Industry Update: Power Equipment & Energy Storage

Date: January 21, 2026
Sector: Power Equipment / Photovoltaics (PV) & Energy Storage
Rating: Outperform (Stronger than Market)

Executive Summary

The Chinese photovoltaic (PV) and energy storage sectors are currently navigating a complex transitional phase characterized by divergent supply-demand dynamics, significant policy shifts, and evolving global trade patterns. Our analysis of the latest industry data for November 2025 and projections for early 2026 reveals a landscape where short-term volatility is giving way to structural consolidation.

Key Macro Themes:
1. Policy-Driven Supply Shock: The impending cancellation of VAT export rebates for PV products, effective April 2026, is acting as a catalyst for short-term front-loading of exports. While this may boost immediate shipment volumes, it serves as a long-term mechanism to accelerate the clearance of inefficient capacity and optimize the industry’s cost structure.
2. Price Stabilization in PV Upstream: After prolonged periods of decline, key PV manufacturing segments are showing signs of price stabilization and modest recovery. Notably, TOPCon dual-glass modules and battery cells have recorded week-on-week price increases, suggesting that the bottoming-out process may be underway.
3. Resilient Overseas Demand: Despite geopolitical headwinds, overseas demand remains a critical growth engine. PV module exports grew by 34.08% YoY in November 2025, while inverter exports surged by 25.91% YoY. Emerging markets, particularly Australia and parts of Asia, are offsetting slower growth in traditional European markets.
4. Storage Sector Bifurcation: The energy storage market exhibits a clear divergence between power/consumer batteries (facing seasonal adjustments and inventory corrections) and utility-scale storage systems (maintaining high production schedules). However, pricing pressure persists in the domestic storage system bidding market, with weighted average prices declining month-on-month.

Investment Stance:
We maintain an Outperform rating on the Power Equipment sector. The combination of policy-induced supply-side optimization, stabilizing product prices, and robust overseas demand creates a favorable risk-reward profile for leading companies with strong global distribution networks and technological moats. We recommend focusing on integrated leaders and specialized equipment providers who can navigate the transition from volume-driven growth to quality-driven profitability.

Top Picks:
* Sungrow Power Supply (300274.SZ): Beneficiary of strong inverter export growth and global storage expansion.
* Narada Power Source (300068.SZ): Positioned to capitalize on the high utilization rates in energy storage battery production.
* Tongrun Equipment (002150.SZ): Exposure to rising demand in PV mounting and structural components.
* Huashengchang (002980.SZ) & Sofar Solar (301658.SZ): Niche players with strong exposure to high-growth emerging markets.

Key Takeaways

1. Production Schedules: Seasonal Adjustments and Strategic Front-Loading

Photovoltaic Module Production

According to data from Shanghai Metals Market (SMM), the PV module sector is experiencing a seasonal contraction in production volumes, compounded by strategic adjustments ahead of the export rebate policy change.

• November 2025 Performance: Total PV module production decreased by 2.43% month-on-month (MoM). This slight decline reflects the typical end-of-year inventory management and demand normalization.
• December 2025 Outlook: A more significant contraction is anticipated for December. Terminal demand is expected to enter a "cooling-off" period, with operating rates projected to drop by 14.77% MoM compared to November.
• Policy Impact on Q1 2026: The announcement that VAT export rebates for certain PV products will be cancelled starting April 2026 has triggered mixed reactions. While some manufacturers have indicated plans to increase production in Q1 2026 to front-load shipments before the policy takes effect, the actual execution remains uncertain. Market participants are adopting a "wait-and-see" approach, balancing the urgency of pre-policy shipments against the risk of oversupply and potential price erosion in the domestic market if export channels become congested.

Lithium Battery Production

Data from the TD Institute (Dadong Shidai Think Tank) highlights a divergence between battery types and regional markets for January 2026.

