JPMorgan turns selectively constructive on China solar, favoring solar glass and low-valuation leaders
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JPMorgan turns selectively constructive on China solar, favoring solar glass and low-valuation leaders
The report expects China's solar installations and module output in 2H26 to improve sequentially from 1H26, but sees the sector's supply-demand recovery as still incomplete. Against a low-valuation backdrop, it upgrades Xinyi Solar, Flat Glass, LONGi and SZ SC while maintaining differentiated views on selected polysilicon and equipment companies.
- China's solar installations totaled 72.1GW in 1H26, down 66% year on year. JPMorgan lowered its 2026/27 China solar demand forecasts to 200GW/220GW on an AC basis.
- Demand in 2H26 may be supported by seasonality and faster deployment by provincial energy groups, while solar glass supply and demand may improve first as cold repairs reduce capacity and inventory days decline.
- Since July, regulators have introduced mandatory energy consumption/efficiency standards, cost accounting principles and price-compliance guidance, which may limit further price cuts but may not be sufficient to fully reverse the supply-demand imbalance.
- Covered stocks have fallen by about 30% on average, with some companies approaching historical valuation troughs. The report upgrades Xinyi Solar and Flat Glass to Overweight and raises LONGi and SZ SC from Underweight to Neutral.
- Over the medium term, Daqo offers upside potential due to its negative enterprise value and cash reserves, while GCL Tech's LFP business and Daqo's AIDC energy solutions provide option value not yet fully reflected by the market.
Report interpretation
Overview
This report presents JPMorgan's sector and covered-company rating changes for China's solar industry. The key backdrop is a sharp decline in China's solar installations in 1H26, mainly due to the high base in 2025, grid absorption constraints, uncertainty over project returns following Doc 136 and falling prices. Although sector fundamentals remain under pressure and the polysilicon value chain remains broadly loss-making, the report believes demand could recover sequentially in 2H26 due to seasonality. Solar glass, supported by capacity cuts and declining inventories, may be the first segment to see supply-demand improvement.
Core views
JPMorgan's core view is a “mini-cycle within the cycle”: the overall solar industry has not yet emerged from its downcycle in the short term, but 2H26 offers an opportunity for sequential improvement in demand and price stabilization relative to 1H26. Regulatory policies may help curb irrational competition and further price cuts, but are insufficient on their own to drive a reversal in sector supply and demand. In valuation terms, covered names have generally declined 20%-50% year to date, with an average decline of about 30%. When combined with solar glass capacity cuts, the cash value of leading companies and option value from selected new businesses, the risk-reward profile of some stocks has improved.
Analysis framework
The report analyzes installation demand forecasts, industry supply and demand, prices and inventories, regulatory policies, valuation multiples and subsidiary-level earnings forecasts. For solar glass, it focuses on cold-repair capacity cuts, inventory days and peak-season price recovery; for polysilicon, it focuses on capacity rationalization, prices below cost and balance sheets; and for individual stocks, it reorders ratings based on earnings downgrades, target-price adjustments, valuation troughs and option value from new businesses.
Methodology notes
Use 1H/2H installation trends, module output and inventory changes to assess near-term sequential improvement across the value chain.
The report believes that after weak installations in 1H26, 2H26 will improve due to seasonality and faster deployment by energy groups, driving marginal recovery in solar glass supply and demand.
Assess supply rationalization and the price trough through regulatory standards, cost accounting and price compliance.
The mandatory energy-consumption/efficiency standards, CPIA cost accounting principles and SAMR price-compliance meeting released in July are viewed as policy signals that could restrict inefficient capacity and irrational competition.
Use P/B, P/E or sum-of-the-parts valuation for different segments.
Polysilicon companies are primarily assessed using P/B and cash value, Arctech is valued at 15x one-year forward P/E, and HZ First has shifted to SOTP, assigning different P/E multiples to solar encapsulant film and photosensitive film.
Estimate option value from a new business using capacity, sales volume, unit net profit, ownership percentage and P/E multiples.
The report assumes GCL Tech holds a 30% stake in the LFP cathode entity, with 2028 sales volume of 900,000 tonnes, unit net profit of Rmb2,000/tonne and an 8x P/E multiple, implying a value contribution of approximately HK$0.15 per share.
Asset mapping & comparison
Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).
