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Arise Knights of HIT Equipment
  • 2020-06-24 13:09:14
  • 浏览:1595
  • 来自:申万

Solar Industry: Sector outlook

Analyst:Yu WenJun

A0230513070005 

yuwj@swsresearch.com

Contact:Chen Chuyao

chency@swsresearch.com

In our last in-depth solar industry research (New Era – HIT is booming, published on 2020/05/11), we discussed the advantages of HIT (Heterojunction Intrinsic c/w Thin Film) technology, the route of its efficiency enhancement and cost reductions, and the potential beneficiaries of this round of technology innovations. In this report, we focus on equipment manufacturers. By investigating the history of Applied Materials (AMAT.O – Not Rated), the largest semiconductor manufacturer globally, and the history of PERC (Passivated Emitter and Rear Contact) technology application, we conclude that equipment manufacturers will benefit from this round of technology innovations at the very beginning and we believe Maxwell technologies (300751.SZ – Not Rated) deserves special attention.

For equipment manufacturers, while entering the sectors with most great potential at the right time is the prerequisite of the success, investing in R&D to build its own technology advantage is the key. Applied Materials, the global leading semiconductor manufacturer, was established in 1967 when the semiconductor industry was at its early stage. In 1992, the company realized revenue of US$750mn and became the largest semiconductor manufacturer in the world ever since, while the market size of the semiconductor industry (measured by sales revenue) has grown from US$2.88bn in 1976 to US$413.03bn in 2019 with 44-year-CAGR of 12%. Throughout 50 years, the company focused on semiconductor equipment such as chemical vapor deposition (CVD) and physical vapor deposition (PVD), and built its moat with advanced technology, exclusive patents and sufficient funds. 

For each round of technology innovations, equipment manufacturers benefited at the very beginning given the new technology barrier. We examined the history of PERC technology application by using the Hype Cycle Research Methodology developed by Gartner and divided PERC technology’s life cycle into five key phases: innovation trigger (1980-2000), peak of inflated expectations (around 2009), trough of disillusionment (2011-2012), slope of enlightenment (2013-2014) and plateau of productivity (since 2015). We conclude that there are four factors of the large-scale applications of PERC technology: cell performance breakthrough, cost effectiveness, mass production equipment and industrial maturity. Following such experiences, we have mapped out the route of HIT technology and we believe 2020 would be Ground Zero for HIT commercialization. Given that HIT capacity would reach 5GW and 20GW in 2020 and 2021 respectively, and that the domestic Turnkey cost would decline from Rmb400-500mn/GW in 2Q20 to Rmb300mn/GW in 1H21, we expect the market size of HIT equipment would reach Rmb2.25bn in 2020 and Rmb6bn in 2021.

Our top picks. Maxwell technologies is the leader of mono/multi-Crystalline texturing equipment. The company realized revenue of Rmb1.44bn (+82.3% YoY) and net profit of Rmb247.5mn (+44.8% YoY) in 2019. The company also has plans in HIT technology. Based on our channel checks, the company has successfully developed its own PECVD equipment and will start mass production soon. We estimate Maxwell market share would achieve 70% during this round of HIT technology innovation based on: 1) the history of P-PERC cell expansion and the market share of the equipment leader Meyer Burger by then (70% during the first round from 2015-2017Q3); 2) the market share of Maxwell technologies as Tier 1 manufacturer in the texturing process of P-PERC cell production (stabling at 70% since 2016); 3) Maxwell technologies leads the industry in the key PECVD equipment process by over 1 year. As the leader with advanced technology, sufficient funds and ample talents, we believe the company would benefit from this round of HIT technology innovations.

 投资要点:

在我们的上篇异质结深度报告中(HIT时代到来,2020/05/11),我们探讨了异质结技术的优势、降本增效的路径以及本轮电池技术更迭的潜在受益者。在本篇报告中,我们聚焦设备制造商。通过复盘应用材料(AMAT.O-未评级)和PERC技术的发展历程,我们认为设备生产商将成为本轮技术迭代的最先受益者。建议关注迈为股份(300751.SZ-未评级)。

对设备制造商而言,选择发展空间广阔的赛道、在合适的时机进行布局是成功的前提,积极投入研发创新、形成自身的技术优势是成功的关键。应用材料是全球最大的半导体设备供应商,公司成立于1967年,当时半导体行业处于发展初期。1992年,公司实现营收7.5亿美元,自此成为全球最大的半导体设备供应商。半导体行业的市场规模则从1976年的28.8亿美元增长至2019年的4130.3亿美元,44年的复合增速达12%。公司发展50余年,在半导体行业的沉积设备领域具有绝对优势,并且通过领先的技术优势、独家专利以及充足资金建立了自己的护城河。