• China Market (Jan 2026 Forecast):
  • Total Volume: The combined production schedule for power, energy storage, and consumer batteries is estimated at 210 GWh, representing a 4.55% MoM decline.
  • Segment Breakdown: The primary driver of this decline is the power battery segment, where second-tier manufacturers are seeing pronounced reductions in output due to weaker-than-expected EV sales momentum in the post-subsidy era and inventory destocking. In contrast, energy storage battery production remains at high levels, with some manufacturers even reporting slight increases, underscoring the resilience of the utility-scale storage sector.
• Global Market (Jan 2026 Forecast):
  • Total Volume: Global production is forecast at 220 GWh, a 6.38% MoM decrease.
  • Implication: The global dip suggests a synchronized seasonal slowdown, but the relative outperformance of the Chinese storage segment indicates that China remains the epicenter of storage manufacturing innovation and scale.

(Source: TD Institute, Ajian Securities Research)

2. Price Trends: Signs of Bottoming in PV, Pressure in Storage

Photovoltaic Supply Chain Prices

As of January 14, 2026, the PV supply chain is exhibiting signs of price stabilization, with specific segments showing modest recovery. This trend is critical for margin repair among manufacturers.

• Polysilicon: Prices for dense-grade polysilicon remained flat week-on-week at 54.00 RMB/kg. The stability here suggests that the severe oversupply conditions are being managed through production cuts by major producers, preventing further downside risk.
• Silicon Wafers: The mainstream average price for 183mm N-type monocrystalline silicon wafers held steady at 1.40 RMB/wafer. The lack of further decline indicates that wafer manufacturers have successfully passed on cost pressures or reached a cost-support floor.
• Modules: TOPCon dual-glass module prices rose by approximately 1.43% week-on-week to 0.71 RMB/W. This uptick is notable as it contradicts the typical Q4 price war narrative, suggesting that demand for high-efficiency modules remains robust enough to support pricing power.
• Battery Cells: TOPCon battery cell prices increased by 2.56% week-on-week to 0.40 RMB/W. This is the most significant positive signal in the chain, indicating that cell manufacturers are regaining some leverage, possibly due to tighter supply of high-quality N-type cells or improved yield rates commanding a premium.

(Source: InfoLink, Ajian Securities Research)

Energy Storage System Prices

In contrast to the PV sector, the domestic energy storage system (ESS) market continues to face intense price competition, although there are nuances based on system duration.

• Overall Market (Nov 2025):
  • Quotation Range: Domestic LFP battery ESS quotes (excluding C&I cabinets) ranged from 0.4452 to 0.6828 RMB/Wh.
  • Average Quote: 0.5721 RMB/Wh.
  • Weighted Average Bid Price: 0.4912 RMB/Wh, representing a 6.4% MoM decline. This continued downward pressure reflects the fierce competition among integrators and the commoditization of standard storage solutions.
• Duration-Specific Analysis:
  • 2-Hour Systems: Quotes clustered between 0.5466 and 0.588 RMB/Wh. The average quote was 0.5631 RMB/Wh, and the weighted average bid price rose slightly by 2.88% MoM to 0.569 RMB/Wh. This resilience may be attributed to higher technical requirements or specific project constraints favoring established suppliers.
  • 4-Hour Systems: Quotes ranged from 0.4452 to 0.54 RMB/Wh. The average quote was 0.4983 RMB/Wh, but the weighted average bid price dropped significantly by 10.86% MoM to 0.4537 RMB/Wh. The sharp decline in 4-hour system prices suggests that longer-duration storage is becoming increasingly competitive, with developers prioritizing lowest Levelized Cost of Storage (LCOS) over brand premiums.

(Source: CESA, Ajian Securities Research)

3. Demand Dynamics: Overseas Strength Offsets Domestic Seasonality

Overseas Demand: Robust Growth and Regional Diversification

Photovoltaic Modules:
Customs data for November 2025 underscores the critical role of international markets in absorbing Chinese PV capacity.
* Monthly Performance: PV module export value reached $2.412 billion, a 34.08% YoY increase and a 6.84% MoM rise. This strong growth demonstrates that despite trade barriers in some regions, global demand for affordable Chinese solar technology remains insatiable.
* Cumulative Performance (Jan-Nov 2025): Total export value stood at $25.885 billion, up 4.89% YoY. The moderation in cumulative growth compared to the monthly spike suggests that earlier months faced tougher comparisons or logistical bottlenecks that have since eased.

