introduction
GCL Technology (former name: Poly GCL) is the world's leading developer and manufacturer of photovoltaic materials. GCL Technology is a leader in the polysilicon industry in China. Zhu Gongshan, the founder of the company, officially entered the field of upstream photovoltaic raw materials through the acquisition of polysilicon projects in 2005. In 2006, the Siemens method was introduced to lay out the polysilicon material industry, and became the first local enterprise to mass-produce polysilicon in China. It went public in Hong Kong in November 2007. In 2011, GCL Technology became the world leader in polycrystalline silicon materials and silicon wafers. In March 2017, GCL Technology announced that it had completed the acquisition of SunEdison in the US. At that time, SunEdison had the most advanced technology and production capacity for FBR granular silicon in the world. In 2019, the company achieved breakthrough progress in commercialization of granulated silicon technology, and has an effective production capacity of 6,000 cc of granulated silicon per year. In June 2021, GCL Technology won the first carbon footprint certificate for granulated silicon in mainland China. This is the first “carbon footprint certificate” and authority certificate issued by China in the granulated silicon area. The company applied for a “carbon footprint certification” from France in July 2021, and obtained a carbon footprint certification issued by the French Energy Agency on October 27 of the same year.
industry background
According to statistics from the International Energy Agency (IEA), global electricity demand grew by more than 6% in 2021, leading to a sharp rise in electricity prices in many parts of the world. Shortage of natural gas and coal became the main driving force behind the rise in electricity prices. Global coal-fired power generation increased by 9% year-on-year in 2021, leading the power industry's annual carbon dioxide emissions to reach an all-time high. Promoting the installation of new energy sources such as photovoltaics and wind power has become a common understanding among global governments. Currently, China's photovoltaic power generation industry maintains the leading position of number one in industrial scale and number one in production and manufacturing in the world. According to research and estimates by the Chinese Academy of Sciences, silicon-based component products already account for 97.5% of the photovoltaic equipment market, so silicon-based materials determine the development prospects of solar photovoltaics. The upstream of the photovoltaic industry chain is dominated by silicon wafers and silicon materials as raw materials; the midstream is dominated by photovoltaic components of monocrystalline cells and polycrystalline cells; the downstream is the power generation system link. China has an absolute voice in the upper reaches of the photovoltaic industry chain. As the world's largest producer of silicon, its share of silicon exports continues to rise. In 2021, silicon production reached 622,500 tons, accounting for 77%, maintaining a leading position in the world. Currently, more than 97% of the production capacity of global photovoltaic polysilicon materials relies on improved Siemens technology, but this craft has shortcomings such as high energy consumption and complicated craftsmanship. The silane fluidized bed method (FBR) is a next-generation production process developed after improving the industrialization of the Siemens method. The granulated silicon synthesized from it is a more ideal process for photovoltaic polycrystalline silicon materials. Not only is the production process simple, but it also has three major advantages: low energy consumption, continuous production, and no need to break the silicon material to cause impurities.
dominance
High technical barriers, excellent R&D advantage
GCL has played a leading role in the two disruptive industrial technological revolutions in the photovoltaic market, helping it become a leading polysilicon manufacturer and continuously expand its core competitiveness. It is anticipated that no other company will be able to achieve a major technological breakthrough in the short term. GCL Technology launched the first large-scale Siemens cooling technology reform project in China in 2009, leading a new round of technological change in upstream photovoltaic materials at the time. Immediately after ten years of deep cultivation in silane fluidized bed (FBR) technology, it finally achieved breakthrough progress in 2019 and began commercial mass production of a new generation of silicon-based material - granulated silicon. It is worth noting that in March 2017, GCL Technology announced that it had completed the acquisition of SunEdison in the US. At that time, SunEdison had the most advanced technology and production capacity of FBR granulated silicon in the world. After the acquisition, the company began a technical blockade and applied for an exclusive patent for FBR granular silicon technology at huge cost, helping the company become the only enterprise in China that fully controlled large-scale production of granulated silicon.
The group's original business focused on the upper reaches of the photovoltaic supply chain, supplying major raw materials such as polysilicon and silicon wafers to companies in the photovoltaic industry. Today, the business has spread to midstream photovoltaic components such as monocrystalline cells and polycrystalline cells, and has advanced to occupy the photovoltaic market with independent research and development of the Xinpolycrystalline silicon series, Xinmonocrystalline silicon series, and direct-pull monocrystalline silicon series silicon. From 2016 to 2020, GCL Technology's average gross margin was only 27.6%. Since FBR granular silicon technology obtained independent research and development, the Group's overall gross margin in 2021 rose to 37.3%, while it was 25.6% for the same period in 2020. It is worth noting that it took 9 months for the company to start production of 20,000 cubic meters of granulated silicon in November 2021. As GCL Technology's first modular granular silicon project, the successful implementation of its production capacity made the market optimistic about the subsequent modular expansion project for granulated silicon production capacity at bases such as Xuzhou, Leshan, and Baotou in China. It is expected that competitive advantage will continue to be unleashed, driving its gross margin to continue to rise.
