebates, and adhering to low-carbon and ESG principles [4] - The industry's profitability is expected to recover amid potential self-discipline, mergers and acquisitions, and policy support in 2026 [4] Risks and Opportunities - **Downside Risks**: - Slower-than-expected growth in installed domestic renewable energy capacity [20] - Larger-than-expected tariff cuts for renewable energy projects [20] - Increased competition from other power resources under future power reforms [20] - **Upside Risks**: - Faster-than-expected growth in installed domestic renewable energy capacity [21] - Smaller-than-expected tariff cuts for renewable energy projects [21] - Market share gains for solar energy compared to other power resources under future reforms [21] Additional Insights - The ongoing self-discipline efforts in the solar industry may lead to improved profitability and stability in pricing, which could present investment opportunities in the sector [4]

Core Viewpoint - The photovoltaic industry will enter a critical governance phase in 2026, focusing on capacity regulation and the orderly exit of outdated production capacity through market-oriented and legal methods [1] Group 1: Industry Regulation - The Ministry of Industry and Information Technology will enhance capacity control and strengthen management of photovoltaic manufacturing projects [1] - A price monitoring mechanism will be established to focus on companies with abnormal pricing [1] - There will be increased supervision and inspection of product quality, particularly targeting companies with substandard quality, power misrepresentation, and intellectual property violations [1] Group 2: Innovation and Standards - The industry will emphasize innovation-driven development and improve the standard system [1] - The Ministry will expedite the revision and implementation of mandatory national standards for photovoltaic module quality safety and polysilicon energy consumption limits [1] - The industry is encouraged to strengthen self-discipline and deepen international cooperation [1]