Inverters:
The inverter sector is outperforming modules in terms of growth rate, reflecting the higher value-add and stickiness of power electronics brands.
* Monthly Performance: Inverter export value hit $767 million in November, up 25.91% YoY and 13.29% MoM.
* Cumulative Performance (Jan-Nov 2025): Total export value reached $8.202 billion, a substantial 29.57% YoY increase. This nearly 30% growth rate highlights the global grid modernization trend and the increasing penetration of distributed generation requiring sophisticated inversion technology.

Regional Breakdown of Inverter Exports (Jan-Nov 2025):
The geographic distribution of inverter exports reveals a shifting landscape. Europe remains the largest market, but its dominance is being challenged by rapid growth in Asia and Oceania.

1. Europe: Cumulative exports of $3.13 billion. While still the top destination, monthly YoY growth has been volatile, with November showing a 29.58% increase ($223.16 million) after several months of declines. This rebound suggests restocking cycles or new project commissions in Southern and Eastern Europe.
2. Asia: Cumulative exports of $2.866 billion. Asia has emerged as a consistent growth pillar, with November exports reaching $282.63 million (+15.97% YoY). Key drivers include India’s renewable targets, Southeast Asian industrialization, and Middle Eastern mega-projects.
3. Australia: A standout performer. Cumulative exports surged to $434.1 million, driven by explosive monthly growth. In November, exports to Australia reached $65.94 million, a staggering 177.53% YoY increase. This hyper-growth is likely fueled by Australia’s aggressive rooftop solar adoption, grid instability issues driving storage-coupled inverter demand, and favorable policy environments.
4. North America: Cumulative exports of $475.92 million. However, recent months show weakness, with November exports at $49.87 million (-31.84% YoY). This decline reflects ongoing trade tensions, tariff uncertainties, and the complexities of the US supply chain localization requirements.
5. South America: Cumulative exports of $633.37 million. November saw modest growth of 2.79% YoY to $61.83 million. Brazil remains the anchor, but growth is maturing.

(Source: General Administration of Customs, Ajian Securities Research)

Domestic Demand: Installation Surge and Record Storage Tenders

Photovoltaic Installations:
Domestic installations showed a strong seasonal spike in November, typical of the year-end rush to meet annual targets.
* November 2025: New installed capacity reached 22.02 GW, a 74.76% MoM increase. However, this figure represents an 11.92% YoY decline, indicating that the base effect from the previous year’s exceptional growth is now weighing on comparative metrics.
* Cumulative (Jan-Nov 2025): Total new installations amounted to 274.89 GW, up 33.25% YoY. This double-digit growth confirms that China’s domestic market remains the world’s largest and most dynamic, driven by large-scale base projects and distributed PV incentives.

Energy Storage Tenders:
The storage sector is witnessing unprecedented activity in terms of tender volumes, signaling a robust pipeline for future revenue recognition.
* November 2025 Tenders: The newly tendered scale for EPC/PC (including DC-side equipment) and storage systems reached 21.8 GW / 64 GWh.
* Capacity Scale: This represents a 65% MoM surge, setting a new monthly record for 2025.
* YoY Comparison: Despite the massive monthly volume, the figure is down 4% YoY, suggesting that while the market is huge, the explosive hyper-growth phase may be moderating into a steady, high-volume equilibrium.
* Implication: The record tender volumes provide visibility for revenue for storage integrators and battery suppliers in H1 2026. However, given the falling bid prices noted earlier, volume growth may not translate linearly into profit growth unless companies can achieve significant cost reductions.

