Goldman Sachs lowers its medium-term earnings outlook for China solar, but sees selective opportunities in glass, film, and high-efficiency modules

Overview

This is a Goldman Sachs report on rating changes and forecast updates for its covered China solar materials portfolio. The core conclusion is that the industry is still likely to reach a cyclical bottom in 2H26E, but because of weaker China demand, slower capacity exits, and UTR staying low for longer, the magnitude of earnings recovery will be weaker than previously expected. Even so, valuations are already at low levels, and some subsegments are beginning to improve, so the report recommends selectively allocating to film, solar glass, and high-efficiency modules that may reach an inflection point earlier.

Core views

Goldman Sachs lowers its medium-term cycle assumptions for China solar: its 2027E-2030E China solar installation forecast is cut by an average of 17%; its 2026E-2030E value chain utilization assumptions are lowered to 29%-68%, versus the previous 60%-80%; value chain ASP forecasts are cut by an average of 9%; covered company EBITDA is cut by an average of 38% (excluding Daqo); and 12-month target prices are cut by an average of 33%. However, the report believes share prices have already partially priced in the weaker earnings outlook. The glass segment may improve first due to inventory destocking, cold repair shutdowns, and Tier1 competitive advantages, leading to Xinyi Solar being upgraded to Buy and Flat A/H being upgraded from Sell to Neutral.

Analysis framework

The report uses frameworks including supply-demand balance, regional power prices and project IRR, value chain pricing, EBITDA revisions, and ROE/P/B valuation reversion. For upstream solar materials and glass companies, the valuation methodology is switched from EV/EBITDA to 2026E P/B to better reflect the weaker earnings outlook; for film company Hangzhou First, it continues to use a discounted mid-cycle EV/EBITDA approach.

Methodology notes

• Industry supply-demandS/D balance model

  Measures supply-demand balance, capacity utilization, and price trends based on the module segment.

  The report states that its supply-demand balance model mainly references the module segment, and on that basis judges prolonged low UTR, ASP cuts, and inventory differences across subsegments.

• Valuation methodsP/B-ROE regression

  Uses the historical relationship between P/B and ROE to determine target P/B.

  For solar upstream, module, and glass companies, the report switches the primary valuation method to 2026E P/B and determines target multiples based on the historical regression relationship between P/B and ROE.

• Valuation methodsDiscounted mid-cycle EV/EBITDA

  Uses discounted mid-cycle EV/EBITDA to assess through-cycle growth capability.

  For film company Hangzhou First, the report continues to use discounted mid-cycle EV/EBITDA and raises the target EV/EBITDA multiple from 13x to 17x to reflect faster EBITDA CAGR.

• Project economicsRegional bottom-up IRR analysis

  Assesses installation demand based on regional power prices and returns.

  Based on changes in regional power pricing mechanisms, the report estimates a deeper decline in all-in tariffs for utility-scale solar, with average project IRR falling by 2 percentage points and the central region being the most affected.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Xinyi Solar (0968.HK)

  Upgraded to Buy, one of the preferred opportunities in solar glass.

  Strengths

  Valuation is only about 0.5x 2026E P/B; overseas capacity mix is expected to rise from 13% in 2025E to 25% in 2030E; benefits from improved glass ASP and lower LNG usage.

  Weaknesses

  2026E-2030E EBITDA forecasts are cut by an average of 19%; 2026E may see losses and an ROE trough.

  Comparison

  The report believes its current valuation overly reflects long-term price pessimism, and its risk-reward is better than that of most solar materials names.

  Risks

  Glass ASP below expectations, industry capacity cuts slower than expected, raw material and energy prices above expectations, and overseas expansion slower than expected.

• Flat A/H (601865.SS/6865.HK)

  Upgraded from Sell to Neutral.

  Strengths

  Improving supply-demand in the glass industry, together with cost advantages from cold repair shutdowns and large furnaces, should help ROE recovery.

  Weaknesses

  Target prices still imply -13% downside for Flat A and -15% for Flat H.

  Comparison

  Compared with the previous Sell rating, improved valuation and fundamentals justify the upgrade, but the risk-reward is still less attractive than Xinyi Solar.

  Risks

  Glass price recovery weaker than expected, insufficient supply discipline, and rising energy costs.

• Hangzhou First (603806.SS)

  Maintained at Buy and is the report’s preferred film exposure.

  Strengths

  Goldman continues to use mid-cycle EV/EBITDA valuation and raises the target multiple from 13x to 17x, reflecting faster EBITDA growth.

  Weaknesses

  Film prices are still slightly cut due to lower resin prices.

  Comparison

  Within the subsegments, it is one of the earlier-improving and more favored assets.

  Risks

  Resin prices, module demand, intensifying competition, and pricing pass-through ability.

