According to Futu Securities APP, Soochow Securities released a research report stating that in the first half of 2024, the revenue and net income attributable to the parent of the photovoltaic sector both decreased by 19%. The net profit growth rate of the second quarter of 2024 in the auxiliary chain is more favorable, with overall profits under pressure. For inverters, the rise of emerging markets is driving the increase in grid-connected demand. European residential storage inventories have reached a turning point, with emerging markets showing volume growth. Strong demand in major storage markets such as the US and China, Europe, and the Middle East is driving sustained high growth in large-scale storage. Short-term component price pressures due to oversupply in the glass industry, slowing down of long-term expansion, and tightening capacity constraints, with controllable excess capacity. There is a significant cost difference between first and second-line film manufacturers, Hangzhou First Applied Material maintains a leading position, and new players have begun to exit. Currently, the addition of new production capacity at multiple stages is slowing down, and high-cost obsolete capacity is entering the exit phase. It is expected that the profit in the second quarter of 2024 will bottom out in the off-season, and the leading players will have stronger resilience.

In the first half of 2024, the photovoltaic sector's revenue decreased by 19% to 507.5 billion yuan, and the net income attributable to the parent decreased by 95% to 4.12 billion yuan. In the first quarter of 2024, the revenue of the photovoltaic sector was 235.1 billion yuan, a 17% decrease from the previous quarter and a 29% decrease from the same period last year. The net income attributable to the parent was 6.5 billion yuan, an 83% decrease from the previous quarter and a 142% increase from the same period last year. In the second quarter of 2024, the revenue of the photovoltaic sector was 272.5 billion yuan, a 20% decrease from the previous quarter and a 16% increase from the same period last year. The net income attributable to the parent was -2.4 billion yuan, a 106% decrease from the previous quarter and a 137% decrease from the same period last year.

The net profit growth rate of the second quarter in the auxiliary chain is more favorable, putting overall profits under pressure. Looking at the quarter-on-quarter net profit growth rates for the second quarter: EPC (120.8%) > Inverters (58.1%) > Silver paste (9.2%) > Glass (2.1%) > Equipment (-6.8%) > Brackets (-17.2%) > Film (-17.3%) > Diamond wire (-97.9%) > Quartz crucible (-127.2%) > Photovoltaic (-136.8%) > Silicon wafer (-285.9%) > Other auxiliary materials (-522.5%) > Components (-567.9%) > Batteries (-2728.6%) > Silicon materials (-4232.9%); Looking at the year-on-year net profit growth rates, brackets (24.0%) > EPC (3.5%) > Silver paste (-3.4%) > Inverters (-7.3%) > Glass (-9.4%) > Equipment (-16.4%) > Film (-19.3%) > Diamond wire (-99.1%) > Quartz crucible (-102.7%) > Photovoltaic (-106.1%) > Components (-122.5%) > Other auxiliary materials (-131.4%) > Silicon materials (-141.5%) > Silicon wafer (-195.6%) > Batteries (-252.2%).

Inverters benefit from energy storage + overseas markets, and the second quarter has established a turning point. The cost advantage of leading companies in auxiliary materials such as film and glass is significant, while small auxiliary materials face profit pressures. Segments benefit from technological iteration. For inverters: the rise of emerging markets is driving increased demand for grid connections. European residential storage inventories have reached a turning point, with emerging markets showing volume growth. Strong demand in major storage markets such as the US and China, Europe, and the Middle East is driving sustained high growth. Short-term component price pressures due to oversupply in the glass industry, slowing down of long-term expansion, and tightening capacity constraints with controllable excess capacity. There is a significant cost difference between first and second-line film manufacturers, with Hangzhou First Applied Material maintaining a leading position and new players starting to exit. Tracking brackets, with sufficient overseas layout orders and benefiting from the outbreak in emerging markets such as the Middle East and Southeast Asia, structural improvement in profitability. LECO silver paste faces increased technical complexity and continuous innovation, with premiums expected to be maintained. Leading shares in PV ribbons are expected to increase, with 0BB expected to drive profit improvement; rapid decline in diamond wire prices, with tungsten wire core costs as the key to future competition.

Investment suggestion: Currently, the addition of new production capacity at multiple stages is slowing down, with high-cost obsolete capacity entering the exit phase. Soochow Securities predicts that profits in the off-season of the second quarter of 2024 will bottom out, with stronger resilience for leading players; the turning point in the second quarter for inverters has already emerged, highlighting the cost advantage of leading companies in films and glass.

Key recommendations: Inverters (Sungrow Power Supply, Delixi Shares, Ginlong Technologies, Hemai Shares, Goodwe Power Supply, Shenzhen Sinexcel Electric, Eluo Energy, Jiangsu Tongrun Equipment Technology, Yuneng Technology, Shenzhen Kstar Science & Technology), focus on Kehua Data, and leading auxiliary material companies with stable patterns and prominent advantages (Flat Glass Group, Hangzhou First Applied Material, Arctech Solar Holding, etc.); companies with cost and overseas channel advantages in components (Jinkosolar, Artes, Trina Solar Co., Ltd., Ja Solar Technology, Longi Green Energy Technology, Tongwei Co., Ltd.), pay attention to Hengdian Group DMEGC Magnetics, Risen Energy, Eging Photovoltaic Technology, and leading companies in battery silicon wafers (Hainan Drinda New Energy Technology, Shanghai Aiko Solar Energy, TCL Zhonghuan Renewable Energy Technology, etc.) and leading companies in small auxiliary materials (Polyhe Materials, Wuxi DK Electronic Materials Co.,Ltd., Yubang New Materials, Yangling Metron New Material, etc.).

Risk warning: intensified competition, policy changes beyond expectations, etc.