Finding opportunities in a year of consolidation
- Early stages of solar industry consolidation as oversupply persists
- Exit of weaker players will help stabilize solar ASP
- Government policies to accelerate market consolidation as a major share price catalyst
- Flat Glass Group (6865 HK) as sector top pick given relatively less competitive industry landscape
Early stages of industry consolidation as oversupply persists. China’s renewable sector is facing slowing demand growth and rapid increases in production capacity, especially in solar. We expect installation demand growth to moderate significantly in 2024/25. For solar, the rapid increase in polysilicon production has led to falling prices throughout the value chain. Besides overcapacity, solar module makers are facing an added risk of technological disruption. Stiff competition should also continue to cap wind turbine ASP.
Exit of weaker players may help stabilize ASP. We expect product ASP to be the main share price driver in 2024/25. However, ASP is only likely to rebound upon a substantial change in the oversupply situation. While in early stages, government policies such as the development in industrial clusters may intensify competition, especially among solar players. We may start to see weaker solar players exit in 1H24, and the pace could accelerate in 2H24. Key signs of an inflection point in solar component ASP include cancellation/delay of expansion plans, asset sales, debt defaults, and/or bankruptcy of weaker players.
Solar glass – a silver lining. We have turned more cautious on the solar midstream names. However, in our view, solar glass names have been unfairly punished by the recent selloff. The solar glass segment is less competitive compared to upstream and midstream solar. Flat Glass Group (FGG) is our preferred solar name to participate in long-term solar installation growth.