改善供需和創(chuàng)新

1、蠡 UBSoGlobal Research14 June 2019China Solar SectorUBS Solar Corporate Day 2019 takeaways: improving supply/demand and innovationEquitiesChinaUtilitiesTwelve corporates and 34 institutional investors attended our eventWe held the UBS Solar Corporate Day 2019 on 4/5 June in Shanghai to coincide with

2、SNEC, the worlds largest solar expo. We invited management of 12 firms covering major segments of the solar value chain. Guests included two CEOs, five CFOs and seven board secretaries and VPs from firms involved in polysilicon (Tongwei, GCL-Poly, Wacker Chemie, Daqo), wafers (Longi), cells/modules

3、(Jinko, Canadian Solar, GCL System Integration), solar glass (Xinyi, Flat Glass), inverters (Sungrow) and solar manufacturing equipment (Meyer Burger). About 34 institutional investors from around the world attended.Alex LiuAnalyst +86-213-866 8857Freda ZhuAnalyst +86-213-866 8879Takeaway 1: supply/

4、demand improving; H2 segment price hike potential1) Corporates had fairly uniform forecasts of 2019 global solar demand at 120-130GW (c40GW contribution from China) in contrast to the divided views previously. 2) Most expect more balanced supply/demand in H2 as domestic demand kicks in (mostly in Au

5、g-Dec) with some segments such as solar glass, polysilicon and mono-wafers possibly hiking prices amid tight supply. 3) The majority think minor product ASP hikes will not delay grid parity as: a) grid parity is a reality in most countries with solar generation sometimes much cheaper than other gene

6、ration sources; b) higher conversion efficiency, driven by technological advances, could significantly dilute ex-module Balance of System costs. 4) Tier-1 module makers have locked in pricing and volume on c80% of orders this year and only some output remains for domestic buyers.Takeaway 2: innovati

7、on ongoing, but S-T value chain disruption unlikely1) R&D continues to rise in the solar value chain. Besides technologies in widespread use like PERC, double-sided/double-glazing and shingled design, other next-gen technologies such as Heterojunction cells (HJT), TOPCon and perovskites could in the

8、 view of most corporates raise the upper limits of conversion efficiency and thus trim cost per kWh. 2) However, most corporates do not expect new tech to disrupt the value chain soon: a) next-gen technology is mostly still in R&D and at least three years away from mass production; b) new technologi

9、es are mostly still silicon based; c) firms lack motivation to replace production lines, as recouping investment in current-gen technology (represented by PERC) will take another three to five years.We prefer solar glass, wafers and polysilicon in the value chainGCL-Poly, Longi and Xinyi are our top

10、 picks.This report has been prepared by UBS Securities Co. Limited. This is a translation of a Chinese research note published by UBS Securities Co Ltd on 14 June 2019. ANALYST CERTIFICATION AND REQUIRED DISCLOSURES BEGIN ON PAGE 26. UBS does and seeks to do business with companies covered in its re

11、search reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report. Investors should consider this report as only a single factor in making their investment pany believes a sustained 15-20% margin level should support

12、 longterm development.CostsCosts are a bit lower in Vietnam, according to the company: operating costs are a little lower than in Anhui. On raw materials, good silica sand is available and is c30% cheaper than in China, and the electricity tariff is also 20-30% cheaper. Vietnam makes use of natural

13、gas and fuel oil, prices of which track crude oil. New capacity in Anhui mostly uses natural gas.Natural gas volume used in April grew 10% YoY (non-heating-season prices not adjusted downward). There was a 50-50 split between fuel oil and natural gas in 2018; currently fuel oil usage is up to70-80%.

