CSC: The new energy industry experienced a slow season in January and February, and is gradually recovering with the seasonal demand picking up.

Zhitong App learned that CSC has released a research report stating, "March, the season of recovery." The new energy industry experienced a slow season in January and February, and is gradually recovering with the repair of seasonal demand. In March, overall production of photovoltaic modules increased by over 40% MoM, with leading companies growing by at least 50% MoM. In March, as downstream demand for lithium batteries warmed up, top companies are expected to achieve a 50% MoM growth in production. The market has also recovered from the sentiment of only buying on the rise. In the last week of February, the new energy sector collectively rebounded, and the valuations of many segments may have already recovered. In the future, there will be fundamental support from sectors such as the N-type industry chain in photovoltaics, the midstream and upstream sectors related to lithium batteries and lithium ore, as well as aggressive directions like offshore wind and hydrogen energy.

▍Key points from CSC:

In March, the overall production of photovoltaic modules increased by over 40% MoM, with leading companies growing by at least 50% MoM.

The high MoM growth rate in March is not only due to the low base in February but also due to demand exceeding expectations. After a six-month destocking period, European component inventory has now decreased to a low level. Coupled with Europe entering a peak season, demand is gradually picking up. In the Indian market, after the price reduction of components, the cost-effectiveness of imported components has improved, leading to increased demand. Post-holiday resumption of work in China has also gradually started bidding and installation. The supply-demand structure of N-type is relatively tight, and profitability of TOPCon cells is expected to recover. The penetration rate of TOPCon cells in the end market has exceeded 80%, while the supply side penetration rate is only around 60%. With the rapid increase in component production, the supply-demand structure of N-type cells (especially TOPCon) is expected to be relatively tight, and the price of TOPCon cells is expected to remain firm. Short-term inventory pressure on silicon wafers will increase, and after the price reduction, the profit margin of TOPCon cells will increase.

Regarding lithium batteries, in March, with the recovery of downstream demand, leading companies are expected to achieve a 50% MoM growth in production, with some companies growing even faster, returning to the levels of January or even higher.

It is expected that battery production will increase by +75% MoM, positive electrode by +61% MoM, negative electrode by +43% MoM, electrolyte by +67% MoM, and separator by +25% MoM. The main reasons include: 1) Production in February decreased by 8%-22% MoM, reaching a low point for the year; 2) With the arrival of the peak season for the automotive market in March, many car companies have launched hot-selling models with price promotions, as well as new iterations of models; 3) Stimulated by policies such as equipment upgrades and trade-ins, the passenger and commercial vehicle markets have been boosted.

It is expected that in March, sales will rise to 850,000 units, up by 63% MoM, reaching the levels of August-September 2023 (slightly better than the recovery rate of the same period in 2023).

It is expected that in Q1 2024, the overall domestic sales of electric vehicles will reach 2.1 million units, up by 32% YoY, down by 34% QoQ, with an annual sales expectation of 11.41 million units, up by 21% YoY.

Selected alphas in the recovery of new energy:

Photovoltaic N-type industry chain: Recovery in end-market sentiment will drive the profitability of TOPCon cells. Bullish on TOPCon component leaders, and optimistic about the direction of TOPon upgrade-related materials; Carbonate lithium and positive electrode segments in the lithium price rebound. Analysis Report

We are optimistic about leading companies with clear bottom-line performance in Q1. Once the unit profit in Q1 is clear, the valuation will have elasticity. We are bullish on hydrogen energy and offshore wind power.

Risk Warning

1. Weaker-than-expected downstream demand: Sales may be affected by weak demand, while production may be impacted by significant fluctuations in upstream raw material prices and repeated power restrictions, affecting the company's shipment volume and profitability.

2. Intensified industry competition leading to a decline in the profitability of the industrial chain: Currently, the industrial chain has a large planned production capacity. Against the backdrop of a slowdown in industry demand growth, there is a risk of a decline in the profitability of the industrial chain after a surge in supply.

3. Delayed progress in key projects of recommended companies: The progress of key projects is crucial to supporting revenue and profits, reflecting the company's growth prospects. Any delays in key project progress may affect both current and future performance.