Investment Logic & Sector Outlook

1. The "Export Rebate Cancellation" Catalyst: Short-Term Pain, Long-Term Gain

The decision to cancel VAT export rebates for PV products starting April 2026 is a pivotal policy shift. Historically, these rebates acted as a subsidy for Chinese exporters, allowing them to compete aggressively on price in global markets.

• Short-Term Impact (Q1 2026): We anticipate a "front-loading" effect. Exporters will strive to ship as much inventory as possible before April to capture the remaining rebate benefits. This could lead to a temporary spike in export volumes and potentially lower FOB prices as companies compete for shipping slots and buyer commitments. Investors should monitor Q1 shipment data closely for this anomaly.
• Long-Term Structural Impact: The removal of rebates effectively raises the cost base for Chinese exporters. This serves two strategic purposes for the Chinese government:
  1. Capacity Clearance: Higher export costs will squeeze margins for low-efficiency, high-cost producers who rely solely on price competition. This accelerates the exit of backward capacity, reducing industry-wide oversupply.
  2. Value Chain Migration: It encourages manufacturers to move up the value chain or localize production overseas (e.g., in Southeast Asia, the Middle East, or even Europe/US) to bypass trade barriers and tax implications. Companies with established global manufacturing footprints will gain a competitive advantage over pure-play domestic exporters.

Investment Implication: Favor companies with:
* Strong brand power that allows them to pass on some cost increases to overseas customers.
* Existing overseas manufacturing capabilities.
* Technological leadership that makes their products less price-sensitive.

2. Price Bottoming in PV: Margin Repair Opportunity

The week-on-week price increases in TOPCon modules (+1.43%) and cells (+2.56%) are significant indicators. For the past two years, the PV sector has been trapped in a deflationary spiral where price drops outpaced cost reductions, crushing margins.

• Supply Discipline: Major polysilicon and wafer producers have demonstrated greater discipline in curtailing production during low-demand periods. This has stabilized upstream prices.
• Technology Premium: The price resilience in N-type TOPCon products highlights the market’s preference for high-efficiency technology. As PERC capacity becomes obsolete, the supply-demand balance for TOPCon is tighter.
• Margin Trajectory: If prices stabilize or rise modestly while raw material costs (polysilicon) remain flat, gross margins for cell and module makers should improve in Q1/Q2 2026. This provides a fundamental basis for valuation rerating.

3. Energy Storage: Volume vs. Value Dilemma

The storage sector presents a classic "volume up, price down" scenario.
* Volume Driver: The record 64 GWh tender volume in November confirms that the demand for grid-scale storage is structural and growing. Renewable integration mandates and peak-shaving requirements are non-negotiable drivers.
* Price Pressure: The 10.86% drop in 4-hour system bid prices is concerning. It indicates that the barrier to entry for system integration is lowering, leading to intense competition.
* Winners: In this environment, winners will be those with:
* Vertical Integration: Companies that make their own batteries (like Narada) can better control costs than pure integrators.
* Software/EMS Capabilities: Differentiation through advanced Energy Management Systems (EMS) and grid-forming capabilities can command higher margins than hardware-only offerings.
* Overseas Exposure: Overseas storage markets (particularly Europe and Australia) generally offer higher margins than the domestic Chinese market. Companies like Sungrow, with strong global channels, are better positioned to blend high-margin overseas sales with high-volume domestic sales.

4. Geographic Arbitrage: The Rise of Australia and Asia

The data clearly shows that reliance on Europe and North America is risky due to saturation and trade barriers, respectively.
* Australia: The 177% YoY growth in inverter exports to Australia is a standout theme. Australia’s unique grid challenges (high rooftop solar penetration causing voltage issues) create a strong demand for smart inverters and hybrid storage solutions. Companies with a strong presence in Australia (e.g., Sungrow, Growatt, Sofar) are well-positioned.
* Asia: The steady 15-30% growth in Asian markets offers a stable baseline. India, Vietnam, and Thailand are industrializing rapidly, driving commercial and industrial (C&I) solar and storage demand.