14、According to the company, future production will skew towards thinner glass: double-sided/double-glazed 2.0mm.Flat Glass said it currently pays 20% more for natural gas than Xinyi.Double-sided/double-glazedDouble-sided and double-glazed products amount to under 20% of YTD shipments. The company feel

15、s double-glazed penetration could improve in H2 as domestic demand bounces back, but supply growth is minimal.Flat Glass noted that double-glazed products made up a low percentage of overseas shipments, as overseas customers were slower to welcome new developments.2.5mm glass is under 10% of shipmen

16、ts; 3.2mm is still the mainstream.Production yieldsYield rate is 85% for Anhui and 80% for Jiaxing, according to the company.PerovskitesPerovskites uses ultra-white float glass. Flat Glass has capacity that can meet this need. Production units use a completely different molding process, with pattern

17、 calendaring (non-transparent); more visible light is required. The company thinks promotion of perovskites needs more time.Need for capacity expansion financingAccording to the company:Unit capex: 1,000t/d - Rmb800m (China); construction and building costs would be a little higher for portside cons

18、truction in Vietnam, given land prices and engineering factors.2019/20/21 capex planned at Rmb1bn/1bn/800m; fund the two 1,200t/d lines in Anhui, China, through convertible bond issuance, while Vietnam capacity will be financed with reinvested earnings and rolling loans.Wacker Chemie (WCHG.DE, not r

19、ated)Polysilicon qualityView on poly S&D in upcoming quarters, considering many large poly makers are adding new capacity in China: According to the company, demand has picked up domestically in a clearer policy environment. New growth would not change the supply-demand picture, given longstanding o

20、vercapacity. However, makers of high-purity polysilicon are benefitting from a multi- to mono- transition in the solar market. There is strong market demand for mono-grade polysilicon from P-type PERC and N-type, and more advanced HJT. New plants in China take 3-5 months to reach the purity needed f

21、or mono products. Wacker remains confident about the loyalty of suppliers and customers.View on blending multi-/mono-grade polysilicon, a cost-cutting measure used by some firms: Wacker thinks robust mono demand is driving customers to higher quality polysilicon, a situation that benefits the compan

22、y. The reason for multi losing market share is mainly due to use of increasingly lower-grade poly by firms, which has led to less efficient products. As the market moves toward mono, Wacker thinks producers will be unlikely to repeat the mistake of chasing low-cost polysilicon in view of efficiency

23、bottlenecks.Reasons for quality gap between domestic/overseas poly makers: the company attributes the gap to a refined process, basic analytics and experience. Once a certain purity level is reached, maintaining that level over the long run is tough.View on slowing the poly manufacturing process to

24、lift purity: quality and speed are unrelated, in the companys view, and slowing the process can actually introduce impurities. After crushing the polysilicon, processing is needed to remove impurities and manage the quality.View on poly makers catching up to Wacker on quality: the company sees many

25、Chinese players closing the gap between quality and cost; the one that can catch up to Wackers quality is not necessarily the player with the largest capacity expansion. The company notes Chinese players are honing their technology and have good teams and thus could reach a high quality level eventu

26、ally.Capacity expansion plan and import substitutionOn expanding capacity via M&A with a low-cost Chinese player: the company said it has 80,000t of capacity now and no expansion planned; acquiring capacity is unlikely. It did not rule out the possibility if demand is particularly strong, but is not

27、 currently considering it. If it were to make an acquisition in China, Wacker is confident of building the target into a low-cost, high-grade producer.High-purity polysilicon capacity: the company said there are about 200,000t worth of high-purity players, but it is hard to judge whether there is ov

28、ercapacity for high-purity players subject to demand. Wacker can produce semi-grade product and outputting 100% mono-type is not a problem.Whether there has been an import percentage change from downstream clients: Wacker believes it remains the main supplier of Chinese wafer producers and notes no

29、drop in procurement volume.Whether polysilicon faces threats from revolutionary technology: the company views FBR granular polysilicon as uncompetitive. Granular poly is very difficult to make into mono wafers due to its low purity after exposure to air. Meanwhile, FBR is losing market share over te

30、chnical issues, even as mono takes share in the solar market. Longi will leverage some FBR to reduce overall wafer cost, adding some granular poly on polysilicon edges. However, there are no real quantities of granular poly on the market for now.Polysilicon ASP trendAccording to the company, whether

31、 capacity coming online in 2019 can fully ramp up remains an issue. Prices could find support from stronger demand in H2. Solar power costs in some regions are already within US$0.02-0.03/kWh from grid parity, which could also be achieved with the help of energy storage.CostsPath to further cost red

