20180115-广发证券_香港_-信义光能-00968.HK-Solar_glass_prices_recovering__power_plant_expansion_to_slow_9页_855kb

Xinyi Solar (968 HK) Equity Research Summary

Core Content Overview

This report provides an analysis of Xinyi Solar's financial performance, market position, and future outlook in the solar energy industry. It highlights the company's progress in solar glass production and solar power plant development, along with the impact of policy changes and market dynamics on its business.

Main Points

FIT Adjustments and Solar Power Demand

• FIT Policy Changes: The 2018 solar feed-in tariff (FIT) policy reduced benchmark on-grid tariffs by Rmb0.1/kWh, better than the market's expectation of a Rmb0.1-0.15/kWh cut. The subsidy for distributed solar projects was reduced by Rmb0.05/kWh, less than the expected Rmb0.07-0.1/kWh cut.
• Impact on Demand: The FIT adjustment has stabilized demand for solar capacity installation, with 11M17 total newly installed solar capacity reaching 48.65GW, a $103.3%$ increase YoY. The company expects the total annual capacity to exceed 50GW in 2017.
• Installation Rush: There could be a rush to install new solar power capacity before June 30, 2018, when new tariff standards come into effect.

Solar Glass Market Recovery

• Price Trends: Solar glass prices increased mildly in 2H17, rebounding to Rmb31.5/m² on Jan 4, 2018. The price increase is attributed to supply shortages, natural gas purchase restrictions, and high fuel costs.
• Future Outlook: Solar glass prices are expected to stabilize after a period of mild growth as natural gas prices correct and demand for solar power installation remains robust.
• Production Diversification: Xinyi Solar is expanding its production capacity in Malaysia with two new lines (1,000 tonnes/day each) expected to start operation in 2018 and 2019. These lines are projected to have a $5-10%$ higher gross margin than domestic lines due to cost advantages and robust Southeast Asian demand.

Solar Power Plant Development

• Capacity Growth: The company's total new solar power capacity installation in 1H17 was 120MW, with cumulative installed capacity reaching 1.6GW. Its original target of 2GW by the end of 2017 has been delayed to 1H18.
• Future Expansion: The company plans to add 400-500MW of new capacity annually, lower than the previously expected 600MW/year, indicating a slowing growth rate.

Key Financial Forecasts

Valuation Metrics

Risks

• Economic slowdown.
• Changes in solar energy industry policies and government subsidies.
• Price increases for solar glass raw materials.
• Delays in solar power plant development.
• Exchange rate volatility.

Analyst Rating

• Company Rating: Accumulate (expected to outperform benchmark by more than 5% but not more than 15%).
• Sector Rating: Neutral (expected relative performance between -10% and 10%).

Summary

Xinyi Solar is positioned to benefit from the stabilization of solar power demand due to the finalized FIT adjustments in 2018, which were better than anticipated. The company is also leveraging its production diversification in Malaysia to enhance gross margins and reduce market risks. While solar power plant expansion is slowing, the company is expected to maintain a steady growth in new capacity installation. Financial forecasts indicate stable earnings and a projected target price of HK$4.00, based on a historical average P/E of 12x. The report outlines both opportunities and risks, including policy changes, raw material costs, and exchange rate fluctuations, and provides a neutral sector rating.