The Zhitong Finance App learned that Great Wall Securities released a research report saying that the A-share photovoltaic sector is currently in a low valuation position. Subsequently, along with supply-side improvements, the bottom price of the industrial chain stabilizes, and industry valuations are expected to return to a reasonable range. Looking back on the past market situation in the sector, it is often dominated by thematic investments and boom investments, and the demand side is fully flexible. However, after the PV sector enters a mature period, the investment logic gradually changes to internal sector comparison, changes in the industry supply pattern (including overseas expansion), and technological iteration. The three jointly drive the differentiation of company performance within the industry.

Recommendation: 1) PV glass link with a good supply and demand pattern. 2) Advanced production capacity+overseas industrial chain leaders, such as Artes (688472.SH), Dongfang Risheng (300118.SZ), Liansheng Technology (300051.SZ), Junda Co., Ltd. (002865.SZ), and Sunshine Power (300274.SZ).

The main views of Great Wall Securities are as follows:

Supply side: With market-based methods and government intervention, superposition industry technology is iterating rapidly, and the industry supply pattern is expected to improve at an accelerated pace

The seminar on high-quality development of the photovoltaic industry emphasized the joint resolution of problems such as overcapacity and vicious competition in the industry through market-based methods and government intervention, and constructing a stable and reasonable supply pattern for the photovoltaic industry. Specific government measures include regulating government investment promotion policies, protecting new technology research and development in the photovoltaic industry, and encouraging industry mergers, acquisitions and restructuring. Under the above measures, the photovoltaic industry's capacity clearance rate is expected to enter the fast track.

Supply side: In the second quarter, silicon production is expected to increase, and the supply and demand of components is expected to increase or improve

According to InfoLink's forecast, in the second quarter of 2024, silicon production is still increasing. It is expected that production in the second quarter may reach 250-255GW, or create sales pressure and risk of storage delays; in the component sector, production schedules in the second quarter were generally conservative. First-tier manufacturers were supported by orders to increase production schedules, but second- and third-tier manufacturers' production schedules showed a downward trend, and module production is expected to reach 170-175GW in the second quarter.

Demand side: Global PV demand may slow down as a whole this year

According to InfoLink's forecast, the annual component demand is expected to reach 492-538 GW, with an estimated growth rate of about 6-15%. Judging from the demand pattern, our country still occupies an important position. Considering that the current growth of China's power grid consumption capacity lags behind that of photovoltaic installations, long-term installed capacity growth still depends on the strengthening of power grid infrastructure. The growth rate of distributed projects in China may slow down this year, dragging down the growth rate of new PV installations in China.

Demand side: The European and American interest rate cut cycle may be approaching, compounded by the inventory replenishment cycle, overseas demand or recovery

In anticipation of interest rate cuts, interest rates are expected to decline, which will partially reduce the cost of investment and financing of new energy sources, increase the return on investment in power plants, or stimulate a recovery in the demand side of the photovoltaic industry. Furthermore, with the advent of the European and American stock replenishment cycle, the price of superimposed photovoltaic products has declined, and demand for PV inventory replenishment in Europe and the US may have increased compared to the past, further stimulating China's PV exports, and industry demand is expected to pick up in the future.

Valuation: Currently, the A-share photovoltaic sector is undervalued. As of May 24, 2024, the TTM for PV equipment (Shenwan) was 19.18, which is the lowest in ten years.

Risk warning: Overseas interest rate cuts have been delayed, demand for modules falls short of expectations, and trade barriers and the PV competition pattern has deteriorated further due to geopolitics.