The Zhitong Finance app learned that CITIC Construction Investment released a research report saying that the photovoltaic sector continued to decline in the early period. The market has already declined in price or even drastically declined in terms of 2024 performance trends, but it is still difficult to say how much difference there is between the expectations included in the stock price and the bottom of the facts. The core of subsequent sector trends depends on when and where the profit level of the industrial chain bottoms out. The bank believes that the above moment will occur in 24Q1. As the profit center of the industrial chain shifts down and the financing environment tightens, it can be seen that the expansion of production in some links has clearly slowed down. In 2024, the photovoltaic industry chain will enter the integration stage, and the leading market share is expected to increase.

The main views of CITIC Construction Investment are as follows:

The industrial chain will go through the inventory removal stage before the end of the year, and the fundamentals of the industry are expected to bottom out in Q1 in '24

After entering Q4, we believe that the industry is about to enter an inventory removal cycle. On the one hand, the installation speed slows down after Europe and the US enter the Christmas holidays in December. On the other hand, due to the high probability of the 24Q1 off-season, 23Q4 component companies will tend to reduce production and inventory delivery. The production schedule for silicon materials and silicon wafers increased from September to October this year, and there is currently a certain amount of inventory pressure on the silicon wafer sector. We expect that by the end of December, during the process of removing inventory from the industry, the price and profit level of the industrial chain will gradually bottom out, as reflected in the bottom of the fundamentals of the reporting terminal, which is expected to appear in 24Q1. After Q2, as industry demand increases, the industrial chain is expected to show a steady trend of volume increases and prices.

Although fundamentals are in a downward cycle, valuations have been drastically adjusted, and the subsequent interpretation of fundamentals is likely to be better than expected

Judging from the current stock price position (based on the market capitalization of the relevant company /20 or market capitalization /15), the current expectations included in the stock prices of most companies may be a sharp decline in 2024 performance (or even lower), because in the process of declining industrial chain prices in 2023, most terminal product category performance included large one-time factors (factors such as reduced raw material prices and high end product orders), so valuation pricing is greatly biased. It is expected that in 2024, after these one-time factors are eliminated, valuations will return to a normal position (15-20x), we think 2024 After the bottom profit of the Q1 industry is established, sector valuations are expected to be repaired to a certain extent, and the fundamentals will be better than expected.

Production expansion in some areas has slowed, and the market share of leading companies is expected to continue to increase in 2024

Since this year, the scale of capital expenditure for silicon materials and silicon wafers upstream in the photovoltaic industry chain has declined markedly in a single quarter, while capital expenditure on plastic film, glass, etc. where profits continue to be low is already at a low level. Currently, only batteries and integration are on a large scale of capital expenditure due to technological iterations involved. Judging from our statistics, some of the expansion projects announced in the silicon, silicon wafer, and battery sectors in the past 2 years have fallen far short of expectations or have clearly not expanded production. Therefore, against the backdrop of a decline in the industry's profit center, the willingness of enterprises to expand production has declined markedly. Furthermore, the Securities Regulatory Commission previously tightened refinancing and IPOs, and after the financing environment tightens, the hematopoietic capacity of enterprises themselves will become even more important. We expect that in 2024, leading photovoltaic companies will rely on their advantages in terms of profitability and management capabilities to continue to increase their market share, and industry concentration is expected to increase.