Equity Research: Aiko Solar Energy (600732 CH)

Date: October 31, 2025
Sector: New Energy / Photovoltaic Manufacturing
Analyst: Wen Hao, CPA; Zheng Min Kang
Source: BOCOM International

Title: Upgrading to BUY: Strong Order Book Signals Turnaround Despite Q3 Delivery Headwinds; Target Price Raised to RMB 18.80

Executive Summary

We are upgrading our rating on Aiko Solar Energy Co., Ltd. (600732 CH) from Neutral to BUY, with a revised target price of RMB 18.80 (previously RMB 16.50), implying a potential upside of 17.3% from the current closing price of RMB 16.03. This upgrade is driven by three pivotal developments: (1) robust forward-looking indicators suggesting a significant rebound in revenue and profitability in upcoming quarters, evidenced by a surge in contract liabilities and inventory; (2) a substantial improvement in the company’s balance sheet following a successful private placement, which has alleviated liquidity pressures and reduced financial risk; and (3) the sustained competitive advantage of Aiko’s proprietary All-Back-Contact (ABC) technology, which continues to command premium pricing and higher conversion efficiencies in an increasingly commoditized market.

While the third quarter of 2025 (3Q25) results were disappointing, characterized by a sequential decline in revenue and a return to net losses, we interpret these figures as transient rather than structural. The primary drag on 3Q25 performance was a temporary slowdown in the delivery of ABC modules, compounded by a significant reduction in foreign exchange gains. However, the underlying demand dynamics remain strong. The company’s contract liabilities surged by 37% quarter-on-quarter (QoQ) and 71% year-on-year (YoY) to RMB 1.19 billion, representing a remarkable 38% of 3Q25 revenue. Concurrently, inventory levels rose by 40% QoQ to RMB 2.90 billion. We view this simultaneous expansion in contract liabilities and inventory as a leading indicator of vigorous order intake and imminent shipment acceleration, positioning the company for a sharp earnings recovery in 4Q25 and throughout 2026.

Furthermore, the completion of a RMB 3.5 billion private placement in September 2025 has fundamentally strengthened Aiko’s capital structure. The proceeds, primarily directed toward the Yiwu Phase VI 15GW high-efficiency crystalline silicon solar cell project and working capital, have reduced the debt-to-asset ratio by 8.1 percentage points to 77.6% by the end of 3Q25. This deleveraging significantly mitigates refinancing risks and provides the necessary fuel for capacity expansion without compromising financial stability.

In light of these developments, we have adjusted our financial forecasts. While we have lowered our Earnings Per Share (EPS) estimates for 2026 and 2027 by approximately 11% to account for the dilution effect of the new shares issued during the private placement, we have increased our net profit forecasts by 4% due to improved operational visibility. More importantly, we are re-rating the stock’s valuation multiple. Reflecting the heightened certainty of growth and reduced financial risk, we are expanding our target P/E multiple for 2026 from 18x to 23x. We believe Aiko’s unique technological moat in the ABC sector allows it to capture超额 profits (excess returns) that justify a premium valuation relative to peers struggling with homogeneous product competition.

Key Takeaways

1. 3Q25 Performance Analysis: Temporary Setback Amidst Structural Strength

Revenue and Profitability Dynamics
Aiko Solar reported revenue of RMB 3.15 billion in 3Q25, representing a 26.9% sequential decline and a 15.2% year-over-year increase. The sequential drop was primarily attributed to a short-term deceleration in the delivery schedule of its flagship ABC (All-Back-Contact) modules. While the top-line contraction was notable, the company managed to maintain its gross margin at 7.4%, holding steady against the backdrop of rising raw material costs. This margin resilience underscores the pricing power inherent in Aiko’s high-efficiency products, which differentiate them from standard PERC and TOPCon offerings that face intense price wars.