Risks / Headwinds

While the outlook is constructive, investors must remain cognizant of the following risks:

1. Intensifying Competition and Margin Erosion

• Risk: The PV and storage sectors remain highly fragmented. Despite capacity clearance efforts, the sheer scale of existing capacity means that price wars can reignite at any time. The recent drop in 4-hour storage system prices is a warning sign. If competitors prioritize market share over profitability, gross margins could compress further, negating the benefits of volume growth.
• Mitigation: Monitor quarterly gross margin trends closely. Prefer companies with differentiated technology or strong brand loyalty.

2. Policy Uncertainty and Demand Volatility

• Risk: The renewable energy sector is heavily policy-dependent. Changes in feed-in tariffs, subsidy schemes, or grid connection rules in key markets (China, Europe, US) can abruptly alter demand trajectories. For instance, delays in grid approvals in Europe or changes in net-metering policies in Australia could impact short-term orders.
• Specific Concern: The implementation of the export rebate cancellation in April 2026 may lead to unintended consequences, such as a sharp drop in exports in Q2 2026 if global buyers pause to renegotiate prices.

3. International Trade Frictions and Geopolitics

• Risk: Trade protectionism is rising globally.
  • US: Continued enforcement of UFLPA (Uyghur Forced Labor Prevention Act) and potential new tariffs under changing political administrations pose risks to direct and indirect exports.
  • Europe: The EU’s Carbon Border Adjustment Mechanism (CBAM) and potential anti-subsidy investigations into Chinese wind/solar products could increase compliance costs and restrict market access.
  • Emerging Markets: While growing, these markets may also introduce local content requirements or import duties to protect nascent domestic industries.
• Impact: Companies with limited geographic diversification or those lacking overseas manufacturing bases are most vulnerable.

4. Raw Material Price Volatility

• Risk: While polysilicon prices are currently stable, any disruption in supply (e.g., environmental inspections, energy shortages in producing regions like Xinjiang or Inner Mongolia) could cause price spikes. Conversely, a sudden drop in lithium carbonate prices could lead to inventory write-downs for battery manufacturers.

Rating / Sector Outlook

Sector Rating: Outperform (Stronger than Market)

We believe the Power Equipment sector, specifically the PV and Energy Storage segments, is poised for a period of consolidation followed by healthier growth. The current valuation levels for many leading companies already reflect the pessimistic expectations of price wars and overcapacity. However, the emerging signs of price stabilization, the structural support from global energy transition trends, and the policy-driven supply-side optimization provide a compelling case for upside.

Key Drivers for Outperformance:
1. Valuation Reset: Many stocks are trading at historically low P/E ratios, offering a margin of safety.
2. Earnings Visibility: Strong overseas order books and record domestic storage tenders provide revenue visibility for 2026.
3. Policy Catalyst: The export rebate change, while challenging, will ultimately strengthen the competitive position of industry leaders.

Comparison with Benchmark:
We expect the sector index to outperform the CSI 300 Index over the next 6 months, driven by the specific alpha factors mentioned above rather than broad market beta.

Investment View & Recommended Stocks

Based on the analysis of production schedules, price trends, and regional demand dynamics, we recommend a barbell strategy: investing in integrated global leaders with strong balance sheets and specialized niche players with high growth in specific segments or regions.

Top Recommendations

1. Sungrow Power Supply (300274.SZ)

• Logic: Sungrow is the global leader in solar inverters and a top-tier player in energy storage systems.
• Catalysts:
  • Inverter Growth: Benefiting directly from the 29.57% YoY growth in inverter exports, particularly in high-margin markets like Europe and the fast-growing Australian market.
  • Storage Integration: Its vertically integrated storage solutions allow it to capture value across the chain, mitigating the impact of falling system prices.
  • Global Footprint: Extensive overseas service network and brand recognition provide a moat against pure-price competitors.
• Risk: Exposure to European market saturation.

