Summary of China Solar Industry Conference Call Industry Overview - The conference call focused on the **China Solar** industry, particularly the dynamics of supply, demand, and pricing within the solar value chain [1][3][20]. Key Highlights - **Profitability Tracker**: The China Solar Profitability Tracker monitors monthly supply/demand and inventory dynamics, along with cash gross profit (GP) and EBITDA margin trends for covered companies [1]. - **Price Increases**: A policy-driven price hike occurred in July, with upstream prices for Poly increasing by **34%** and Wafer by **21%**. Domestic Poly future quotes surged over **60%**, reaching **Rmb49-51/kg** [6][20]. - **Demand Weakness**: Despite price increases, transaction volumes remained muted due to weak demand. Global module demand fell by **67% month-over-month** and **17% year-over-year** to **45GW** in June [6][21]. - **Cyclical Bottom**: The industry is believed to be at a cyclical bottom, with a potential inflection point expected around **2H26** as demand turns [3]. Profitability Insights - **Cash Profitability Improvement**: Spot price implied cash profitability improved for Tier 1 players, with upstream segments showing stronger sequential recovery [8][11]. - **Average Cash GPM Changes**: The average cash gross profit margin (GPM) for Poly was **28%**, Wafer **5%**, Cell **1%**, Module **11%**, and Glass **-12%** [11]. Inventory and Production Dynamics - **Production Forecast**: Poly production is expected to increase by **7%** in July, while other segments like Wafer and Cell are projected to decline by **11%** and **5%**, respectively [13]. - **Inventory Days**: Inventory days are likely to rebound to **39 days** in July from **34 days** in June, indicating intensifying inventory pressure in the Poly segment [14][17]. Investment Recommendations - **Preferred Segments**: The report recommends a "Buy" on Cell & Module and Film, while advising a "Sell" on Glass, Poly, Wafer, and Equipment [3]. - **Long-term Outlook**: Mid-to-long run normalized profitability is expected to remain low due to a slowdown in demand growth in China [3]. Additional Insights - **Market Dynamics**: The successful pass-through of upstream price hikes to downstream operators is crucial but appears challenging given the softer demand outlook [21]. - **Global Module Demand Forecast**: The full-year installation forecast suggests a **42% year-over-year** decline in global module demand, averaging **33GW** per month in **2H2025** [6]. This summary encapsulates the critical insights and data points from the conference call, providing a comprehensive overview of the current state and future outlook of the China Solar industry.

Investment Rating - The report maintains a cautious outlook on the solar industry, expecting significant capacity cuts and a decline in profitability across the value chain, particularly in the upstream segments [3][5]. Core Insights - The report indicates a potential rush in installations in May 2025, driven by a policy cutoff, but anticipates a deeper demand pullback in the second half of 2025, with global module demand expected to decline by 40% year-over-year [4][5]. - The pricing dynamics across the solar value chain show a decline in spot prices for most segments, with glass experiencing the most significant drop of 10% month-to-date [19][20]. - The upstream profitability is expected to deteriorate further, while downstream segments are projected to remain more resilient [7][19]. Summary by Sections Sector Overview - Anticipated capacity cuts of 17% across the main value chain in 2025-2026 due to cash burn and market access issues [3]. - A forecasted decline in solar capital expenditure by 55% year-over-year in 2025, with average capacity utilization rates dropping to 59% from 2025 to 2030 [5]. Pricing Trends - As of June 19, 2025, spot prices for poly, wafer, cell, module, glass, and film have declined by an average of 6%, 5%, 3%, 0%, 10%, and 3% respectively month-to-date [19]. - The report highlights that module pricing has remained stable, contrasting with the declines seen in other segments, particularly glass [19][20]. Demand and Supply Dynamics - Global module demand surged by 74% month-over-month and 193% year-over-year in May 2025, primarily due to a rush in installations in China [4]. - The report projects that inventory days will rebound to an average of 33 days in June from 27 days in May, indicating increased inventory pressure across the value chain [13][16]. Profitability Outlook - Cash gross profit margins (GPM) for upstream segments are expected to decline, while downstream players are likely to maintain more stable margins [7][10]. - The report suggests that despite the anticipated price declines, profitability may remain resilient due to greater upstream price cuts [20].