- Xinyi SolarRating upgraded to Overweight, target price HK$2.8
- Strengths
- Valuation is low, while solar glass capacity cuts and peak-season demand could push prices back above the breakeven level.
- Weaknesses
- FY26-28 earnings cut by 1%-71%; industry inventory remains high.
- Comparison
- Compared with most solar manufacturing segments, solar glass is more likely to see sequential improvement first in 2H26.
- Risks
- Demand recovery weaker than expected, slow inventory destocking and prices remaining below cost.
- Flat GlassRating upgraded to Overweight, target price HK$8.8
- Strengths
- One of the industry leaders, with potential to gain market share if industry consolidation progresses.
- Weaknesses
- Expected to be loss-making in FY26; FY27-28 earnings cut by 1%-9%.
- Comparison
- Along with Xinyi Solar, it is one of the solar glass names favored by the report.
- Risks
- Solar glass price recovery weaker than expected, insufficient capacity exits and weak demand.
- DaqoOverweight maintained, target price US$22
- Strengths
- Cost leadership, high cash and time-deposit balances, valuation of approximately 0.2x FY27E P/BV and negative enterprise value.
- Weaknesses
- Expected to remain loss-making in FY26; FY27-28 earnings cut by 35%-50%; polysilicon prices remain depressed.
- Comparison
- Among polysilicon producers, the report sees Daqo as offering greater medium-term upside due to its balance sheet and valuation.
- Risks
- Polysilicon prices remaining below cost, slow capacity rationalization and cash value not being released through buybacks or dividends.
- GCL TechOverweight maintained, target price HK$1.1
- Strengths
- Cost leadership and expansion into LFP cathode and silicon-carbon anode businesses; LFP scenario value of approximately HK$0.15 per share.
- Weaknesses
- Expected to be loss-making in FY26; FY27-28 earnings cut by 3%-5%; target P/B lowered.
- Comparison
- Along with Daqo, it is a preferred polysilicon-related name, with the additional option of transitioning toward a new-materials platform.
- Risks
- LFP business execution below expectations, prolonged polysilicon cycle and overseas expansion execution risks.
- ArctechOverweight maintained, target price Rmb40
- Strengths
- China's largest and one of the global top-five solar tracker companies, benefiting from emerging-market growth, vertical integration and technological cost advantages.
- Weaknesses
- Middle East shipment disruptions led to a 66% cut to FY26 earnings; FY27-28 earnings cut by 16%-18%.
- Comparison
- The report uses a 15x one-year forward P/E and considers it reasonable relative to core growth of more than 30% in FY27-28E.
- Risks
- Higher steel and other raw-material prices, project delays, solar-tracker penetration below expectations and ASP declines caused by intensifying competition.
- LONGiUpgraded from Underweight to Neutral, target price Rmb11.6
- Strengths
- BC technology advantages and ample cash may support medium-term relative performance.
- Weaknesses
- Share price down approximately 30% year to date; earnings outlook pressured by weak demand and rising material costs.
- Comparison
- The upgrade is mainly due to the current share price being close to the target price, resulting in a more balanced risk-reward profile, rather than a clear fundamental reversal.
- Risks
- Continued weak demand, cost pressure and technology advantages failing to materialize as expected.
- Shenzhen SCUpgraded from Underweight to Neutral, target price Rmb53
- Strengths
- Share price has fallen approximately 60% from the February peak driven by space-solar speculation; valuation is approximately 1.3x FY26E P/BV, close to historical lows.
- Weaknesses
- No space-solar revenue is expected in the short term; orders and revenue recognition remain weak, with FY26-28 earnings cut by 14%-24%.
- Comparison
- Similar to LONGi, the upgrade mainly reflects improved risk-reward and the closure of the Underweight view.
- Risks
- Slow order recovery, space-solar contribution below market expectations and further earnings downgrades.
- TongweiUnderweight maintained, target price Rmb8.8
- Strengths
- Large-scale solar and feed business platform.
- Weaknesses
- Expected to remain loss-making in FY26/27; FY28 earnings cut by 39%; target P/B lowered.
- Comparison
- Compared with Daqo and GCL Tech, the report considers its valuation less attractive.
- Risks
- Further polysilicon price declines, delayed earnings recovery and valuation compression.