技术迭代,设备先行。利用技术成熟度曲线复盘PERC技术商业化历程,我们将PERC技术发展过程划分为5个阶段:技术触发期(1980-2000),期望峰值期(2009年左右),泡沫幻灭期(2011-2012),稳步复苏期(2013-2014)以及商用成熟期(2015年之后)。我们认为PERC技术商用成熟的条件有:电池效率突破、成本下降、量产设备推出以及技术成熟。将此规律映射到HIT技术上,我们认为2020年将是HIT技术的商用元年。我们认为2020-2021年HIT产能将达到5GW和20GW,国产整线设备报价有望从2Q20的4-5亿元/GW下降至1H21的3亿元/GW,预计2020-2021年HIT整线设备的市场空间分别为22.5亿元和60亿元。

我们的选择。迈为股份(300751.SZ-未评级)是国内领先丝网印刷设备制造商。2019年公司实现营收14.4亿元(同比+82.3%),归母净利2.48亿元(同比+44.8%)。公司提前布局HIT技术,已成功研发PECVD设备并即将量产。我们预计迈为股份在本轮HIT技术迭代中将达到70%的市占率,基于:1) PERC前期扩张过程中设备龙头梅耶博格在2015-2017Q3的市占率达70%;2)迈为股份自2016年起其丝网印刷设备在增量市场的份额稳定在70%;3)本轮革新中迈为股份在关键设备PECVD领域领先其他国产厂商一年。作为设备制造商龙头,公司技术领先、资金充裕、人才储备充足,将首先受益于本轮HIT技术迭代,建议关注。

1、The History of Applied Materials (AMAT.O – Not Rated)

Headquartered in Santa Clara, CA, Applied Materials was established in 1967 and went public in 1972. In 1992, the company realized revenue of US$750mn and became the largest semiconductor manufacturer in the world ever since, while the market size of the semiconductor industry (measured by sales revenue) has grown from US$2.88bn in 1976 to US$413.03bn in 2019 with 44-year-CAGR of 11.5%. In fiscal 2019, the company generated revenue of US$14.61bn (-13% YoY), ranking first among all the semiconductor equipment manufacturers. On a GAAP basis, the company recorded gross margin of 43.7%, operating income of US$3.35bn and EPS of $2.86. As of 2Q20, the company has over 22,000 employees in 18 countries and 13,300 active patents. From 1972 to 2019, the company’s revenue grew at CAGR of 19%.

Figure 1: Revenue of Applied Materials grew at CAGR of 16.5% from 1987 to 2019

Source: Company filings, SWS Research

Throughout 50 years, the company is involved in the manufacture of systems that execute chemical vapor deposition (CVD), physical vapor deposition (PVD), epitaxial and polysilicon deposition, rapid thermal processing (RTP), plasma etching, electrochemical plating, ion implantation, metrology, and chemical mechanical planarization (CMP). The company also produces equipment that is used for mask pattern generation, as well as systems used to manufacture flat panel displays (FPDs). As of 2019, the three main segments contributed revenue are: semiconductor systems, applied global services and display and  adjacent markets, accounting for 62%, 26% and 11%, respectively. Major clients of the company are manufacturers of semiconductor chips, OLED displays and other electronic devices. Top clients are Samsung Electronics, TSMC, Intel and Micron Technology, which all account for over 10% of the company’s revenue.

Table 1: Major clients of the company from 2008-2018

Source: company filings, SWS Research

The core business of Applied Materials lies on the semiconductor system modules. The semiconductor manufacturing process can be divided into three steps: silicon wafer manufacturing, wafer manufacturing and testing. The equipment of wafer manufacturing accounts for most, around 70% among the whole value chain. Among all the wafer manufacturing equipment, lithography, etching and vapor deposition equipment are the key, accounting for 30%, 25% and 25% of the wafer manufacturing process (measured by Capex). The company leads in the sector of etching and vapor deposition equipment, with market share of 55% in the global PVD (Physical Vapor Deposition) market and 30% in the global CVD (Chemical Vapor Deposition) market.

The history of the semiconductor industry and applied materials can be divided into four stages: 1) 1967-1979, the industry was at its early stage and Applied Materials gained its competitive advantages and market share thanks to the labor division. 2) 1980-1996, the industry grew rapidly with expanding market size and there were three geographical industrial transfers. Applied Materials set offices around the world and kept investing in R&D to remain its technology advantages. 3) 1997-2013, the industry slowed and Applied Materials entered the pan-semiconductor market in an attempt to iron out cyclical fluctuations. 4) 2014-present, industry demand gradually picked while technology innovations slowed. The company began to seek new technological developments. 

1.1 1967-1979:Origins and Rapid Growth 

The semiconductor industry dated back to the invention of the first transistor in 1947. From 1957, the invention of integrated circuit (1960), the introduction of Moore's Law (1965) and the invention of the silicon epiaxial process (1966) made it possible for semiconductor commercialization. The semiconductor industry was therefore determined around early 70s and developed ever since. 