• Longi (601012.SS)

  Maintained at Buy, representing exposure to high-efficiency modules.

  Strengths

  The report favors high-efficiency modules as one of the directions likely to see an earlier inflection point.

  Weaknesses

  Overall module demand and pricing are still affected by lower China demand and low UTR.

  Comparison

  Better positioned than traditional low-efficiency or more upstream pressure-heavy segments.

  Risks

  Technology iteration, tender volume and pricing, module prices, and installation demand.

• Tongwei (600438.SS)

  Maintained at Sell and belongs to the rod-type polysilicon exposure the report views cautiously.

  Strengths

  If debt rollover and industry consolidation exceed expectations, supply adjustment could come earlier.

  Weaknesses

  The cut in polysilicon prices is large, and rigid operating expenses make the ROE downgrade the most pronounced.

  Comparison

  The report is significantly more cautious on the polysilicon chain, seeing it as weaker than glass, film, and high-efficiency modules.

  Risks

  Further declines in polysilicon prices, inventory build-up, weaker-than-expected demand, and cost rigidity.

• Daqo ADR (DQ) / Daqo A (688303.SS)

  Polysilicon-related names, with ratings leaning Neutral/Sell respectively.

  Strengths

  Funding gap risk is low assuming short-term debt can continue to be rolled over.

  Weaknesses

  Polysilicon prices may fall to the fully loaded cash cost of high-efficiency Tier1 players, making earnings recovery uncertain.

  Comparison

  Compared with solar glass and film, the report is more cautious on the risk-reward of polysilicon.

  Risks

  Price declines, inventory pressure, and supply exits slower than expected.

Key data

• Year-to-date share price performance of covered namesaverage decline of 37%Driven by an average 16% decline in value chain prices, weak global demand, and insufficient supply response.
• Adjustment to 2027E-2030E China solar installation forecastaverage cut of 17% to 263GWReflects lower-than-expected market-based electricity prices and delayed recovery in self-consumption C&I demand.
• 2026E-2030E UTR assumption29%-68%Goldman previously assumed 60%-80%; the cut is due to weaker demand and slower capacity exits.
• Adjustment to value chain ASP forecastsaverage cut of 9% for 2026E-2030EPolysilicon down 20%, film down about 3%, and glass down 10% on average.
• Adjustment to covered company EBITDA forecastsaverage cut of 38% for 2026E-2030E (excluding Daqo)Of this, 13% comes from demand cuts, 10% from price cuts, and 16% from cost increases caused by operating leverage.
• Target price adjustment12-month target prices cut by an average of 33%The latest target prices imply an average 3% downside for the covered portfolio.
• Xinyi Solar rating and target priceBuy, HK$2.8Upgraded from Neutral to Buy; although the target price is lowered from the previous HK$3.5, it still implies 38% upside.
• Glass price inflection point assumptionup 9% in 2H26E versus 2Q26, and up a further 16% in 2027EThis assumes good supply discipline execution, inventory destocking, and progress in cold repair shutdowns.

Impact & implications

The investment implication is a shift from whole-sector beta to subsegment and stock selection. Overall solar materials earnings power is being revised down, especially for polysilicon and the traditional value chain, which still face pressure from prices and utilization; however, glass, film, and high-efficiency modules have clearer valuation support, supply-demand inflection points, or competitive advantages, and may improve ahead of the broader industry. For Xinyi Solar, market pessimism about the long-term price outlook may be excessive, while a higher overseas capacity mix and lower energy usage may support ROE improvement.

Risks

• China solar demand may come in below expectations, especially if utility-scale projects and self-consumption C&I projects recover more slowly than expected.
• Market-based electricity prices and spot electricity prices may be lower than expected, causing project IRR to fall and suppressing installation demand.
• Capacity exits may be slower than expected, while cooperation or M&A between Tier1 and non-Tier1 players may delay supply contraction.
• Solar glass ASP may be lower than expected, or industry cold repair shutdowns and supply discipline may be insufficient.
• Raw material and energy prices may be higher than expected, compressing glass companies’ gross margins.
• Overseas capacity expansion may be slower than expected, affecting Xinyi Solar’s overseas ASP premium and market share.
• New battery technologies may change the industry earnings inflection point and competitive landscape.

What to watch

• Company news and earnings calls.
• Power curtailment trends, spot electricity price trends, and construction progress of large renewable energy base projects by central and state-owned enterprises.
• China monthly solar installations and monthly module exports.
• Glass inventory days, cold repair shutdown scale, and changes in glass ASP in 3Q26 and 2H26.
• Approval progress for self-consumption C&I projects and changes in payback periods.
• Technology and cost progress at annual industry exhibitions such as EU Intersolar and Shanghai SNEC.
• Progress of Xinyi Solar’s 2.4kton/day Indonesia capacity and the subsequent phase-two 2.3kton/day construction.