2. Narada Power Source (300068.SZ)

• Logic: A leading manufacturer of lithium-ion batteries, with a strong focus on energy storage and backup power.
• Catalysts:
  • Storage Resilience: With storage battery production remaining high while power batteries decline, Narada’s product mix is well-aligned with current market strengths.
  • Cost Control: Vertical integration in battery materials helps maintain margins despite falling system bid prices.
  • Domestic Tender Wins: Well-positioned to win contracts in the record-breaking domestic storage tenders.
• Risk: Intense competition in the LFP battery market.

3. Tongrun Equipment (002150.SZ)

• Logic: A key supplier of PV mounting structures and electrical equipment.
• Catalysts:
  • Volume Play: As PV installations remain high (274 GW YTD), demand for mounting structures is robust.
  • Export Exposure: Benefits from the front-loading of exports before the rebate cancellation.
  • Valuation: Often trades at a discount to module makers, offering attractive entry point.
• Risk: Low barrier to entry in mounting structures could lead to margin pressure.

4. Huashengchang (002980.SZ)

• Logic: Specializes in digital testing and measurement instruments, including those for PV and energy storage systems.
• Catalysts:
  • Quality Focus: As the industry shifts from volume to quality, demand for precise testing and monitoring equipment increases.
  • Niche Market: Less exposed to direct commodity price wars compared to module/battery makers.
• Risk: Smaller market size; dependent on capex cycles of manufacturers.

5. Sofar Solar (301658.SZ)

• Logic: A fast-growing inverter manufacturer with a strong focus on residential and C&I segments.
• Catalysts:
  • Emerging Markets: Strong presence in high-growth regions like Australia and Asia, aligning with the identified demand trends.
  • Agility: Smaller size allows for quicker adaptation to market changes compared to larger conglomerates.
• Risk: Higher volatility; less diversified than Sungrow.

Strategic Allocation Advice

• Core Holding (60%): Allocate to Sungrow and Narada for stability, dividend potential, and exposure to the broader secular growth trends.
• Satellite Holding (40%): Allocate to Tongrun, Huashengchang, and Sofar for higher beta and exposure to specific niches (mounting, testing, residential inverters).

Monitoring Checklist for Investors

1. April 2026 Policy Implementation: Watch for actual export data in March/April to gauge the front-loading effect and subsequent Q2 drop-off.
2. TOPCon Price Sustainability: Monitor weekly InfoLink data to confirm if the +1-2% price increases are sustained into Q1 2026.
3. Storage Bid Prices: Track whether the 10%+ decline in 4-hour system prices stabilizes. Further declines would signal deeper margin compression.
4. Australian Market Continuity: Verify if the 177% YoY growth in Australian inverter exports is sustainable or a one-off anomaly.

Appendix: Detailed Data Analysis

A. Photovoltaic Supply Chain Deep Dive

The PV supply chain has undergone a dramatic transformation from 2023 to 2025. The period was marked by massive capacity expansion, leading to severe oversupply. However, the data from late 2025 suggests a turning point.

Polysilicon:
The price of 54.00 RMB/kg is near the cash cost for many older facilities. This acts as a hard floor. Any further price drop would trigger widespread shutdowns, which would immediately tighten supply. Therefore, downside risk is limited. Upside potential depends on demand recovery and environmental restrictions on production.

Wafers:
The 183mm N-type wafer price of 1.40 RMB/piece reflects the industry’s shift to larger, more efficient formats. The stability here is crucial because wafer manufacturing is capital intensive. Stable prices allow for better capacity utilization planning.

Cells and Modules:
The divergence between P-type (PERC) and N-type (TOPCon/HJT) is widening. PERC prices are likely continuing to fall as they become obsolete. TOPCon, being the current mainstream high-efficiency technology, is seeing better demand. The 0.71 RMB/W module price is still low compared to historical averages, but the direction of change (up) is more important for sentiment than the absolute level. It signals that buyers are willing to pay a slight premium for reliability and efficiency, moving away from purely lowest-cost procurement.