However, the bottom line reflected the revenue dip and a significant swing in non-operating items. The company recorded a net loss attributable to shareholders of RMB 294.7 million (vs. a profit of RMB 62.9 million in 2Q25) and a core net loss (excluding non-recurring items) of RMB 379.8 million. The deterioration in net profit was exacerbated by a sharp decrease in foreign exchange gains, which had previously bolstered earnings. Financial expenses surged due to these FX movements, with the financial expense ratio increasing by 5.0 percentage points QoQ to 4.0%.

Expense Structure and Operational Efficiency
Despite the headline loss, operating expenses remained relatively controlled in absolute terms.
Selling Expenses: Decreased by 14.3% QoQ to RMB 123.5 million.
Administrative Expenses: Increased by 29.0% QoQ to RMB 188.3 million, largely due to seasonal accruals and strategic hiring, but the absolute increase is manageable.
R&D Expenses: Declined slightly by 8.7% QoQ to RMB 84.5 million, indicating continued commitment to innovation without excessive bloat.
Financial Expenses: Volatility here was driven mainly by mark-to-market adjustments on foreign currency holdings rather than increased interest burdens from new debt, given the recent equity infusion.

The key takeaway from 3Q25 is that the operational core remains intact. The loss is not driven by a collapse in unit economics or a loss of market share, but rather by timing differences in revenue recognition and transient FX impacts. As deliveries normalize, we expect these headwinds to reverse rapidly.

2. Leading Indicators: Contract Liabilities and Inventory Signal Robust Demand

The most compelling argument for our bullish stance lies in the balance sheet metrics that precede revenue recognition. In the photovoltaic industry, Contract Liabilities (advances from customers) and Inventory (finished goods ready for shipment) are critical leading indicators of future sales performance.

• Surge in Contract Liabilities: At the end of 3Q25, Aiko’s contract liabilities stood at RMB 1.19 billion. This represents a 37% increase from the previous quarter and a 71% increase compared to the same period last year. Crucially, this amount equals 38% of the company’s 3Q25 revenue. Such a high ratio indicates that a substantial portion of next quarter’s revenue is already booked and paid for by customers. This backlog provides high visibility into 4Q25 and 1Q26 revenues, de-risking the near-term outlook.
• Inventory Build-up: Inventory levels rose by 40% QoQ to RMB 2.90 billion. In the context of rising contract liabilities, this inventory build-up is not a sign of unsold stock accumulating due to weak demand. Instead, it reflects production ramping up to meet the confirmed orders represented by the contract liabilities. The company is actively preparing shipments for immediate delivery.

Implication for Future Quarters:
The combination of high contract liabilities and elevated inventory suggests that the revenue dip in 3Q25 was a logistical or scheduling anomaly rather than a demand issue. We anticipate a significant "catch-up" effect in 4Q25, where these pre-sold units will be delivered and recognized as revenue. This should drive a sequential rebound in both top-line growth and profitability. Our model projects revenue to accelerate significantly in 2026, supported by this strong order book foundation.

3. Capital Structure Improvement: Successful Private Placement De-risks Growth

One of the primary concerns for investors in capital-intensive industries like solar manufacturing has been Aiko’s leverage and liquidity position. The company has successfully addressed this through a strategic equity raise.

Details of the Private Placement:
Completion Date: September 2025.
Issue Price: RMB 12.03 per share.
Volume: 2.9 billion new shares issued.
Dilution: The new shares represent 15.9% of the pre-issue total share capital.
Total Proceeds: RMB 3.5 billion.
Use of Proceeds:
* RMB 3.0 billion allocated to the Yiwu Phase VI 15GW High-Efficiency Crystalline Silicon Solar Cell Project. This expansion is critical for maintaining economies of scale and meeting the growing demand for ABC cells.
* RMB 0.5 billion used to supplement working capital, enhancing operational flexibility.

Impact on Financial Health:
The injection of equity has had an immediate and positive impact on the company’s leverage ratios.
Debt-to-Asset Ratio: Declined by 8.1 percentage points QoQ to 77.6% by the end of 3Q25.
Liquidity Buffer: The additional working capital improves the company’s ability to navigate supply chain fluctuations and invest in R&D without relying heavily on short-term borrowing.
Interest Coverage:* With less reliance on debt financing for expansion, future interest expenses are expected to stabilize, improving net margins.

