Equity Research: China New Energy & Power Equipment Sector

Date: September 2025
Sector: Electrical Equipment / Renewables (Wind, Solar, Storage, Grid)
Rating: OVERWEIGHT (Maintained)
Analyst: Zixun Wang (S0280524110001)

Executive Summary

The Chinese New Energy and Power Equipment sector is undergoing a decisive structural inflection point in the first half of 2025 (1H25). After a period of significant earnings pressure in 2024 driven by overcapacity and price wars, the industry is exhibiting clear signs of recovery, characterized by diverging dynamics across sub-sectors. Our analysis of 1H25 financial results and operational data indicates that the "bottoming out" phase has largely passed for Photovoltaics (PV), while Wind Power and Energy Storage are experiencing robust cyclical upswings. Grid Equipment continues to demonstrate resilient, steady growth underpinned by global infrastructure investment cycles.

Key Thesis Drivers:
1. Policy-Driven Supply Side Reform in PV: The central government’s intensified crackdown on "involutionary" (destructive) competition is transitioning from rhetorical guidance to concrete policy enforcement. This has accelerated the exit of inefficient capacity, stabilized upstream prices (particularly polysilicon), and restored margin expectations.
2. Wind Power Revenue Recognition Lag Ending: The high volume of tenders recorded in 2024 is now translating into revenue and profit recognition in 1H25. Upstream components (bearings, towers, blades) are seeing disproportionate profit recovery due to structural shortages in large-megawatt (MW) supply chains.
3. Global Grid Supercycle: Domestic grid investments are rising to accommodate renewable integration, while export opportunities remain strong due to aging infrastructure in developed markets and electrification trends globally.
4. Valuation Attractiveness: Despite recent market rallies, valuations for Wind and Solar remain near historical lows on a Price-to-Book (P/B) basis, offering a compelling risk-reward profile for institutional investors as earnings visibility improves.

We maintain an OVERWEIGHT rating on the sector. We recommend prioritizing exposure to Energy Storage and Wind Power components for alpha generation, while viewing Grid Equipment as a stable defensive hold. Photovoltaics offers a turnaround play, particularly in inverters and integrated module leaders benefiting from supply consolidation.

Key Takeaways

1. Macro-Sector Recovery: Profitability Turns Positive in 2Q25

The broader Electrical Equipment sector (Shenwan Index) has shown a marked improvement in operating performance. After enduring a challenging 2024, the sector’s net profit growth turned positive in the second quarter of 2025.

• Revenue Growth Acceleration: In 1Q25, the sector generated RMB 727.5 billion in revenue (+2.9% YoY). This acceleration continued in 2Q25 with revenue reaching RMB 906.6 billion (+6.1% YoY). This marks a significant recovery from the ~-10% YoY contraction seen in late 2024.
• Net Profit Inflection: Net attributable profit reached RMB 28.65 billion in 1Q25 (-13.2% YoY) but surged to RMB 39.67 billion in 2Q25 (+25.9% YoY). This represents the first year-on-year net profit growth since 3Q23, signaling the end of the earnings downturn.
• Margin Stabilization: Industry-wide gross margins stabilized at ~18.0% in 1Q25 and 17.9% in 2Q25, recovering from the trough of 11.1% in 4Q24. Net margins also turned positive in 2Q25 (0.5%), recovering from negative territory in previous quarters.

(Source: Wind, Chengtong Securities Research Institute)

2. Sub-Sector Divergence: Winners and Laggards

Performance varies significantly across the four main pillars: Solar, Wind, Storage, and Grid.

A. Photovoltaics (PV): Bottoming Out Amidst Policy Intervention

• Performance: The PV sector is in a clear recovery trajectory. While 1Q25 revenues were still down (-12% YoY), the decline narrowed to -5% in 2Q25. More importantly, net profit growth swung from -85% in 1Q25 to +60% in 2Q25.
• Segment Leaders:
  • Inverters: The standout performer, maintaining high growth with revenue up 43% (1Q25) and 25% (2Q25), and net profit up 79% and 25% respectively. This is driven by global demand and favorable product mix.
  • Main Chain (Silicon/Wafers/Cells): Showing signs of life. Silicon material and wafer segments saw net profit growth turn positive in 2Q25 (+12% and +28% respectively). Cell manufacturers also returned to profitability (+95% net profit growth in 2Q25).
  • Laggards: Integrated modules and auxiliary materials (glass, film) remain under pressure due to lingering inventory issues and slower price transmission downstream.
• Price Dynamics: Prices have stabilized and begun to rebound, particularly upstream. Polysilicon prices rose 28.2% from end-2024 levels to ~RMB 50,000/ton by Sept 2025. Wafer prices rose 23.8%. Module prices remained relatively flat (-1.5%), indicating that upstream producers are capturing the initial benefit of the supply squeeze.