- MaxwellUnderweight maintained, target price Rmb120
- Strengths
- Growth potential in solar and semiconductor equipment has been raised, with FY27-28 revenue up 3%-8% and earnings up 10%-15%.
- Weaknesses
- Despite an 11% target-price increase, valuation is still considered unattractive.
- Comparison
- Compared with Maxwell, the report prefers Arctech's combination of growth and valuation.
- Risks
- Volatility in equipment orders, valuation decline and weak industry capital expenditure.
- HZ FirstNeutral maintained, target price Rmb15
- Strengths
- 1H26 preliminary earnings grew 75% year on year, driven by higher solar encapsulant film prices and expansion of the PCB-related photosensitive film business.
- Weaknesses
- Solar encapsulant film sales expectations lowered; FY27-28 encapsulant film gross margins reduced.
- Comparison
- The report switches to SOTP valuation, assigning a 20x forward P/E to solar encapsulant film and a 30x forward P/E to photosensitive film.
- Risks
- Solar demand below expectations, declining encapsulant film gross margins and photosensitive film growth falling short of expectations.
Key data
- China solar installations in 1H2672.1GWDown 66% year on year; 1H25 was 212.2GW.
- 2026/27 China solar demand forecast200GW/220GW AC; 242GW/266GW DCLowered because 1H26 demand was weaker than expected.
- Average performance of covered stocksApproximately -30%SHCOMP was approximately -4% over the same period, and some names are approaching historical valuation troughs.
- Polysilicon priceRmb54/kg down to Rmb32/kgFell from the January 2026 high to a new low at the end of July 2026, reflecting slower-than-expected progress on anti-involution measures.
- Solar glass capacity80k tonnes/day down to 76k tonnes/daySMM data show a decline from early June to mid-July due to cold-repair capacity cuts by leading companies.
- Solar glass inventory40+ daysInventory remains high but has begun to decline.
- Potential value of GCL Tech's LFP businessApproximately HK$0.15/shareEquivalent to approximately 25% of the latest closing price.
- Daqo target priceUS$22Target price cut by 38%, but Overweight maintained.
- Arctech target priceRmb40Target price cut 17% from Rmb48; Overweight maintained.
- Flat Glass target priceHK$8.8Target price cut by 10%; rating upgraded from Neutral to Overweight.
- Xinyi Solar target priceHK$2.8Target price cut by 10%; rating upgraded from Neutral to Overweight.
Impact & implications
The investment implication is that the solar sector as a whole has not yet entered a comprehensive reversal phase, but low valuations and sequential improvement in 2H26 support selective positioning. Solar glass is more attractive for near-term elasticity due to capacity cuts, declining inventories and improving peak-season demand. Polysilicon still requires price recovery and capacity rationalization, but Daqo and GCL Tech offer medium-term appeal due to valuation, cost advantages or option value from new businesses. Module, equipment and integrated polysilicon companies depend more on company-specific technological advantages, order recovery and valuation re-rating.
Risks
- Solar demand recovery weaker than expected, with 2H26 seasonality-driven improvement below forecasts.
- Insufficient enforcement of anti-involution policies, with inefficient capacity exiting more slowly than expected.
- Prices of polysilicon, solar glass and other products remaining below manufacturing costs, prolonging industry losses.
- Grid absorption and curtailment issues easing more slowly than expected, affecting project returns.
- Insufficient solar glass inventory destocking, with peak-season prices failing to return above breakeven.
- Higher raw-material prices, project delays, overseas shipment disruptions and intensifying competition could pressure company earnings.
- Commercialization of new businesses such as LFP, AIDC energy solutions and photosensitive film may fall below scenario assumptions.
What to watch
- Whether China's monthly solar additions and module production schedules in 2H26 are materially higher than in 1H26.
- The sustainability of solar glass cold-repair capacity cuts, industry inventory days and price trends for 2.0mm/3.2mm glass.
- Implementation of the mandatory energy-consumption/efficiency standards, CPIA cost accounting principles and SAMR price-compliance guidance released in July.
- Whether polysilicon prices can stabilize and whether capacity installed before 2023 exits the market in substance.
- Whether accelerating energy-storage installations ease curtailment and improve the economics of solar projects in 2027/28.
- How Daqo releases its cash value, including through buybacks, dividends or earnings recovery.
- Whether GCL Tech's LFP capacity, sales volume and unit net profit can approach the report's scenario assumptions.