This deleveraging event is a catalyst for valuation re-rating. Investors often apply a discount to highly leveraged growth stocks due to bankruptcy risk or dilution fears. By resolving the immediate funding gap for its major capex project through equity rather than debt, Aiko has removed a significant overhang on the stock. The market can now focus on operational execution rather than solvency concerns.

4. Competitive Moat: ABC Technology Driving Premium Valuation

Aiko Solar’s investment thesis is anchored in its technological leadership in All-Back-Contact (ABC) cells. Unlike conventional solar cells where metal contacts on the front side block sunlight and reduce efficiency, ABC technology moves all contacts to the rear. This design maximizes light absorption and achieves industry-leading conversion efficiencies.

Technological Advantage & Economics:
Efficiency Leadership: ABC cells consistently demonstrate higher conversion efficiencies compared to mainstream TOPCon and HJT technologies. In a market where every fraction of a percent in efficiency translates to lower Levelized Cost of Electricity (LCOE) for end-users, Aiko’s product commands a premium.
Pricing Power: As shown in our forecasts, while average selling prices (ASP) in the broader market have collapsed, Aiko’s ABC modules maintain a relatively stable price trajectory. We forecast ASPs of RMB 0.73/W in 2025, rising to RMB 0.78/W in 2026 and RMB 0.80/W in 2027. This contrasts with the deflationary pressure seen in standard modules.
Cost Reduction Trajectory: Aiko is successfully driving down unit costs through scale and process optimization. We project unit costs to decline from RMB 0.68/W in 2025 to RMB 0.66/W in 2026 and 2027.
Margin Expansion: The combination of stable/rising prices and falling costs leads to expanding unit gross profits. We forecast unit gross profit to improve from RMB 0.05/W in 2025 to RMB 0.12/W in 2026 and RMB 0.14/W in 2027. This structural margin improvement is the key driver of our upgraded earnings estimates.

Market Positioning:
As the solar industry transitions from a phase of pure capacity expansion to one of technological differentiation, leaders in high-efficiency technologies like ABC are poised to capture disproportionate market share and profits. Aiko is not just participating in the market; it is defining the premium segment. This distinction allows us to justify a higher valuation multiple compared to peers who are trapped in low-margin commodity competition.

Financial Analysis & Forecast Adjustments

Revenue and Profitability Outlook

Our financial model incorporates the delayed impact of 3Q25 deliveries while projecting a strong recovery in 2026 and 2027.

Note: Revenue forecasts remain unchanged as the volume expectations are supported by the order book. Net profit forecasts for 2026/27 have been increased by ~4% in absolute terms due to better margin visibility, but EPS has decreased due to the larger share count post-private placement.

Key Assumptions:
1. ABC Module Shipments: We forecast shipments to reach 20 GW in 2025, scaling to 30 GW in 2026 and 34 GW in 2027. This aggressive growth is underpinned by the Yiwu Phase VI expansion and the strong order book indicated by current contract liabilities.
2. Pricing Stability: We assume ABC modules will retain a premium over standard modules, with ASPs stabilizing around RMB 0.78-0.80/W in 2026-2027.
3. Cost Downside: Continued learning curve effects and scale economies will drive unit costs down to RMB 0.66/W by 2026.
4. Expense Control: Operating expenses as a percentage of revenue will decrease as revenue scales, improving operating leverage.

Balance Sheet and Cash Flow Implications

The private placement has materially altered the company’s cash flow and leverage profile.