Since 1970, several well-known downstream device manufacturers such as Intel, Texas Instruments, IBM emerged. However, the semiconductor equipment market did not separate from those manufacturers during this time. In 1960s, most of the semiconductor equipment was directly developed by downstream manufacturers and then put into use. As the manufacturing process became more complex, the self-producing-equipment model became more capital intensive. Meanwhile, companies with a focus on equipment development gradually matured. In 1970s, the semiconductor equipment manufacturers separated from those downstream device manufacturers and formed an independent industry. 

Applied Materials was founded by Michael A. McNeilly in 1967. The company entered the chemical vapor deposition (CVD) market with the AMS 2600 Silox reactor in 1968. In 1971, the company launched its first commercial epitaxial reactor which improved deposition quality significantly, increased the production of devices and therefore expanded its market share. From 1967 to 1973, the company’s revenue grew at a pace of more than 40% annually, and its total market share of the semiconductor equipment industry reached 6.5%. With such rapid market expansion and such enviable financial success, the company went public in 1972. 

In 1974, its management decided to expand its business vertically by acquiring Galamar Industries, a manufacturer of silicon wafers. Such expansion to non-semiconductor areas required much capital and the company faced severe financial problems during 1975 to 1976. In 1977, James C. Morgan became president and chief executive officer. Mr. Morgan immediately shut down the unprofitable Galamar Industries, sold its share in the silicon manufacturing center, and concentrated on improving its area of expertise in the semiconductor industry. In 1978, Applied Materials reported an increase in sales of approximately 17%. 

1.2 1980-1996:Global expansion amid industry growth

During this period, the scale of integrated circuits developed from large-scale to ultra-large-scale. Downstream market experienced growth stimulated by home appliances (1980s) and by PCs (1990s). Market size of the semiconductor industry grew at CAGR of 10.2% from 1980 to 1996, the most rapid growth along its history. The whole value chain matured with the overall market size exceeding US$40bn in 1980s and reaching US$134bn in 1996. 

As the downstream demand boomed, the requirement of accuracy, technology and efficiency became the new challenges of the semiconductor equipment companies, meaning that the technology and capital barrier of the equipment industry became higher. More and more downstream device manufacturers outsourced their equipment business to specialized companies. The business model transited from IDM (Integrated Device Manufacture) Model to Fabless Model. The specialization and concentration of clients brought more opportunities to equipment manufacturers. During 1980 to 1990, the semiconductor equipment industry grew at CAGR of 20%. Top 10 companies accounted for 52% of market share. 

There were three geographical market shifts during this period:

Early 1980s: from United States to Japan. 

With the shift of semiconductor applications from commercial to residentials, Japan quickly realized the mass production of DRAM in 1980s and then attracted much capital to flow to the country, thanks to its lower production costs, technological accumulation in the home appliance industry and the tide of the PC industry. In 1986, Japan surpassed US and became the global largest IC manufacturer.

Early 1990s: from Japan to South Korea. 

In late 1980s, the semiconductor industry entered the era of ultra-large-scale integrated circuits. Clients wanted products that were more flexible to process information. Cost effectiveness replaced reliability to become the core competitiveness. South Korea took such an opportunity and attracted large outflows from Japan and US with its mature and advanced technology and lower labor cost. By purchasing technology, equipment, and building laboratories in the US, the semiconductor industry in Korea achieved 64K technology innovations within 4 years. 

Late 1990s: from South Korea to China

In late 1990s, China grew to the largest semiconductor consumption market in the world. More and more manufacturers set up factories and offices due to lower labor cost and ample resources. 

Applied Materials, during this period, expanded its global footprints in advance during geographical market shifts and focused on producing equipment with higher efficiency and accuracy. The company established Applied Materials Japan in 1979 and gained 80%-90% share of local market in late 1970s. In 1980s, the company opened offices in China, South Korea, and Europe. Now the company has offices all around the world.

1.3 1997-2013:expanded through M&A during industry fluctuations

During 1997-2013, the semiconductor industry was driven mainly by downstream PC demand. The industry grew at CAGR of 5% and the market size was between US$200-250bn. In 2001, the burst of the Internet Bubble resulted in a 32% decrease of the industry. In 2008, the demand shrank due to the financial crisis. However, the rise of Consumer Electronics and Automotive Electronics in 2004, the development of laptop market in 2007 and the demand pick-up after 2010 drove the industry to grow. 