Investment Rating - The report assigns a Neutral rating to Sungrow with a price target of Rmb63.00 [3][7]. Core Insights - Management is optimistic about the demand outlook for energy storage systems (ESS) in Europe and the Middle East, while the US market faces uncertainties due to tariff hikes and potential changes to the Inflation Reduction Act (IRA) [2][4]. - Sungrow has resumed shipments of ESS to the US after tariffs dropped to approximately 41%, and management is confident in meeting its full-year shipment targets [2][4]. - Global solar demand is expected to grow by around 10% year-over-year in 2025, although uncertainties remain in the US market [2][4]. - The company anticipates a decline in engineering, procurement, and construction (EPC) revenue in 2025 due to regulatory changes, but limited impairment risks are expected [2][4]. Summary by Sections Demand Outlook - Europe: Management expects over 20 GWh of utility-scale ESS installations in 2025, up from 10 GWh in 2024, with potential growth exceeding 60% year-over-year into 2026 [4]. - US: Demand may decline significantly due to recent tariff hikes and uncertainties surrounding the IRA [4]. - China: Utility-scale ESS installations are expected to trend down in 2025 due to regulatory changes, while commercial and industrial (C&I) ESS installations may increase from 7 GWh in 2024 to 15 GWh in 2025 [4]. - Middle East: Optimism remains regarding ESS demand driven by government initiatives for data center deployment [4]. Financial Performance - Sungrow aims to meet a US ESS shipment target of 8 GWh in 2025, having already completed 4 GWh in the first quarter [4]. - The gross profit margin (GPM) for US ESS is expected to decrease from over 40% to around 30% due to cost pass-downs from tariff hikes [4][5]. - The inverter business is projected to grow by approximately 10% year-over-year, with a stable competitive landscape in the Middle East [6]. Revenue Projections - The report anticipates declining EPC revenue in 2025 due to reduced distributed generation solar demand [6]. - Management expects lower capital expenditures in the EPC segment and plans to expand overseas EPC business [6]. Valuation - The June 2026 price target of Rmb63 corresponds to a 12-month forward target price-to-earnings (P/E) ratio of 10.0x, using sum-of-the-parts (SOTP) valuations for different segments [8][9].

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].

Investment Rating - The report maintains a "Buy" rating on Cell & Module and Film, while it has a "Sell" rating on Glass, Poly, Wafer, and Equipment [4]. Core Insights - The profitability of the solar industry is expected to face deterioration for Cell and Module, while Glass may see temporary improvement due to price hikes [6][14]. - The report highlights a significant decline in solar capital expenditure, projected at -55% year-over-year in 2025, alongside a lower capacity utilization rate averaging 59% from 2025 to 2030 [4]. - The report indicates that upstream pricing in China has started to lose momentum as the peak of rush installations is ending, while US module pricing has jumped due to a 90-day tariff exemption [19]. Summary by Sections Pricing Dynamics - As of April 17, 2025, month-to-date (MTD) spot prices for Poly/Wafer/Cell/Module/Glass/Film/Inverter in China showed average changes of -1%/-0.3%/-7%/+0.5%/+5%/+0%/+1%, while overseas module prices increased by 20% in the US [19]. - The report notes that inventory days across the value chain have improved to below 20 days, except for Poly at 40 days and Glass at 27 days, driven by strong domestic demand [13]. Production and Demand - Production volumes across the solar value chain are expected to recover significantly in April, with Poly/Wafer/Cell/Glass/Module projected to increase by +4%/+17%/+29%/+9%/+31% month-over-month [12]. - The report anticipates a decline in inventory levels across the value chain, with a lowered production-to-demand ratio at 94% in April compared to 104% in March [15]. Profitability Trends - The average cash gross profit margin (GPM) for Poly/Wafer/Cell/Module/Glass/Film in April showed changes of -0.3pp/+0.4pp/-11pp/-6pp/+3pp/+1pp, indicating a decline in profitability for Cell and Module [10]. - Monthly average cash profitability for the companies covered is expected to remain largely flat month-over-month in April, although it is better than the first quarter of 2025 [7].