32、uctions: the company said it could lower overall investment in polysilicon, with no new capex/investment plans, and would reduce energy usage/labour/raw materials (micro silica, etc) and increase maintenance efficiency to achieve cost savings.Expected long-term cash costs: With polysilicon, Wacker f

33、eels quality takes priority over cost. It estimates cash costs will fall 30% over 2017-21. Downward cost pressure should be mild as many countries have achieved grid parity. Demand is mainly driven by Europe (2019 installation: 16- 18GW) and regions such as South America and India where grid parity

34、has arrived.EfficiencyUpdate and utilization rate on US capacity halted after 2017 accident: Tennessee capacity (20,000t) came back online in April 2018 and is fully ramped up.Trade tensions impact on the solar sector: the company thinks German players are set to benefit from Chinas retaliatory tari

35、ffs on US polysilicon and the end of MIPs in Europe. Tariffs are very high, and any further increases from here might not matter much. Also, many Chinese players have set up overseas plants to sidestep the tariffs.Price strategiesAccording to the company:Pricing strategy: Wacker will maintain its cu

36、rrent price levels and not peg them to market competition. High-quality poly commands a premium to domestic pricing on superior price-performance ratio of the end product, modules.Spot/contract proportions: undisclosed. Contracts usually lock in price and volume, spot only locks in volume.Daqo New E

37、nergy (DQ.O, not rated)Polysilicon quality; import substitutionPremium and price difference regarding imported polysilicon: Wackers supply contracts with Zhonghuan are long-term and therefore carry premiums, though they differ little from prevailing cash prices. Daqo (DQ) is the only N-type mono sup

38、plier in China, and it rivals Wacker in the quality of such mono. Wackers bottom-line sustainability depends on the decoupling of its EBITDA from contract premiums. If EBITDA remains negative despite premiums, then cancellation of premium-carrying longterm contracts could hurt Wackers profit more se

39、verely. As for polysilicon for mono wafer use, prices barely vary among Chinese makers.Has China fully achieved import substitution regarding polysilicon for mono use? High-quality polysilicon for mono use remains in short supply. Few polysilicon capacity launches are for mono. It takes time for new

40、 plants to achieve high-quality polysilicon for mono use, due to factors including staffing and product testing. Overall, if Wacker and OCI do not participate, supply of polysilicon for mono use will be tight, although the company expects Wacker and OCI to remain in the market in 2019-20.Polysilicon

41、 supply/demand dynamicsGlobal solar demand: DQ forecasts 123-138GW in 2019; 146-165GWin 2020. This implies polysilicon demand of 410,000-460,000 tonnes (tier-1 capacity expected to be 250,000-270,000 tonnes) in 2019; and 470,000- 540,000 tonnes in 2020.Capacity ramp-up at polysilicon producers: DQ:

42、35,000 tonnes (already full capacity); Xinte: 36,000 tonnes (ramp-up lasting till October); Tongwei: 25,000 tonnes (in Baotou; under suspension); and East Hope: 2,000 tonnes (monthly output; mainly polysilicon for multi wafer use).With few capacity launches for 2020, polysilicon prices are more like

43、ly to rise. Globally, demand will be steady and capacity launches will be moderate, pointing to more stable profitability.Capacity expansion plansDQ has capacity of 35,000 tonnes now. The 4A projects capacity (35,000 tonnes) is scheduled for completion by the end of 2019 and for operation by Q120. M

44、ono demand can be met with 85-90% of the capacity, while N-type mono cell demand can be satisfied with c40%.There are no further capacity expansion plans for now. DQ expects to have a market share of 15% by 2020 and to remain at a similar level in the long term. Production may take place in more tha

45、n one area, according to the company.Production facilities are running at full capacity, according to the company. The company says it carries out technical modification and maintenance at the end of each month; a major maintenance will be carried out in Q3.Polysilicon ASP trendsIn the short term, p