Meanwhile, the business model of the industry changed from IDM model to vertical contract model. Under this model, the wafer foundry determines their production based on orders. When demand picks up, orders increase. Since it takes two months for wafer foundry to manufacture, the capacity is unlikely to increase instantly. Consequently, inventory became the driver of the industry. To mitigate the negative effects of cyclical fluctuations of the industry, it is effective to invest in pan-semiconductor industry which consists of semiconductor lighting (LEDs), semiconductor display (liquid crystal), semiconductor energy (photovoltaics) and semiconductor ICs (chips). 

During this period, the semiconductor equipment industry fluctuated significantly and the market size was between US$20-40mn. The market concentration increased from 64% in 2000 to 79% in 2007. 

During this period, Applied Materials entered pan-semiconductor industry by M&As to mitigate the revenue fluctuations. in 2008, the company acquired Baccini, marking its entry to the PV equipment industry. 

1.4 2013-present:seeking new technology developments

Since 2013, driven by strong demand from smartphones, big data, new energy and other emerging applications, demand of memory chips increased and the global semiconductor industry gradually restored growth. From 2013 to 2018, the market size of the semiconductor industry grew rapidly from US$303.34bn to US$413.03bn at a CAGR of 15.19%. Market concentration of the equipment industry further intensified and Top 10 companies accounted for 96.1% of market share. 

During this period, the company continued to invest in R&D and launch new products, remaining its technology advantages. For example, the company adopted CPC to solve complex quality control problems in wafer production with big data. CPC can analyze data based on software,  algorithms and machine learning, and then apply its analysis results to the manufacturing process and control the complex production process. The decision based on CPC accelerates the machine learning and helps wafer manufactures to classify defects, identify reasons, and address yield problems with less time. 

1.5 Conclusion

From the history of Applied Materials, we conclude that, for equipment manufacturers, while entering the sectors with most great potential at the right time is the prerequisite of the success, investing in R&D to build its own technology advantage is the key.

Choosing the sectors with broad downstream market and fast technology innovations

For equipment manufacturers, its main target is to provide solutions and services to downstream devices manufacturers. When choosing among the sectors, the market size is the most important factor. The faster the industry technology iterates, the more room there is for technological progress in the industry. Taking semiconductor industry as an example, Moore’s Law states that the number of transistors on a microchip doubles every two years, though the cost of computers is halved. With better performance of the microchips, downstream devices manufacturers will develop more integrated memory and processors, and the equipment manufacturers will follow the technology route to improve accuracy and thus drive the industry to improve. 

Choosing the timing when the industry is at early stage or during market shifts

As we have reviewed the history of Applied Materials, the company entered CVD market at the very beginning of the semiconductor industry. During 1970s, the company gained recognition from IBM and Intel by its advanced radiantly-heated chemical vapor deposition reactor, securing incomes sources and gaining market share. 

Entering the sector during market shifting period is another good timing for equipment manufacturers. The market shifts among different countries often implies that industry leaders among the value chain will emerge from the new market center. With local government support, it is an important time to compete for new markets. For example, during the first time of market shift in 1970s, Samsung Electronics Japan entered the semiconductor industry in 1975, brought advanced technology from US and became the largest semiconductor equipment manufacturers in Japan in 1981. 

Choosing the product with technology, capital and R&D employees advantages

Before developing a new product, a company should consider: 1) whether the previous product has gained and secured significant market share; 2) whether the company has sufficient funds to invest in R&D; 3) whether the company has ample R&D talents. 

Advanced technology is always the core competitive advantages of the semiconductor equipment manufacturers, which conduct technology breakthrough each year to satisfy downstream requirements such as higher accuracy and efficiency. As a result, the industry has higher technology and capital barrier. To develop a new product requires large capitals. 

2.The history of PERC technology

We examined the history of PERC technology application by using the Hype Cycle Research Methodology developed by Gartner. We conclude that there are four factors of the large-scale applications of PERC technology: cell performance breakthrough, cost effectiveness, mass production equipment and industrial maturity. Furthermore, for each round of technology innovations, equipment manufacturers benefited at the very beginning given the new technology barrier. 

2.1 The history of PERC technology

By reviewing the history of P-PERC technology, we divide the PERC technology’s life cycle into five key phases through the Hype Cycle Research Methodology developed by Gartner:

Innovation Trigger (1980-2000): in 1989, the first paper on PERC technology was published, discussing that P-PERC cell could achieve conversion efficiency of 22.8% and triggering significant publicity. 

Peak of Inflated Expectations (around 2009): several companies, namely Centrotherm (with production efficiency of 19.2%), Suntech (with capacity of 102MW and production efficiency of 18.9% by 1H09 ), Schott Solar (with record R&D efficiency of 20.2% and 21.0% in 2011 and 2012 respectively) and Lu’an Group (with capacity of 60MW in September 2010 and planned capacity of 1GW), began industrial exploration in PERC technology. Equipment manufactures launched first-generation equipment and cell manufacturers explored production process in pilot lines. 