• Cash Position: We project cash and cash equivalents to grow from RMB 775 million in 2025E to RMB 2.72 billion by 2027E, driven by strong operating cash flows from profitable operations.
• Debt Reduction: The company is expected to actively manage its debt load. Short-term loans are forecast to drop to zero by 2027E, and long-term loans will gradually decrease from RMB 7.0 billion in 2025E to RMB 5.0 billion in 2027E.
• Net Gearing Ratio: The net debt-to-equity ratio is projected to improve dramatically, falling from 87.0% in 2025E to 18.7% in 2027E. This transition from a highly leveraged state to a conservative balance sheet enhances the company’s financial resilience and ability to withstand industry downturns.
• Operating Cash Flow: After a negative OCF in 2024, we forecast a turnaround to RMB 1.13 billion in 2025E, surging to RMB 4.01 billion in 2026E and RMB 5.59 billion in 2027E. This robust cash generation will fund future growth internally, reducing the need for external financing.

Valuation Methodology

We employ a P/E-based valuation approach, which is standard for growth-stage manufacturing companies transitioning to profitability.

Previous Valuation:
Target P/E (2026E): 18x
Previous EPS (2026E): RMB 0.92
* Previous Target Price: RMB 16.50

New Valuation:
Target P/E (2026E): 23x
New EPS (2026E): RMB 0.82
New Target Price: RMB 18.80*

Rationale for Multiple Expansion (18x -> 23x):
1. Reduced Financial Risk: The successful private placement and subsequent deleveraging remove the "distress discount" previously applied to the stock. A healthier balance sheet warrants a higher multiple.
2. Increased Earnings Visibility: The surge in contract liabilities provides high confidence in the near-term revenue pipeline, reducing execution risk.
3. Technological Premium: As the market recognizes the sustainability of ABC’s margin advantage, Aiko deserves to trade at a premium to peers engaged in low-margin commoditized battles. A 23x P/E is justified for a company with projected EPS growth of >50% in 2027 and a dominant position in a high-growth niche.
4. Industry Comparison: Compared to other high-tech manufacturing leaders in the renewable space, a 23x forward P/E is reasonable given the superior growth profile and margin trajectory.

Risks / Headwinds

While our outlook is positive, investors must consider the following risks that could impact Aiko Solar’s performance and stock price:

1. Execution Risk in Capacity Ramp-up

The company’s growth projections rely heavily on the successful and timely ramp-up of the Yiwu Phase VI 15GW project. Any delays in construction, equipment installation, or yield optimization could defer revenue recognition and margin improvements. Given the capital intensity, delays could also strain cash flows if not managed carefully.

2. Technological Obsolescence or Competition

While ABC technology is currently superior, the solar industry is characterized by rapid innovation. Competitors are aggressively developing next-generation technologies such as advanced TOPCon, HJT, and perovskite tandem cells. If competitors achieve comparable efficiencies at lower costs, Aiko’s pricing power and margin advantage could erode faster than anticipated. Continuous R&D investment is crucial to maintain the lead.

3. Raw Material Price Volatility

Although Aiko has demonstrated margin resilience, significant spikes in the prices of key raw materials (such as silicon wafers, silver paste, or other specialized materials for ABC cells) could compress gross margins. The company’s ability to pass these costs onto customers depends on the overall supply-demand balance in the module market.

4. Global Trade Policy and Geopolitical Risks

The solar industry is highly sensitive to international trade policies. Tariffs, anti-dumping duties, or supply chain restrictions imposed by major markets like the US, Europe, or India could disrupt export volumes. Aiko’s exposure to international markets means that geopolitical tensions could lead to sudden demand shocks or logistical bottlenecks.

5. Foreign Exchange Fluctuations

As noted in the 3Q25 results, FX movements can have a material impact on reported earnings. Aiko has overseas sales and potentially foreign currency-denominated debts or assets. Significant appreciation or depreciation of the RMB against the USD or other currencies could lead to volatile non-operating gains or losses, obscuring underlying operational performance.

6. Industry Overcapacity and Price Wars

Despite the premium nature of ABC modules, the broader solar industry faces structural overcapacity. If the general market price for modules collapses further due to aggressive clearing by distressed competitors, it could exert downward pressure on ABC pricing, even if the technology remains superior. Customer budget constraints in a deflationary environment may limit the premium they are willing to pay.