B. Wind Power: Strongest Cyclical Recovery

• Performance: Wind power is experiencing a robust revival. Revenue growth accelerated to +10% in 1Q25 and +19% in 2Q25. While net profit growth was modest in aggregate (+10% in 2Q25), this masks significant strength in specific components.
• Component Boom: The translation of 2024’s record tender volumes into 2025 revenue is driving exceptional profits in upstream manufacturing:
  • Bearings: Net profit soared +639% YoY in 2Q25.
  • Blades: Net profit up +131% YoY.
  • Towers/Piles: Net profit up +79% YoY, driven by strong overseas exposure.
• Offshore Wind: Construction pace is accelerating due to proximity to coastal load centers, supporting higher-margin offshore cable and foundation businesses.

C. Energy Storage: High景气 (Prosperity) Continues

• Performance: Storage remains the highest-growth sub-sector.
  • Utility-Scale (Large Storage): Revenue +30%, Net Profit +35% in 2Q25. Driven by domestic policy (Document No. 136) mandating independent storage participation in markets.
  • Thermal Management: Revenue +56%, Net Profit +67% in 2Q25. Critical for safety and efficiency in larger battery packs.
  • Residential Storage: Revenue +12%, Net Profit +11%. Growth is supported by emerging markets facing grid instability and electricity price volatility.

D. Grid Equipment: Steady Growth & Global Tailwinds

• Performance: Defensive stability with upside. Revenue grew +7% (1Q25) and +11% (2Q25). Net profit grew +8% and +17% respectively.
• Key Segments:
  • Transmission & Distribution (T&D): Leading the pack with net profit growth of +34% (1Q25) and +23% (2Q25) for distribution equipment.
  • Automation: Consistent double-digit revenue growth (~13%).
• Export Strength: Chinese grid equipment companies are benefiting from a global supercycle. Transformer exports grew +38% YoY in Jan-Aug 2025. High-voltage switchgear exports grew +28%.

3. Supply Side Discipline: The End of "Involution"

A critical theme for 2025 is the regulatory crackdown on "involutionary competition" (price wars below cost). This is not merely market rhetoric but a coordinated policy effort involving the NDRC, MIIT, and SAMR.

• Policy Timeline:
  • July 2024: Politburo Meeting first emphasizes preventing "involutionary" competition.
  • Feb 2025: SAMR holds symposiums on fair competition, targeting low-price dumping.
  • May 2025: NDRC outlines six measures to curb disorderly expansion.
  • June 2025: Revision of the Anti-Unfair Competition Law passed, explicitly prohibiting sales below cost, effective Oct 15, 2025.
  • July 2025: Multi-ministry joint symposium on PV industry, signaling unified enforcement.
• Impact on Capacity:
  • CapEx Slowdown: The ratio of Construction in Progress (CIP) to Total Assets has fallen to 4.8% in 2Q25, down from a peak of 6.5% in 3Q23. This indicates a drastic slowdown in new capacity additions.
  • Subsidy Reduction: Government subsidies to PV and Storage listed companies fell by 9% and 35% respectively in 1Q25, indicating local governments are curbing indiscriminate support for new factories.
• Market Outcome: Polysilicon futures rebounded from RMB 30,000/ton to ~RMB 50,000/ton. Recent tenders (e.g., Huadian Group, Aug 2025) show module prices stabilizing at RMB 0.71-0.74/W, a sustainable level for leading manufacturers.