Trough of Disillusionment (2011-2012): downstream demand shrank significantly due to declining tariff subsidies in European market and trade frictions. Financial pressure forced companies to reduce Capex and some companies faced bankrupt risks. Experiments and implementations of P-PERC cells failed to deliver.

Slope of Enlightenment (2013-2014): Meyer Burger launched MAiA®2.1 PECVD equipment which is adaptable to mass production of P-PERC cells. More and more manufacturers in Europe and Taiwan, China funded pilots and expansion in P-PERC technology. 

Plateau of Productivity (since 2015): Mainstream adoption started to take off. Domestic manufacturers (both cell and equipment) began expansion. Penetration rate of PERC cells increased from less than 5% in 2015 to over 65% in 2019.

The first PERC wave was dominated by Tier 1 players from 2013 to 2017. Meyer Burger, the leading company specializing in PV equipment, successfully rode the wave with its MAiA®2.1 PECVD equipment launched in 2013. The company acquired Roth & Rau AG in 2011 and started in PV equipment from then. Early preparations were settled in 2011-2012. The company launched PERC cell equipment solutions with InnoLas System in 2013, with cell production rate of 3400 pieces per hour. In 2013, the company received its first order of PERC cell equipment and accumulated PERC equipment orders amounted to 2GW during 2013-2014. Orders received for MB PERC equipment, strongly driven by orders of Tier-1 producers, recorded 7GW, 7GW and 14GW in 2015, 2016 and 2017, respectively. By end of 2017, the company accumulated PERC equipment orders around 30%, accounting for 70% of market share then.

After 2017, the second wave of PERC installations was dominated by Tier 2 producers which were more Capex and price sensitive and more local minded. The whole industry began mass expansion, total capacity of P-PERC cell achieved 42GW, 70GW and 174GW in 2017, 2018 and 2019, respectively. Gross profit margin waded as the cell sector became oversupply. 

2.2 The map of HIT technology

Following such experiences, we have mapped out the route of HIT technology and we believe 2020 would be Ground Zero for HIT commercialization. Given that HIT capacity would reach 5GW and 20GW in 2020 and 2021 respectively, and that the domestic Turnkey cost would decline from Rmb400-500mn/GW in 2Q20 to Rmb300mn/GW in 1H21, we expect the market size of HIT equipment would reach Rmb2.25bn in 2020 and Rmb6bn in 2021.

By reviewing the history of HIT technology, we can also divide its life cycle into five key phases: 

Innovation Trigger (1970-2000): in 1974, HIT cell structure was first proposed by Walter Fuhs. In 1990s, Sanyo JP acquired HIT technology patent and launched its HIT products around 1997. 

Peak of Inflated Expectations (around 2010): Sanyo JP HIT patent expired in 2010 and a few companies such as Roth&Rau, Trinasolar, GS Solar and Silevo Inc, began research in HIT technology.  

Trough of Disillusionment (around 2015): the experiments and implementations of HIT technology were below expectations and failed to compete with PERC on cost and efficiency, while PERC technology developed fast and started to dominate the market. 

Slope of Enlightenment (around 2018): domestic equipment, material and cell manufacturers stepped into HIT area and began to build domestic supply chains. 

Plateau of Productivity (since 2020): With domestic equipment manufacturers launching mature cell equipment for mass production, material manufacturers realizing localization of key material and cell manufacturers achieving economies of scale in pilot and production lines, more and more major players enter pilot and production stage. We believe 2020 would be ground zero for HIT commercialization.

During 4Q19 to 1Q20, shares in the HIT sector such as Shanxi Coal International Energy Group (600546.SH), Maxwell Technologies (300751.SZ), S.C New Energy Technology (300724.SZ), Risen Energy (300118.SZ) and Jinchen Machinery (603396.SH), performed bullish. The main reason of the share price climb are that HIT cell development are beyond market expectations with better efficiency enhancement and cost reductions. Its conversion efficiency reached 24.0% and yield recorded 98.5% by end of 2019 (data from 600MW HIT cell lines of REC group, applied with equipment from Meyer Burger). Its cost reduced significantly in 1Q20 with Turnkey cost reducing from Rmb700-1000mn/GW by end of 2019 to Rmb500-600mn/GW in 1Q20, and low-temp silver paste consumption reducing by 40% after applying MBB technology.

