Summary of China Solar Profitability Tracker - December 2025 Industry Overview - The report focuses on the solar industry, particularly the profitability dynamics of companies involved in the solar value chain in China. Key Highlights 1. **Price Hikes and Market Dynamics** - A new round of price hikes was proposed in December, with average pricing across the solar value chain increasing by 7% month-to-date (MTD) as Tier 1 players responded to rising silver costs, which surged by 45% quarter-to-date (QTD) [3][4] - Poly players raised spot prices by 22% during the week of December 15, reaching Rmb65/kg for Rod Poly and Rmb62/kg for Granular Poly [3] 2. **Inventory and Production Trends** - The supply/demand ratio deteriorated to 129% in December from 110% in November, indicating an oversupply situation [9] - Producer-side inventory days increased to 55 days in December from 38 days in November, suggesting a buildup of unsold inventory [11] 3. **Profitability Concerns** - Despite a 12% increase in value chain pricing compared to Goldman Sachs estimates, concerns remain about potential cash burn due to extended inventory days and slow production cuts [4] - The average cash gross profit margin (GPM) for Poly-Tier 1 was reported at 35%, with a slight decrease of 2 percentage points (ppt) [7] 4. **Segment Performance** - Cash profitability improved in Cell and Module segments but deteriorated in Glass, with Glass-Tier 1 GPM dropping to 1% [7] - The report indicates a preference for Film and High-efficiency Module segments, while expressing skepticism towards Glass and Wafer segments [4] 5. **Future Outlook** - The ongoing anti-involution campaign and new restrictions on below-cost pricing are expected to have a mild positive impact on pricing outlook for Poly, but downstream players may still need to reduce selling prices to maintain market share amid weak demand [4] - The report anticipates that normalized profitability will remain low unless Tier 1 capacity reductions occur [4] Additional Insights - The establishment of a joint venture platform for Poly capacity consolidation was reported, but progress is lagging behind initial targets [3] - The report emphasizes the importance of adopting cost reduction technologies to ensure positive cash generation for sustainable operations [4] Conclusion - The solar industry in China is facing significant challenges with inventory buildup and profitability concerns, despite recent price increases. The dynamics of supply and demand, along with the need for cost management, will be critical for companies navigating this environment.

Summary of China Solar Profitability Tracker Conference Call Industry Overview - The conference call focuses on the solar industry in China, particularly the dynamics of upstream and downstream pricing, inventory levels, and profitability trends for companies in the sector [1][2]. Key Highlights - **Upstream Price Dynamics**: - Upstream price hikes paused in October, contrasting with a 5% month-over-month increase in September. This pause is attributed to weaker downstream price acceptance, exacerbated by a significant rise in silver paste prices, which increased by 18% month-to-date and constitutes 30%-40% of non-silicon cell processing costs [6][7]. - **Inventory Levels**: - Total poly inventory rose by 7% month-over-month to 275GW in October, with approximately 150GW at poly factory sites, 110GW at wafer factory sites, and 15GW through future contracts [6]. - Glass producer-side inventory days surged by 63% compared to the end of September, reaching 25 days in October, indicating muted shipment activity [6]. - **Production Estimates**: - Monthly poly production is expected to decline by 6% in November and December compared to October, primarily due to capacity suspensions in Central Western China [6]. - New solar glass capacity continues to increase, with one line of 1.2k tons/day launched and multiple new lines scheduled for the near future [6]. - **Export Volumes**: - Cell and module export volumes decreased by 10% and 4% month-over-month, respectively, to 11GW and 28GW. This decline is mainly due to reduced restocking activities as the overseas peak demand season in Europe and the Middle East concludes [6]. Profitability Insights - **Valuation Metrics**: - The market is currently pricing in 2026 prices for poly, wafer, module, and glass at Rmb58/kg, Rmb1.8/pc, Rmb0.66/w, and Rmb13/sqm, respectively. This contrasts with Goldman