China Clean Energy_ 3Q22 results wrap_ 4Q22 solar_ESS demand to pick up on poly price moderation, Offshore wind to accelerate...(1)

Our covered companies have reported mixed 3Q22 results with generally decent shipments but diverging margin trends. Solar: Among our Solar coverage, we note that poly makers recorded the highest earnings growth in 3Q22, on the back of higher poly ASP (up 11% in 3Q22). Module makers saw margin pressure from higher poly costs. Solar Glass and EVA film makers suffered from lower ASP. Among Wind: our Wind coverage, we note that Submarine Cable and Casting markers recorded sequentially improved gross margin in 3Q22 on the back of better product mix and effective cost reduction initiatives. While Turbine and Bearing makers recorded sequentially weaker gross margin, due to lower auction price and product mix. Operator’s margin also suffered on lower wind utilization hours. 4Q22 solar demand to pick up on lower poly price. Most management teams expect a more positive demand outlook for 4Q22 on the back of potential poly price moderation. As we started to see some price moderation from smaller poly players in Oct-end, we expect to see more moderation in Dec as new capacity ramps up (we expect to see c.100k ton new poly capacity to start commissioning in 4Q22, which should result in total poly capacity in China reaching 1.08mn tons by year-end 2022). We expect this potential poly price moderation to drive downstream demand, especially utility scale solar installation, along with utility scale ESS. We expect China to see c.27GW solar installation 4Q22, up 26% qoq. ESS strong momentum to continue. 3Q global ESS demand remains strong, mainly driven by the EU, driving leading players such as Sungrow’s, strong 3Q22 revenue growth (up 39% yoy and 29% qoq) and margin improvement. Sungrow remains positive on ESS shipments in 4Q22 and 2023, with growth driven by utility scale ESS in US and residential ESS in EU. The company maintained its target to ship over 20 GWh ESS systems (including 1mn units of residential ESS) in 2023E (up 130% yoy). We expect ESS momentum strength to continue on the back of high energy prices and energy supply security concerns globally, especially for EU demand. As we highlighted in our report, China Clean Technology: Energy Storage: Rising EU power price to accelerate energy storage demand; Buy Sungrow (on CL), high energy prices are a key driver for robust demand for rooftop solar and energy storage installation in the EU. We expect global ESS battery demand to see 85% yoy growth in 2022E. According to the China Industrial Association of Power Sources, newly installed electrochemical energy storage (connect to grid) in China reached Chao Ji +86(21)2401-8936 chao.ji@gsgh.cn | Beijing Gao Hua Securities Company Limited Chelsea Zhai, CFA +86(21)2401-8679 | chelsea.zhai@gsgh.cn Beijing Gao Hua Securities Company Limited Yawen Wang +86(21)2401-8779 | yawen.x.wang@gsgh.cn Beijing Gao Hua Securities Company LimitedChina Clean Energy: 3Q22 results wrap: 4Q22 solar/ESS demand to pick up on poly price moderation, Offshore wind to accelerate grow