Rating / Sector Outlook

Sector Outlook: Consolidation and Technological Differentiation

The global photovoltaic sector is entering a phase of structural consolidation. The era of easy growth driven by universal demand for any solar panel is ending. Instead, the market is bifurcating into:
1. Commodity Segment: Dominated by standard PERC and early-generation TOPCon modules, characterized by fierce price competition, thin margins, and high bankruptcy risk for inefficient producers.
2. Premium Segment: Driven by high-efficiency technologies (like ABC, advanced HJT, and BC variants) that offer superior LCOE for utility-scale projects and aesthetic/efficiency benefits for distributed generation.

Investment Theme:
We favor companies with technological moats and strong balance sheets. In this environment, scale alone is insufficient; technological leadership is the primary driver of profitability. Aiko Solar fits this profile perfectly. Its ABC technology places it firmly in the premium segment, allowing it to escape the worst of the price wars. Furthermore, its recently strengthened balance sheet positions it to survive the consolidation phase and gain market share from weaker competitors.

Peer Comparison:
Within the BOCOM International coverage universe, Aiko stands out among PV manufacturers. While inverters (e.g., Sungrow) and upstream polysilicon players (e.g., GCL Tech) have their own dynamics, battery/cell manufacturers are under the most pressure. Among cell makers, Aiko’s unique ABC pathway differentiates it from peers like Junda Shares (002865 CH), which focuses on TOPCon. We believe Aiko’s potential for margin expansion is superior due to the higher barrier to entry for ABC technology.

Source: FactSet, BOCOM International Estimates as of Oct 30, 2025

Rating Justification: BUY

We initiate/upgrade to BUY based on the confluence of:
1. Near-term Catalyst: The expected revenue surge in 4Q25/1Q26 driven by the RMB 1.19 billion order backlog.
2. Medium-term Growth: The 15GW capacity expansion supporting volume growth to 30GW+ by 2026.
3. Long-term Moat: Sustainable competitive advantage via ABC technology ensuring superior margins.
4. Financial Safety: Deleveraging via private placement reduces downside risk.

The risk-reward profile is favorable. The downside is limited by the tangible asset base and order book, while the upside is driven by multiple expansion and earnings growth as the market re-rates Aiko from a "distressed leveraged player" to a "profitable tech leader."

Investment View

Strategic Imperative: Why Aiko Solar Now?

For institutional investors, the current juncture presents a compelling entry point into Aiko Solar. The stock has been depressed due to broader sector sentiment and the temporary weakness in 3Q25 results. However, our analysis suggests that the market has overly penalized the company for transient delivery issues while underappreciating the strength of its order book and the significance of its balance sheet repair.

1. The "Turnaround" Play with Visibility
Unlike speculative turnaround stories, Aiko’s recovery is backed by hard data. The 38% contract liability-to-revenue ratio is an exceptionally strong signal. It provides a high degree of certainty that the next two quarters will show robust top-line growth. Investors seeking exposure to the solar sector’s recovery should prioritize companies with visible backlogs, and Aiko offers one of the clearest visibility profiles in the industry.

2. Quality over Quantity
In a market flooded with solar stocks, quality differentiation is key. Aiko’s ABC technology is not just a marginal improvement; it is a architectural shift that offers tangible value to customers (higher energy yield per square meter). This allows Aiko to maintain pricing power even when the broader market is in freefall. We believe the market will increasingly reward this quality, leading to a sustained valuation premium.

3. Financial De-risking as a Catalyst
The completion of the private placement is a major de-risking event. For many institutional mandates, high leverage is a screening-out criterion. By reducing its debt-to-asset ratio to 77.6% and trending lower, Aiko becomes eligible for a broader set of institutional portfolios. This broadening of the investor base can provide structural support for the stock price.