Sachs' estimates of Rmb42/kg, Rmb1.3/pc, Rmb0.67/w, and Rmb10/sqm, indicating an average downside risk of 34% for the covered companies [3][16]. - **Cash Profitability Trends**: - Spot price implied cash profitability remained largely flat in the upstream sector while deteriorating in the downstream sector [10]. - The average cash gross profit margin (GPM) for poly-tier 1 was reported at 37%, with a notable decrease in margins for cell and module segments [10]. Sector Outlook - The ongoing anti-involution campaign and newly imposed restrictions on below-cost pricing are expected to only mildly improve the pricing outlook for poly. Downstream players may still need to reduce selling prices to gain market share amid weak demand [7]. - The long-term profitability outlook remains low without a reduction in Tier 1 capacity [7]. Investment Preferences - The analysis indicates a preference for specific segments within the solar value chain: - **Buy Recommendations**: Film (Hangzhou First), High-efficiency Module (Longi) - **Neutral Recommendations**: Granular Poly (GCL Tech) - **Sell Recommendations**: Glass (Flat A/H, Xinyi Solar), Rod Poly (Daqo ADR/A, Tongwei), Wafer (TZE), and Equipment (Shenzhen S.C. and Maxwell) [7]. Additional Insights - The production-to-demand ratio for the sub-sector is projected to increase to 116% in October from 113% in September, indicating a potential oversupply situation [11]. - Producer-side inventory days are likely to rise to 34 days in October from 30 days in September, further highlighting inventory concerns [13]. This summary encapsulates the critical insights and data points from the conference call, providing a comprehensive overview of the current state and outlook of the solar industry in China.

Summary of China Solar Industry Conference Call Industry Overview - The conference call focused on the solar industry in China, particularly the dynamics of module pricing and profitability trends [1][5][11]. Key Highlights - **Module Price Trends**: Early signs of a module price increase were noted with China Huadian's 20GW solar project bidding starting at an average of Rmb0.71/w, which is 6% higher than the current spot module pricing of Rmb0.67/w [5][17]. - **Supply/Demand Outlook**: The monthly supply/demand ratio is expected to worsen, deteriorating to 1.4X-2.1X in August from 1.3X-1.7X in July, primarily due to slow supply cut adjustments [5][12]. - **Inventory Levels**: Significant inventory increases were observed in the Poly and Module segments, with Poly inventory rising by 10% month-over-month to 158GW and Module inventory increasing by 23% to 34GW [5][12]. - **Sector View**: The solar sector is believed to be at a cyclical bottom, with a potential inflection point expected around the second half of 2026. Long-term profitability is anticipated to remain low due to a slowdown in demand growth in China [5][11]. Financial Metrics - **Profitability Trends**: Cash gross profit margins (GPM) and EBITDA margins improved for upstream companies but deteriorated for downstream companies in August [6][9]. - **Spot Price Changes**: The average cash GPM for various segments showed mixed results, with Poly GPM at +1pp, Wafer at -5pp, Cell at -6pp, and Module at -9pp month-to-date [9][21]. - **Production Increases**: Production across the value chain is expected to increase by 5%-20% month-over-month in August, with specific increases of +19% for Poly, +5% for Wafer, and +12% for Module [11][12]. Pricing Dynamics - **Value Chain Pricing Stability**: Overall, value chain prices remained stable in August, with a notable 6% increase in Glass prices due to rapid inventory depletion [5][17]. - **Average Cash Profit Changes**: The average cash profit for Poly was reported at Rmb12.0/kg, while for Granular Poly it was Rmb16.3/kg, indicating a positive trend in upstream profitability [21]. Additional Insights - **Inventory Days**: The average inventory days across the value chain are expected to remain at 40 days in August, reflecting a diversified inventory situation relative to demand [12][15]. - **Challenges Ahead**: The implementation of price hikes and profitability improvements is seen as challenging without significant fiscal support and changes in local government incentives [5][11]. This summary encapsulates the critical insights and data points from the conference call, providing a comprehensive overview of the current state and outlook of the solar industry in China.