4. Demand Side Catalysts

• PV "Rush to Install": The implementation of Document No. 136 (Feb 2025) created a deadline effect. Projects commissioned before June 1, 2025, could lock in favorable grid-connection terms or subsidy mechanisms. This led to a record 92.9 GW of new PV installations in May 2025 alone. Total Jan-July 2025 installations reached 223.3 GW.
• Wind Tendering Momentum: 2024 saw a near-doubling of wind tenders to 164 GW (153 GW onshore, 11 GW offshore). This pipeline is feeding 2025 revenues. 1H25 tenders remained strong at 72 GW (+9% YoY).
• Grid Investment: Domestic grid investment reached RMB 331.5 billion in Jan-July 2025 (+12% YoY), continuing the 15% growth trend from 2024. This is driven by the need to integrate volatile renewable sources and upgrade aging infrastructure.

5. Valuation: Attractive Entry Point

Despite the recent market rally in 2025, valuations remain historically attractive, particularly for Wind and Solar.

• Overall Sector: PE (TTM) percentile is 57.8%; PB (LF) percentile is 52.8% (10-year history).
• Photovoltaics: PB (LF) percentile is 37.8%. PE is distorted by low earnings, but P/B suggests significant undervaluation relative to asset base.
• Wind Power: PB (LF) percentile is 35.9%. PE (TTM) percentile is high (96.5%) due to depressed prior earnings, but as profits recover, the forward PE will compress rapidly.
• Grid Equipment: PE (TTM) percentile 66.2%; PB (LF) 64.4%. Fairly valued, reflecting its defensive nature.

(Source: Wind, Chengtong Securities Research Institute. Data as of Sept 12, 2025)

Detailed Sector Analysis

1. Photovoltaics: From Chaos to Order

1.1 Performance Review: The Inverter Exception

The PV sector’s 1H25 results reflect a classic "U-shaped" recovery. The severe losses of 2024, where nearly all links in the supply chain operated below cash cost, are abating.

• Inverters: This segment decoupled from the rest of the PV chain in 2024 and continued to outperform in 1H25.
  • Drivers: Global diversification (Europe, Middle East, Asia-Pacific), higher margins in hybrid/string inverters, and the correlation with energy storage systems (hybrid solutions).
  • Financials: 2Q25 Revenue +25% YoY; Net Profit +25% YoY. Gross margins have stabilized around 25-30% for leading players.
• Integrated Modules: Still facing headwinds.
  • Financials: 2Q25 Revenue -23% YoY; Net Profit -75% YoY. While the loss magnitude is narrowing compared to 4Q24 (-1142% base effect), profitability remains elusive for many tier-2 players.
  • Outlook: Consolidation is inevitable. Only vertically integrated leaders with strong balance sheets and overseas channel access will survive the current price environment.
• Upstream Materials (Silicon/Wafers):
  • Financials: Silicon material net profit turned +12% in 2Q25. Wafers +28%.
  • Logic: The supply side constraints (policy-driven) hit upstream hardest and fastest. With new capacity approvals frozen, existing players gained pricing power.

1.2 Demand Analysis: The Impact of Document No. 136

The Notice on Deepening the Market-Oriented Reform of New Energy On-Grid Tariffs (Document No. 136), issued in Feb 2025, was a watershed moment.

• Mechanism: It distinguishes between "Stock" (pre-June 1, 2025) and "Incremental" (post-June 1, 2025) projects.
  • Stock Projects: Guaranteed grid connection and settled via difference contracts, protecting early movers.
  • Incremental Projects: Subject to market-based bidding and dynamic quota adjustments based on local consumption capacity.
• Result: A massive "rush to install" in H1 2025. May 2025 saw 92.9 GW of new installations, a historic monthly record. This pulled forward demand, causing a temporary dip in June/July, but established a higher baseline for annual installations.
• Long-term Implication: By forcing new projects to compete on market terms and bear balancing costs, the policy encourages co-location with storage and improves the economic viability of the grid. It shifts the industry from subsidy-driven to value-driven.