In 1Q20, the price of HIT cell exported to Japan by Jinergy reported Rmb0.42/w higher than that of P-PERC cell. According to our analysis, the price premium of HIT cell to P-PERC cell was roughly Rmb0.30/w (VAT inclusive) in 1Q20 after considering domestic lower land, construction and labor cost. As of May 2020, HIT cell cost was Rmb0.86/w (VAT exclusive), while P-PERC cell cost was Rmb0.67/w. With the Rmb0.30/w price premium, HIT cell can generate more profit of Rmb0.08/w than P-PERC cell currently. The cost gap could be further narrowed through using thinner wafer, enforcing equipment localization and implementing lower paste cost and we estimate HIT cell cost could achieve Rmb0.65/w by end of 2021, roughly same as that of bifacial P-PERC cell. The profit gap could be further expanded to Rmb0.20-0.30/w. With higher efficiency and more profit, HIT cell would realize cost-effectiveness and gradually gain its market share.

On the wafer side, the thickness of N-type wafer used for HIT cells is 170μm at present, and it could be reduced to 130μm by end of 2021 and to 90μm further with least efficiency loss in the future since HIT cells are naturally symmetrical and better adaptable to thinner wafer. Moreover, current global capacity of N-type wafer is less than 10GW, mainly satisfying the demand of TOPCon and IBC. As HIT cells begins mass production, the economies of scale of N-type wafer could generate another 8% cost savings. Besides, HIT technology is better compatible with larger wafer, resulting another Rmb0.03-0.05/w cost savings (not included it in the cost forecast in Table 2). We believe the current oversupply industry landscape of wafer sector would help to realize such economies.

Equipment localization is the key to realize mass production of HIT cells, and PECVD coating and PVD coating equipment are the core equipment during its production. Such equipment can only be imported and the reported price of the Turnkey was as high as Rmb3bn/GW in 2017. Thanks to domestic equipment manufacturers’ efforts in HIT technology, the reported price of the Turnkey has been decreasing from Rmb1bn/GW in November 2019 to Rmb600mn/GW in December 2019. In 2Q20, the reported price has declined to Rmb400-500mn/GW. Suzhou Maxwell Technologies, has successfully developed its own PECVD equipment and will start mass production soon. We believe such equipment localization would further lower the Turnkey cost to Rmb300mn/GW in 1H21. Some companies mastering HIT technology like Jinergy, also try to lower its cost by purchasing separate equipment from Applied Materials and test running. Its conversion efficiency and yield have been close to that of Turnkey. 

The production of HIT cells has 4 steps: texturing, PECVD coating, PVD coating, printing and metalizing. PECVD coating is the crux of the whole process and accounts for 50% of the value chains. Imported equipment of this step dominates and therefore the Turnkey cost has been too high to realize HIT commercialization before. Recently, Tongwei announced its 250MW HIT cell line in Hefei would begin operation at full capacity in May 2020, marked the first domestic successful mass production of HIT cell line. The cell line consists of texturing equipment developed by YAC Japan, PECVD equipment developed by Maxwell technologies, PVD equipment developed by Von ardenne, printing and testing equipment developed by Maxwell technologies. 

HIT cell manufacturers can choose to purchase Turnkey or separate equipment from different suppliers. Among Turnkey suppliers, Meyer Burger used to lead the industry but recently suffered from financial crisis. Its Turnkey price reported as high as Rmb800-1000mn/GW and only REC group applied it. GS Solar improved its Turnkey based on Panasonic’s technology and reported Rmb1bn/GW. Maxwell technologies provided the most competitive Turnkey with higher production rate, better quality and lowest price. S.C New Energy Technology is still on the way developing its own PECVD. The company currently applies PECVD developed by Idealenergy, which recorded lower cell production rate and is hard to start mass production. Some companies mastering HIT technology like Jinergy, also try to lower its cost by purchasing separate equipment from Applied Materials and test running. Its conversion efficiency and yield have been close to that of Turnkey. The details of separate equipment are shown in Table 11.

Low-temp silver paste is another major cost item, accounting for 16.3% of total HIT cell cost. At present, the silver paste consumption of HIT is 3 times that of P-PERC, and the price of low-temperature silver paste is 2-3 times the traditional price. In 1Q20, Multi BusBar (MBB) technology was applied to replace 5BB, reducing low-temp silver paste consumption by 40%, from 280-320mg/piece to 170-200mg/piece. Moreover, SWCT developed by Meyer Burger requires the fewest low-temp silver paste laydown (100mg/piece). Maxwell also developed similar technologies which named as Zebra, helpful to reduce the cost.