Summary of China Solar Profitability Tracker Conference Call Industry Overview - The report focuses on the solar industry in China, specifically tracking profitability trends and supply/demand dynamics within the solar value chain [1][5]. Key Highlights - **Module Price Trends**: Early signs of module price increases were noted, with China Huadian's 20GW solar project bidding starting at an average of Rmb0.71/w, which is 6% higher than the current spot module pricing of Rmb0.67/w. This price hike followed a joint meeting by six ministries on August 19 [5]. - **Supply/Demand Outlook**: The monthly supply/demand ratio is expected to worsen, estimated to be between 1.4X-2.1X in August, down from 1.3X-1.7X in July. This deterioration is attributed to slow supply cut adjustments, with increased inventory pressures in the Poly and Module segments [5][12]. - **Production Increases**: Production across the value chain is expected to increase by 5%-20% month-over-month in August, with specific increases of +19% for Poly, +5% for Wafer and Cell, and +12% for Module [11]. - **Inventory Dynamics**: End-August inventory is projected to decline significantly in the Cell and Glass segments due to higher module production demand, while Poly and Module inventories are expected to rise [12]. Financial Metrics - **Profitability Trends**: Cash gross profit margins (GPM) and EBITDA margins have shown improvement in upstream segments but have deteriorated in downstream segments. For example, the cash GPM for Poly is at 29%, while for Modules, it is at -3% [6][9]. - **Spot Price Changes**: As of August 21, 2025, spot prices for most value chain products remained stable, except for a 6% increase in Glass prices due to rapid inventory depletion [17][21]. Sector View - The report suggests that the solar sector is at a cyclical bottom, with a potential inflection point expected around the second half of 2026. However, normalized profitability is likely to remain low due to a slowdown in demand growth in China [5]. - **Investment Preferences**: The report indicates a preference for investments in Cell & Module and Film segments, while showing a bearish outlook on Glass, Poly, Wafer, and Equipment segments [5]. Additional Insights - **Challenges in Implementation**: The anticipated price hikes and profitability improvements are contingent on effective implementation of policies, which currently face challenges due to a lack of fiscal support and changes in local government incentives [5]. - **Diverse Inventory Days**: The average inventory days across the value chain are expected to remain at around 40 days in August, reflecting a diverse inventory situation relative to demand [12][15]. This summary encapsulates the key points from the conference call regarding the current state and outlook of the solar industry in China, highlighting both opportunities and risks for investors.

Investment Rating - The report maintains a cautious outlook on the solar industry, expecting significant capacity cuts and a decline in capital expenditures, leading to a weaker pricing outlook and flattened profitability curve [4]. Core Insights - The profitability for solar value chain segments is likely to fall below pre-rush installation levels in May, with cash profitability expected to deteriorate to average levels seen in Q1 2025 [2][4]. - A rapid decline in upstream pricing is observed due to weaker demand and aggressive low-pricing strategies by Tier 2-3 players, impacting the overall market dynamics [2][19]. - Proactive price stabilization efforts by leading players are crucial to monitor in June, as inventory pressures are expected to continue increasing [2][14]. Summary by Sections Pricing Trends - As of May 15, 2025, spot prices for Poly/Wafer/Cell/Module/Glass/Film/Inverter in China showed average declines of -2%/-14%/-3%/-3%/-6%/-3% MTD, and -8%/-17%/-7%/-2%/+8%/+1% compared to pre-rush installation levels [2][19][20]. - Glass prices appear more resilient compared to other segments, primarily due to lower inventory days [20]. Profitability Metrics - Spot price implied cash gross profit margins (GPM) for various segments showed significant declines, with Tier 1 cash GPM for Poly/Wafer/Cell/Module/Glass/Film averaging flat/-13pp/+1pp/-4pp/-3pp/flat MTD [10]. - Monthly average cash profitability in May is likely to deteriorate to levels seen in Q1 2025, indicating a challenging environment for the industry [2][7]. Production and Inventory Dynamics - Production volumes are expected to decline by an average of 4% month-over-month in May, with specific declines in Poly/Wafer/Cell/Module [12]. - Inventory days are likely to rebound to an average of 30 days in May from 25 days in April, indicating a higher production-to-demand ratio [13][15]. Future Outlook - The report anticipates deeper solar capital expenditure declines of -55% year-over-year in 2025, with lower capacity utilization rates expected [4]. - Continued supply increases for Glass are projected, which may lead to a rapid inventory restock and a potential price cut to Rmb12/sqm in Q3 2025 [3][14].