Save energy and reduce emissions to meet carbon neutrality policies
The silicon industry is highly concentrated, and related technology and resources are controlled by leading companies. GCL Technology (03800.HK), Tongwei Co., Ltd. (600438.SH), and Xinte Energy (01799.HK) have a similar market share, close to 14%. Daquan Energy (688303.SH) ranked fourth with a market share of 12%. CR4 (total market share of the big four companies) reached 54%. GCL Technology has been deeply involved in silane fluidized bed (FBR) technology for ten years. As the only enterprise in China that has fully mastered the FBR method, it has a great advantage in controlling the production cost of silicon materials. Specifically, it currently has an advantage in power consumption, water consumption, and fuel consumption. According to reports, at present, the FBR method currently consumes only 18 degrees of electricity to produce 1 kg of granulated silicon, while using the Siemens method to produce 1 kg of granulated silicon requires 60 degrees of electricity. In terms of water consumption and fuel consumption, the FBR method can separately reduce water consumption by 30% and fuel consumption by 42% compared to the Siemens method. Furthermore, in terms of carbon emissions, the FBR method for 1 GW polycrystalline silicon materials can reduce carbon dioxide emissions by at least 130,000 mA compared to the Siemens method. Among the leading manufacturers, only GCL Technology has deep FBR granular silicon technology. Tongwei Co., Ltd. (600438.SH), Xinte Energy (01799.HK), and Daquan Energy (688303.SH) have all adopted improved Siemens technology. GCL Technology has a pioneer advantage and extensive R&D layout in granular silicon technology, helping it maintain its position as a technology driver and drive global energy transformation.
Inferiority
The risk of changes in PV policies
As a strategic emerging industry, the photovoltaic industry has benefited from the promotion of the National 14th Five-Year Plan industrial policy and has received vigorous supplementary support from the government. It is worth noting that the goal of the China National Development and Reform Commission is to accelerate the technological development of the photovoltaic energy industry, thereby reducing development costs. However, when electricity prices for photovoltaic energy will soon be lowered to the level of coal-fired energy, it is expected that government subsidies to the photovoltaic energy industry will continue to decline. As a leader in the industry, GCL Technology obtained a government supplement of 106 million yuan (yuan, same below) in 2021. In 2020, this supplement reached 120 million yuan, a decrease of 11.66%. It is expected that related supplements will gradually decrease. Furthermore, on September 11, 2021, the PV industry is greatly affected by policy fluctuations. On September 11, 2021, the National Development and Reform Commission issued the “Plan to Improve the Dual Control System for Energy Consumption Intensity and Total Volume”, which will strengthen control of high-energy consumption and high-emission items. Regions that have not met the basic goals and progress requirements for reducing energy consumption intensity will be loosely restricted to new high-energy consumption projects, and replace them by implementing equal energy consumption reductions. Regions that have completed the dual energy consumption control target will be rationally controlled. The crystalline silicon refining process consumes a large amount of electricity, up to 72% of the total energy consumption. Although GCL Technology's exclusive FBR granular silicon technology currently consumes only 18 degrees of electricity to produce 1 kg of granulated silicon, considering that the industry still uses the improved Siemens Craft Method, which consumes relatively large amounts of electricity, it is not ruled out whether the production of photovoltaic polycrystalline silicon will be included in the scope of supervision of dual energy consumption control. In other words, changes in photovoltaic policies or curb the release of production capacity in the photovoltaic industry will further hamper the future development of Co-Tech.
GCL's revenue is closely related to the price of silicon materials. On June 1, 2018, China's Ministry of National Reform, the Ministry of Finance, and the National Energy Administration jointly issued the “Notice on Matters Relating to Photovoltaic Power Generation in 2018", which emphasized speeding up the promotion of photovoltaic power generation and reducing the intensity of lamination. The average selling price of silicon wafers and polysilicon products declined sharply. In the same year, GCL Technology's net profit fell from 2,351 million yuan in 2017 to -458 million yuan. Since 2018, the company has recorded losses for three years in a row. Therefore, the company initiated strategic adjustments and gradually sold photovoltaic power plants. The focus of business tended to be on the photovoltaic polycrystalline silicon material business. According to reports, from 2018 to 2020, GCL Technology sold a total of about 3.338 GW of photovoltaic power plants, with a total recovered cash flow of about 6.084 billion yuan. By the end of 2020, the share of the company's polysilicon business had soared from 3.22% in 2017 to 15.09% in 2020. However, polysilicon prices during the same period were historically low, and the business contributed only 2,325 billion yuan in revenue. Since 2021, the price of silicon materials has been increasing in a cyclical manner. On July 6 of this year, the latest price of solar polysilicon issued by the Silicon Industry Branch of the China Nonferrous Metals Industry Association showed that monocrystalline compound feed was 288,000 yuan per square meter and around 300,000 yuan per kilogram, which means that the price of polysilicon reported in July this year had reached 300 yuan per kilogram, returning to the high level of 10 years ago. GCL Technology turned a profit in 2021. It is expected that in a situation where silicon resources are scarce and prices are high, the company's performance in 2022 will usher in a new explosion. However, it is uncertain whether the industry can continue to be booming. It is not ruled out that the government may later introduce relevant policies to supervise and suppress related prices, and suggest prudent investment.
Investment recommendations
Optimistic about GCL Technology's position as a leader in the polysilicon industry in China, it gave GCL Technology a “superior to the market” rating for the first time, with a target price of 4.5 yuan. It is estimated that the company's net profit for 2022-2024 will be 6 billion yuan, 6.975 billion yuan, and 7.8 billion yuan, an increase of 18%, 16.25%, and 12% year-on-year; it is recommended to buy at bargain prices and hold for a long time.