1.3 Supply Side: Regulatory Cleanup

The Chinese government’s approach to "involution" is multi-pronged:

1. Legal Framework: The revised Anti-Unfair Competition Law (effective Oct 2025) provides a legal basis to penalize predatory pricing. This changes the game from "voluntary industry self-discipline" (which failed in 2024) to "legal compliance."
2. Local Government Restraint: Central authorities are curbing local governments’ ability to offer cheap land, tax breaks, and subsidized energy to attract PV factories. This removes the artificial cost advantage that kept inefficient zombies alive.
   • Evidence: Subsidies to listed PV firms dropped 9% YoY in 1Q25.
3. Capacity Controls: Strict thresholds for new polysilicon and wafer projects (energy consumption standards, technology efficiency benchmarks) effectively ban new low-end capacity.

Investment Implication: The era of endless capacity expansion is over. The focus shifts to market share consolidation and pricing power restoration. Investors should favor companies with:
* Low-cost leadership (to survive any residual price wars).
* Strong balance sheets (to withstand the transition period).
* Overseas revenue exposure (higher margins, less domestic competition).

2. Wind Power: The Lagged Reward of Tendering Boom

2.1 Financial Recovery: Upstream Leads

Wind power’s recovery is structurally different from Solar. It is driven by the conversion of order books into revenue.

• Tender-to-Revenue Lag: Wind projects have a 12-18 month construction cycle. The record 164 GW of tenders in 2024 is now being recognized as revenue in 2025.
• Profit Elasticity: Upstream components have higher operating leverage. As volumes rise, fixed costs are spread thinner, leading to explosive profit growth.
  • Bearings: +639% Net Profit Growth (2Q25). Bearings are a bottleneck for large MW turbines. Domestic substitution is accelerating, improving margins.
  • Blades: +131% Net Profit Growth. Large blades (>100m) require specialized manufacturing, limiting supply.
  • Towers/Piles: +79% Net Profit Growth. Benefiting from both domestic offshore wind acceleration and strong export demand (especially to Europe).

2.2 Price Stabilization and Industry Discipline

Unlike Solar, the Wind sector has maintained better pricing discipline.

• Turbine Prices: Rose from ~RMB 1,400/kW in mid-2024 to ~RMB 1,600/kW in June 2025.
• Why?
  1. Oligopolistic Structure: Dominated by state-owned enterprises (SOEs) and a few large private players (Goldwind, Envision, Mingyang).
  2. Self-Discipline Pact: In Oct 2024, 12 major manufacturers signed a fairness covenant.
  3. Procurement Reform: SASAC and NDRC guidelines now emphasize "lifecycle cost" over "lowest bid price," allowing OEMs to quote higher prices for better quality/reliability.

2.3 Offshore Wind Acceleration

Offshore wind is becoming a key growth driver.
* Proximity to Load: Coastal provinces (Jiangsu, Guangdong, Shandong) have high electricity demand and limited land for solar/onshore wind.
* Policy Support: Provincial governments are speeding up permitting for offshore projects to meet renewable targets.
* Supply Chain: Offshore cables (subsea) and foundations have higher barriers to entry and margins than onshore equivalents. While Hailan (cable) growth was modest in 2Q25 (+13% rev) due to revenue recognition timing, the backlog suggests strong future performance.

3. Energy Storage: The High-Growth Engine

3.1 Utility-Scale (Large Storage) Dominance

• Policy Driver: Document No. 136 and provincial mandates require new renewable projects to pair with storage (typically 10-20% capacity for 2-4 hours).
• Market Mechanism: Independent energy storage stations are now allowed to participate in spot markets and ancillary services (frequency regulation), creating a viable revenue model beyond just "curtailment avoidance."
• Financials: Large storage revenue +30%, Profit +35% in 2Q25. This segment is scaling rapidly.

3.2 Thermal Management: A Critical Niche

• Technology Shift: As battery capacities increase (300Ah+ cells, 5MWh+ containers), thermal management becomes critical for safety and longevity. Liquid cooling is becoming the standard.
• Financials: Revenue +56%, Profit +67% in 2Q25. This sub-sector enjoys higher margins and less competition than battery cell manufacturing.

3.3 Residential Storage: Emerging Markets

• Europe: Inventory correction is complete. Demand is stabilizing, driven by electricity price volatility.
• Emerging Markets: South Africa, Southeast Asia, and Latin America are seeing surging demand due to grid unreliability. Chinese manufacturers are well-positioned to capture this growth.
• Financials: Moderate growth (+12% Rev, +11% Profit) but with improving margins as high-cost inventory is cleared.