46、rices will see support, as Wacker cannot pull out of the market immediately: 1) Zhonghuan/Longi still depend on supply from Wacker/OCI; 2) While Wacker/OCI are marginal-cost players (their cost tolerance determines market prices), DQ isa price-follower.Polysilicon prices still have room to rise. The

47、y could hit Rmb80-90/kg if demand is strong in H2. However, prices of polysilicon for mono use are less likely to rise to US$12-13/kg.The company estimates Wacker st川 has an EBITDA of 15% (its cash cost of US$10.5-11.0/kg breaks even).Will polysilicon be the segment to reduce its profitability given

48、 further cost reduction target over the supply chain? This year mono supply remains in structural shortage. Profits across the value chain are still sizeable (including cells/modules). End-market mono demand is less price-sensitive, pointing to room for price hikes. Price cuts are achievable across

49、the value chain through improving module efficiency or lowering prices of high- margin EVA/glass (instead of lower-margin polysilicon).Gross margin to be steady in the long termDQ states that, assuming prices of US$10/kg and costs of US$6.5/kg, then the 4A project will deliver gross margin of 25-35%

50、 after its launch. DQ says GPM level could reach 30-35%, albeit subject to market conditions.CostDQ estimates that, when capacity of 70,000 tonnes runs at full utilization by 2020, production cost will fall to US$6.8/kg from US$7.5/kg, and cash cost to US$5.6/kg from US$6.2/kg. The company expects t

51、he 4A project to be built in October-November 2019 and to complete capacity ramp-up in 3-4 months.DQ expects production cost will fall at a lower rate to US$5.3-5.5/kg, nearing the low end of the cost range under the modified Siemens Process.DQ expects costs will decline after the 4A project launche

52、s: 1) the contracted power tariff for its Shihezi-based polysilicon plant will fall to RmbO.2/kWh from Rmb0.24, on a tax-inclusive basis. The new tariff will be constant for 10 years with no additional conditions. 2) Economies of scale lower labour cost. The labour cost ratio, at 10% now, still has

53、room to decline. A limited talent pool but diversified geographical coverage could add to operational risk.CompetitionThe company expect six main polysilicon producers to have a combined market share of 80-90%. East Hope is committed to the low-end market segment. The rest will eventually pull out.B

54、arriers to entry for new capacity expansion: 1. investment (Rmb3-4bn); 2) production cost/high uncertainty regarding quality; and 3) equipment design divergence.According to the company, in Q119, tier-1 players had a gross margin of c20%. The next round of capacity expansion could come earlier as: 1

55、) industry profitability is attractive; and 2) 4-5 existing players have easier access in expansion, in addition to their advantages in technical staff/teams. However, the next round will not be as aggressive as this one. Ideally, DQ expects to see new capacity of 60,000-100,000 tonnes annually, whi

56、ch requires at least three poly players to expand capacity. DQ states that that is achievable as long as new launches are not concentrated and in good order. Though producers have motivations to expand capacity and it is hard for them to achieve consistency in expansion pace, they are becoming incre

57、asingly sensible in terms of future capacity expansion.OperationAccording to the company,Inventory: DQ stated that it had an inventory of one week vs the industry level of 1 month. There is no stock-up at customers, which are willing to purchase as prices rise.Payables: Raw materials, equipment and

58、construction are at normal levels.Currently, 60% of DQs orders are long-term-mainly from Longi andJinko. While locking up volume, such contracts allow floating prices.Income tax rate is 15%. Effective tax rate is 12-13% (excluding R&D). VAT-based price adjustments have a limited impact, as they are

59、passed on to end-customers.Capex and financingAccording to the company,The 4A project features continuing capex: an advance of US$60m in 2018; US$150m for equipment in 2019;US$100m forcommissioning/warranty in 2020. The projects capex totals US$450m, with 60-70% for equipment and the rest for constr

60、uction/building.Unit capex: Rmb1 bn/10,000 tonnes for new production lines, with limited downside.DQ said it has obtained Rmblbn in loans, sufficient to cover the 4A project (namely, the 35,000-tonne capacity expansion). DQ does not rule out the possibility to list on the Tech & Innovation Board, su