Trading Strategy and Price Targets

• Current Price: RMB 16.03
• Target Price: RMB 18.80
• Upside Potential: +17.3%
• Time Horizon: 12 Months

We recommend accumulating positions on any weakness, particularly if the market overreacts to short-term noise. The target price of RMB 18.80 is based on a 23x P/E multiple applied to our 2026 EPS estimate of RMB 0.82. This multiple is conservative relative to the growth rate (PEG < 1.0 if considering 2026-2027 growth) and justified by the technological leadership.

Key Monitoring Metrics for Investors:
1. Quarterly Shipment Volumes: Track whether the company meets the 20GW annual guidance for 2025.
2. ABC Module ASPs: Monitor pricing trends to ensure the premium over TOPCon is maintained.
3. Yield Rates: Improvements in ABC production yields will directly impact gross margins.
4. Contract Liabilities Trend: A continued high level or growth in contract liabilities will confirm the sustainability of demand.
5. Debt Reduction Progress: Watch for further deleveraging in subsequent quarterly reports.

Conclusion

Aiko Solar is navigating a challenging industry landscape with a distinct strategic advantage. The short-term pain of 3Q25 is overshadowed by the long-term gain of technological leadership and financial stabilization. The surge in contract liabilities confirms that demand for ABC modules remains robust, and the successful capital raise ensures the company has the resources to capitalize on this demand.

We believe the market is mispricing the near-term recovery and the long-term structural advantages of Aiko’s business model. The upgrade to BUY reflects our confidence in the company’s ability to deliver superior earnings growth and expand margins in the coming years. Institutional investors should view Aiko Solar as a core holding in the high-efficiency solar segment, offering a balanced mix of growth, technological moat, and improving financial health.

Appendix: Detailed Financial Data

Income Statement Summary (RMB Million)

Balance Sheet Highlights (RMB Million)

Key Financial Ratios

(ns = not meaningful due to negative earnings)

Analyst Certification and Disclosures

Analyst Certification:
The analysts responsible for this report, Wen Hao and Zheng Min Kang, hereby certify that:
(i) The views expressed in this report accurately reflect their personal views about the subject securities or issuers;
(ii) No part of their compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this report;
(iii) They have not received any material non-public information regarding the securities or issuers mentioned in this report.

Important Disclosures:
Investment Banking Relationships: BOCOM International Securities Limited and/or its affiliates have had investment banking relationships with various entities in the past 12 months. Please refer to the full disclosure list in the original document for details.
Equity Holdings: BOCOM International Securities Limited and/or its group companies currently hold more than 1% of the issued share capital of Orient Securities, Everbright Securities, and Qiniu Intelligent Technology.
No Conflict of Interest:* The analysts and their associated persons (as defined by the SFC Code of Conduct) have not traded in the securities of Aiko Solar in the 30 calendar days prior to the publication of this report, nor do they serve as officers of the company, nor do they hold any financial interest in the securities of the company.

Disclaimer:
This report is confidential and intended solely for the use of BOCOM International Securities clients. It is not intended for distribution to, or use by, any person or entity in any jurisdiction or country where such distribution or use would be contrary to local law or regulation. The information contained herein is believed to be reliable but has not been independently verified. BOCOM International Securities makes no representation or warranty, express or implied, as to the accuracy, completeness, or fairness of the information or opinions contained herein. This report does not constitute an offer to sell or a solicitation of an offer to buy any securities. Investors should conduct their own independent investigation and analysis before making any investment decision.

Rating Definitions:
BUY: Expected total return exceeds the relevant industry index over the next 12 months.
NEUTRAL: Expected total return is in line with the relevant industry index over the next 12 months.
SELL:* Expected total return is below the relevant industry index over the next 12 months.

Industry Rating Definitions:
OUTPERFORM: Expected industry performance is attractive relative to the benchmark index.
IN-LINE: Expected industry performance is consistent with the benchmark index.
UNDERPERFORM:* Expected industry performance is unattractive relative to the benchmark index.

Benchmark Indices: Hang Seng Composite Index (HK), MSCI China A Index (A-Shares), S&P US China 50 Index (US-listed Chinese stocks).

End of Report