Besides the on-going cost savings, HIT cell has fewest production processes (4 steps) among P-PERC cell (7 steps) and TOPCon cell (10+ steps), helping to reduce efficiency loss during production. HIT cell has the highest basic conversion efficiency potential among leading technologies. By the end of 2019, HIT cells have attained above 23% efficiency for mass production and a few manufacturers have exceeded 24%. In March 2019, Meyer Burger announced that it has achieved a record cell of over 24.2% on its standard HIT equipment with a roadmap to reach 25%. Jinergy completed its 100MW commercial manufacturing line with an average efficiency of 23.7%. GS-Solar started with a 100MW HIT production line in 2016 with average efficiency of 22.5%. In 2018, the company built a 500MW manufacturing line based on copper electrode technology. Average cell efficiencies reached 22.8% and best production efficiency is at 23%. The world record efficiency was set by Japan’s Kaneka at a level of 26.63% in August 2017, by adding an interdigitated back contact (IBC) cell structure to the HIT cell architecture platform. Moreover, HIT still has sufficient room for increasing efficiencies, reaching even 30% through perovskite combination. While for P-PERC cells, basic conversion efficiency is 22.3% by the end of 2019, and the record is set by LONGi with a conversion efficiency of 24.06% in R&D in January 2019. We also note that P-PERC is about to reach its efficiency limits soon.

With its efficiency improvement and cost reductions, HIT has been gaining momentum since 2019. There are 20-30 players at different stages, including existing large players and new comers. By the end of 2019, global HIT capacity reached 3GW and the planned capacity has exceeded 15GW for the coming years. REC group has built a 600MW HIT capacity in Singapore and started operation in October 2019, with a conversion efficiency of 24.5%. Jinergy has an installed capacity of 100MW with a conversion efficiency of 23.79%. GS-Solar has a capacity of 600MW and has shipped 100MW HIT products to domestic and international markets. We believe 2020 would be Ground Zero for HIT Commercialization.

Recently, Tongwei announced its 250MW HIT cell line in Hefei would begin operation at full capacity in May 2020. Moreover, Maxwell technologies has successfully modified its PECVD equipment from dynamic model to “dynamic + static” model and the testing results were positive with satisfying speed, cost and quality, ensuring its leading position in the industry. Its latest PECVD equipment has therefore received recognition and orders from three major HIT cell manufacturers, namely Tongwei, Shanxi coal international energy group and GS Solar, and would begin mass production soon. Furthermore, Shanxi coal international energy group planned to invest in HIT cell of total 10GW (1,2, 3, 7GW respectively) after consolidation and began operation in 3Q20, marking the first global gigawatt level HIT capacity. Based on our channel checks, the company invited tenders of HIT Turnkey equipment in May and will announce the results soon. 

By end of 2020, the gigawatt level production line would provide meaningful empirical data such as production-level conversion efficiency, yield, cost, clients recognition, price and gross margin, encouraging more players to ride the new technology wave. We estimate that HIT cell would realize cost effectiveness and gain more market share through using thinner wafer and implementing lower paste cost during 2H20 and 2021. During 2022 and 2023, HIT would promote the substitution of N type for P type given its higher efficiency and cost effectiveness.

We believe HIT has the potential to increase its market share from less than 2% by the end of 2019 to near 20% for next 2-3 years, given its continuing efficiency enhancement and cost reductions. We expect HIT capacity to reach 5GW, 20GW and 50GW by 2020, 2021 and 2022, respectively, and begin to substitute for P-PERC from then. We also believe equipment manufacturers would benefit first at the beginning of HIT expansion given the high technology barrier.

3.Maxwell Technologies (300751.SZ-Not rated)

Maxwell technologies is the leader of mono/multi-Crystalline texturing equipment. The company realized revenue of Rmb1.44bn (+82.3% YoY) and net profit of Rmb247.5mn (+44.8% YoY) in 2019. The company also has plans in HIT technology. Based on our channel checks, the company has successfully developed its own PECVD equipment and will start mass production soon. We estimate Maxwell market share would achieve 70% during this round of HIT technology innovation based on: 1) the history of P-PERC cell expansion and the market share of the equipment leader Meyer Burger by then (70% during the first round from 2015-2017Q3); 2) the market share of Maxwell technologies as Tier 1 manufacturer in the texturing process of P-PERC cell production (stabling at 70% since 2016); 3) Maxwell technologies leads the industry in the key PECVD equipment process by over 1 year. As the leader with advanced technology, sufficient funds and ample talents, we believe the company would benefit from this round of HIT technology innovations.

3.1 Ownership structure and history

As of 2020/06/17, the top 5 shareholders hold 28,510,929 shares of the company, accounting for 54.84% of total share. Zhou Jian (Chairman) and Wang Zhenggen (Board member) are persons acting in concert. They directly hold 18,729,805 shares of the company (36.02% of total shares) and hold 4.91% of total shares through Suzhou Maituo Investment Center (Limited Partnership). They are the controlling shareholders and actual controllers of the company.

The company specializes in PV equipment and dominated the market of texturing equipment with a market share of more than 70% in 2019 (calculated by revenue). Its competitive advantages including strong R&D capabilities and excellent products among peers.

3.2 Competitive advantages

The company specializes in PV equipment and dominated the market of texturing equipment with a market share of more than 70% in 2019 (calculated by revenue). Its competitive advantages including strong R&D capabilities and excellent products among peers.