4. Grid Equipment: The Global Supercycle

4.1 Domestic Investment: Counter-Cyclical Stability

• Investment Volume: RMB 608.3 billion in 2024 (+15% YoY). Jan-July 2025: RMB 331.5 billion (+12% YoY).
• Drivers:
  1. Renewable Integration: Wind and solar require significant grid upgrades (HVDC lines, substations) to transmit power from remote generation sites to urban centers.
  2. Distribution Upgrade: To handle distributed PV and EV charging, distribution networks need automation and smart metering.
  3. Security & Reliability: Geopolitical tensions and extreme weather events are prompting investments in grid resilience.

4.2 Export Boom: The "Going Global" Strategy

Chinese grid equipment manufacturers are becoming global leaders, filling the gap left by Western suppliers who face capacity constraints and high costs.

• Transformers: Global shortage due to AI data center demand and renewable integration. Chinese exports +38% YoY (Jan-Aug 2025).
• High-Voltage Switchgear: Exports +28% YoY.
• Markets: Europe (grid modernization), US (replacement demand, despite tariffs, some channels remain open), Middle East (NEOM and other mega-projects), and Southeast Asia.
• Competitive Advantage: Chinese firms offer shorter lead times (12-18 months vs. 3-4 years for European peers) and competitive pricing.

4.3 Long-Term Global Context

• IEA Data: Global power generation investment has grown 50% since 2017, but grid investment has stagnated at ~$300 billion/year.
• The Gap: To achieve 2030 climate goals (30% renewable share), grid investment must double. This creates a multi-year secular tailwind for Chinese exporters.

Risks / Headwinds

While the outlook is positive, institutional investors must monitor the following risks:

1. Installation Miss (Demand Risk)

• Scenario: Global PV, Wind, and Storage installations fall short of expectations.
• Drivers:
  • Grid Congestion: If grid upgrades lag renewable build-out, curtailment rates will rise, discouraging new projects.
  • Electricity Prices: A drop in wholesale electricity prices (e.g., due to gas price collapse) reduces the economic case for renewables and storage.
  • Policy Reversal: Changes in subsidy schemes or tax credits in key markets (US IRA, EU Green Deal).

2. Incomplete Supply Side Clearing (Profit Risk)

• Scenario: The "anti-involution" policies fail to force sufficient capacity exit.
• Impact: Prices remain depressed, preventing margin recovery. This is particularly relevant for PV modules and batteries, where cash-rich players might continue producing at a loss to maintain market share.
• Monitor: Monthly production data and inventory levels. If inventories rise despite price stabilization, the recovery is fragile.

3. Trade Barriers (Geopolitical Risk)

• Scenario: Escalation of trade disputes with the US, EU, or India.
• Impact: Tariffs on Chinese solar modules, wind turbines, or grid equipment could shut off lucrative export markets.
  • Specific Concern: The EU’s anti-subsidy investigations into wind and solar. The US’s Section 301 tariffs and UFLPA (Uyghur Forced Labor Prevention Act) enforcement.
• Mitigation: Companies with overseas manufacturing bases (Vietnam, Thailand, Hungary, Mexico) are better insulated.

4. Raw Material Volatility (Cost Risk)

• Scenario: Sharp increases in copper, aluminum, steel, or lithium carbonate prices.
• Impact:
  • Grid/Wind: Copper and steel are major cost components. Price spikes can squeeze margins if contracts are fixed-price.
  • Storage: Lithium price volatility affects battery pack costs, though prices have currently stabilized at low levels.

5. Macroeconomic & Interest Rate Risk

• Scenario: Federal Reserve cuts rates slower than expected, or global recession hits.
• Impact: Renewable energy projects are capital-intensive. Higher interest rates increase the Levelized Cost of Energy (LCOE), reducing project IRRs and dampening demand. A global recession would reduce electricity demand growth.

Rating / Sector Outlook

Overall Rating: OVERWEIGHT

We believe the sector has passed the point of maximum pessimism. The combination of policy-driven supply discipline, robust demand from grid modernization, and the natural cyclical upturn in wind/storage creates a favorable environment for equity appreciation.