B. Energy Storage Market Dynamics

The energy storage market is more complex due to the variety of applications (grid-scale, C&I, residential) and technologies (LFP, Sodium-ion, Flow batteries).

LFP Dominance:
Lithium Iron Phosphate (LFP) remains the dominant chemistry for stationary storage due to its safety and cycle life. The price trends reported (0.49 RMB/Wh for bids) reflect LFP systems.

The 2-Hour vs. 4-Hour Divergence:
* 2-Hour Systems: Often used for frequency regulation and short-duration peak shaving. The price increase (+2.88%) might reflect higher technical specifications for response time or integration with advanced inverters.
* 4-Hour Systems: Used for energy shifting (solar to evening peak). The sharp price drop (-10.86%) suggests that this segment is becoming commoditized. Developers are treating 4-hour storage as a bulk commodity, driving integrators to cut margins to win bids. This favors large-scale manufacturers with economies of scale.

Global vs. Domestic:
Domestic prices are significantly lower than international prices. For example, US and European storage system prices can be 2-3x higher due to labor, compliance, and tariff costs. This arbitrage opportunity is why companies with strong overseas channels (like Sungrow) enjoy higher overall margins.

C. Regional Demand Analysis: The Australia Case Study

The 177% YoY growth in inverter exports to Australia is worth a deeper look.

Drivers:
1. Rooftop Solar Saturation: Australia has one of the highest per-capita rooftop solar installations in the world. This has created grid stability issues (voltage rise, frequency instability).
2. Regulatory Response: Australian regulators are mandating smarter inverters that can provide grid services (volt-var control, frequency response). This drives replacement demand for older, "dumb" inverters with new, smart hybrid inverters.
3. Storage Coupling: To manage excess solar generation, homeowners and businesses are increasingly adding batteries. Hybrid inverters (which manage both solar and battery) are in high demand.
4. Chinese Competitiveness: Chinese manufacturers offer the best price-performance ratio for these advanced hybrid inverters.

Implication for Investors:
Companies that have certified their products for the Australian market and established local service partnerships are reaping disproportionate rewards. This model could be replicated in other markets facing similar grid congestion issues (e.g., parts of Europe, California).

D. Financial Implications for Listed Companies

Revenue Recognition:
* Q4 2025: Likely strong due to year-end installation rush in China and front-loading of exports.
* Q1 2026: Potentially mixed. High export volumes (front-loading) but potentially lower margins if discounts were offered to secure early shipments. Domestic demand may be seasonally weak.
* Q2 2026: Potential dip in exports post-rebate cancellation. However, if capacity clearance occurs, domestic prices may rise, supporting margins.

Margin Outlook:
* Gross Margins: Expected to stabilize or slightly improve for leaders due to stable upstream costs and modest downstream price increases.
* Net Margins: Dependent on operating leverage. As volumes remain high, fixed costs are spread thinner, aiding net profitability.

Cash Flow:
* Watch for changes in working capital. Front-loading exports may strain cash flow if payment terms are extended. However, strong domestic tenders usually come with structured payment milestones.

Conclusion

The Power Equipment sector stands at a inflection point. The era of unchecked capacity expansion and relentless price wars is yielding to a phase of structural optimization and quality-focused growth. The cancellation of export rebates, while a short-term disruptor, is a long-term positive for industry health.

Investors should look beyond the headline volume numbers and focus on margin resilience, global diversification, and technological leadership. The recommended stocks—Sungrow, Narada, Tongrun, Huashengchang, and Sofar—represent a balanced portfolio capable of navigating this transition and capturing the upside from the global energy transition.

We reaffirm our Outperform rating on the sector, urging investors to accumulate positions on any near-term volatility caused by policy implementation fears, as the fundamental trajectory remains upward.

Disclaimer: This report is prepared by Ajian Securities Research for institutional investors only. The information contained herein is derived from sources believed to be reliable, but Ajian Securities does not guarantee its accuracy or completeness. 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 research and consult with financial advisors before making investment decisions. Past performance is not indicative of future results.