3.3 Financial analysis

Information Disclosure:

Undertakings of the Analyst

I (We) am (are) conferred the Professional Quality of Securities Investment Consulting Industry by the Securities Association of China and have registered as the Securities Analyst. I hereby issue this report independently and objectively with due diligence, professional and prudent research methods and only legitimate information is used in this report. I am also responsible for the content and opinions of this report. I have never been, am not, and will not be compensated directly or indirectly in any form for the specific recommendations or opinions herein. 

Disclosure with respect to the Company

The company is a subsidiary of Shenwan Hongyuan Securities. The company is a qualified securities investment consulting institute approved by China Securities Regulatory Commission. The affiliates of the Company may hold or trade the investment targets mentioned in this report in accordance with the law, and may also provide or seek to provide investment banking services for these targets. The Company fulfills its duty of disclosure within its sphere of knowledge.  The clients may contact compliance@swsresearch.com for the relevant disclosure materials or log into www.swsresearch.com for the analysts' qualifications’ the arrangement of the quiet period and the affiliates’ shareholdings.

Introduction of Share Investment Rating

Security Investment Rating:

When measuring the difference between the markup of the security and that of the market’s benchmark within six months after the release of this report, we define the terms as follows: 

BUY: Share price performance is expected to generate more than 20% upside.

Outperform: Share price performance is expected to generate between 10-20% upside.

Hold: Share price performance is expected to generate between 10% downside to 10% upside.

Underperform: Share price performance is expected to generate between 10-20% downside.

SELL: Share price performance is expected to generate more than 20% downside.

Industry Investment Rating:

When measuring the difference between the markup of the industry index and that of the market’s benchmark within six months after the release of the report, we define the terms as follows:

Overweight:Industry performs better than that of the whole market;

Neutral: Industry performs about the same as that of the whole market;

Underweight:Industry performs worse than that of the whole market.

We would like to remind you that different security research institutions adopt different rating terminologies and rating standards. We adopt the relative rating method to recommend the relative weightings of investment. The clients’ decisions to buy or sell securities shall be based on their actual situation, such as their portfolio structures and other necessary factors. The clients shall read through the whole report so as to obtain the complete opinions and information and shall not rely solely on the investment ratings to reach a conclusion. The Company employs its own industry classification system. The industry classification is available at our sales personnel if you are interested.

HSCEI is the benchmark employed in this report.

Disclaimer:

This report is published by SWS Research Co., Ltd. (subsidiary of Shenwan Hongyuan Securities, hereinafter referred to as the “Company”) in mainland China (excluding Hong Kong, Macao and Taiwan), and to be used solely by the clients of the Company  (including Qualified Foreign Institutional Investors and other qualified clients in accordance with the law). The Company will not deem any other person as its client notwithstanding his receipt of this report. The clients understand that the text message reminder and telephone recommendation are no more than a brief communication of the research opinions, which are subject to the complete report released on the Company’s website (http://www.swsresearch.com).  The clients may ask for follow-up explanations if they so wish. Save and except as otherwise stipulated in this report, the contactor upon the first page of the report only acts as the liaison who shall not provide any consulting services.

This report is based on public information, however, the authenticity, accuracy or completeness of such information is not warranted by the Company. The materials, tools, opinions and speculations contained herein are for the clients’ reference only, and are not to be regarded or deemed as an invitation for the sale or purchase of any security or other investment instruments. The materials, opinions and estimates contained herein only reflect the judgment of the Company on the day this report is released.  The prices, values and investment returns of the securities or investment instruments referred to herein may fluctuate.  At different periods, the Company may release reports which are inconsistent with the materials, opinions and estimates contained herein.

The clients shall consider the Company’s possible conflict of interests which may affect the objectivity of this report, and shall not base their investment decisions solely on this report. The clients should make investment decisions independently and solely at your own risk. Please be reminded that in any event, the company will not share gains or losses of any securities investment with the clients. Whether written or oral, any commitment to share gains or losses of securities investment is invalid. The investment and services referred to herein may not be suitable for certain clients and shall not constitute personal advice for individual clients.  The Company does not ensure that this report fully takes into consideration of the particular investment objectives, financial situations or needs of individual clients. The Company strongly suggests the clients to consider themselves whether the opinions or suggestions herein are suitable for the clients’ particular situations; and to consult an independent investment consultant if necessary. Under no circumstances shall the information contained herein or the opinions expressed herein forms an investment recommendation to anyone. Under no circumstances shall the Company be held responsible for any loss caused by the use of any contents herein by anyone. Please be particularly cautious to the risks and exposures of the market via investment. Independent investment consultant should be consulted before any investment decision is rendered based on this report or at any request of explanation for this report where the receiver of this report is not a client of the Company.

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