Sub-Sector Ratings:

Investment Themes for 2H25 - 2026:

1. "Quality Over Quantity" in PV: Avoid pure-play module assemblers. Focus on Inverters (global reach, high ROE) and Integrated Leaders with low-cost silicon/wafer capabilities that can survive the shakeout.
2. Wind Component Bottlenecks: Invest in companies with proprietary technology in large-size bearings and offshore cables, where supply is tight and margins are expanding.
3. Grid Exporters: Prioritize companies with proven track records in European and Middle Eastern markets for transformers and HVDC equipment. Look for those with overseas factories to mitigate tariff risks.
4. Storage System Integrators: Companies that can bundle batteries, PCS, and EMS (Energy Management Systems) to offer turnkey solutions for utility-scale projects.

Investment View & Strategy

Strategic Allocation Recommendation

For institutional portfolios, we recommend a barbell strategy within the New Energy sector:

1. Core Holding (40% Allocation): Grid Equipment & Wind Leaders.

   • These provide stability and predictable earnings growth. The global grid supercycle is a multi-year trend that is less susceptible to sudden policy shocks than solar.
   • Focus: State-owned grid equipment manufacturers with strong export orders; Leading wind turbine OEMs and tower manufacturers.

2. Growth Satellite (40% Allocation): Energy Storage & Wind Components.

   • Capture the high-beta growth from the storage boom and the wind supply chain squeeze.
   • Focus: Thermal management specialists, bearing manufacturers, and utility-scale storage integrators.

3. Turnaround Option (20% Allocation): Top-Tier PV Inverters & Integrated Players.

   • Bet on the success of supply-side reform. This is a higher-risk, higher-reward tranche.
   • Focus: Inverter companies with strong global brand recognition and diversified revenue streams. Avoid smaller, highly leveraged module makers.

Key Metrics to Monitor

• PV:
  • Polysilicon and Wafer prices (Stability indicates supply/demand balance).
  • Monthly installation data (Sustainability of demand post-rush).
  • Capacity utilization rates of top-tier vs. tier-2 manufacturers.
• Wind:
  • Tender prices (Maintenance of RMB 1,600/kW level).
  • Offshore wind permitting progress in Jiangsu and Guangdong.
  • Export order books for towers and cables.
• Storage:
  • Lithium Carbonate prices (Cost input).
  • Utilization hours of independent storage stations (Revenue driver).
• Grid:
  • State Grid annual investment plan revisions.
  • Customs data on transformer and switchgear exports.
  • Lead times for international orders (Indicator of global supply tightness).

Conclusion

The first half of 2025 has confirmed that the New Energy sector is no longer in a freefall. The painful process of supply-side clearing in PV is yielding results, Wind is delivering on its order book promises, and Storage is emerging as a standalone high-growth industry. Grid Equipment provides the necessary infrastructure backbone for this transition.

While risks related to trade and macroeconomic conditions persist, the current valuation levels do not fully price in the earnings recovery potential of Wind and Storage, nor the structural improvement in PV margins. We advise investors to increase exposure to the sector, focusing on quality companies with global competitiveness and technological moats.

Appendix: Detailed Financial Tables

Table 1: Revenue & Net Profit Growth by Sub-Sector (YoY %)

(Source: Wind, Chengtong Securities Research Institute)

Table 2: Valuation Metrics (As of Sept 12, 2025)

(Note: PE percentiles are elevated for Wind/Solar due to depressed denominators in 2024. PB is a more reliable metric for current valuation assessment.)

Disclaimer & Analyst Certification

Analyst Certification:
The analyst(s) responsible for this report certifies that all views expressed herein accurately reflect their personal views about the subject securities or issuers. No part of the analyst's compensation was, is, or will be directly or indirectly related to the specific recommendations or views expressed in this report.

Important Disclosures:
* Risk Rating: R3 (Medium Risk). Suitable for professional investors and ordinary investors with risk tolerance C3, C4, or C5.
* Conflict of Interest: Chengtong Securities may have investment banking relationships with companies mentioned in this report.
* No Offer: This report is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities.

Copyright:
© 2025 Chengtong Securities Co., Ltd. All rights reserved. This report may not be reproduced, distributed, or published without prior written consent.

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