隆基股份(601012)

SUMMARY. We have met with LONGi’s management recently to discuss the Company and solar sector outlook in FY19/20E. Overall, we are optimistic on LONGi’s expansion strategy backed by 1) stably increasing mono-PERC product demand from the overseas market, 2) cost leadership led by advanced mono-Si growing and diamond wire saw technology combo, and 3) demand recovery in China market which will likely boost ASP in 2H19E.

World’s largest mono-crystalline product manufacturer. LONGi has more than 19 years’ experience specialized in producing mono-Si solar wafer, cells and high-efficient modules. The Company is now the largest mono-crystalline product supplier in the world. Mgmt. believed mono-PERC product is the most suitable high-efficient PV product offering high photoelectric conversion potential in the grid-parity era. By 1Q19, LONGi mono-cell products offeredup to 22%+ efficiency during mass production, leading PV peers in China.

Technology advancement and cost leadership build the key edges.LONGi was the first to achieve a breakthrough adopting diamond wire saw cutting for mono-Si rod. Together with unique mono-Si growing technologies supported by localized equipment, LONGi had successfully built up cost leadership in mono-wafer production, which kicked off a trend in replacing multi-wafer and meeting high-efficient PV module demand since 2017. LONGi recorded 1Q19 GPM of 23.5%, and mgmt. expected GPM to further improve with lower Poly-Si costs and cost reduction measures in 2Q19E.

Market potential and expansion strategies. LONGi placed key module sales focus on the overseas market, in view of short-term policy uncertainties in China. Mgmt. expected global PV installation to reach 120GW in 2019, and shared optimistic market outlook in Europe, after EU ends anti-dumping and anti-subsidy measures. To capture future growth, LONGi targets to expand mono-wafer capacity to 65GW by end-2021, representing FY18-21E capacity CAGR of 32.4%.

Valuation is still attractive on long term growth prospects. Trading at 21.1x/16.6x FY19/20E P/E, LONGi has no significant valuation premium comparing to peers. Given its leading market position as well as rapid capacity expansion with profitable margin, we believe there is still upside on both earnings and valuation.