Xinyi Solar Solid Growth Amid Downcycle (968 HK)

CHINA SECURIT I ES( INT’L ) RESEARCH

Equity Research l China l Solar Power 18 October 2016 Xinyi Solar Solid growth amid downcycle (968 HK)

 We initiate coverage of Xinyi Solar with a BUY rating. It is our top pick among our coverage universe of solar manufacturers, given its Buy resilient growth prospects and solid fundamentals in navigating (Initiation) through industry headwinds. Price Target HK$3.61  Despite the potential industry downturn, we expect Xinyi Solar (Revision) (-) would manage to reinforce its leading position in the PV glass (Upside) (+25%) segment leveraging on superior production facilities and attain Close price HKD 2.82 steady growth from solar power sales. Market cap. USD2,453mn  Our DCF-based TP of HKD3.61 is equivalent to 10.2x forward PER, which is undemanding given its outstanding profitability and Free float 34.2% dividend pay-out; currently trading at over 1SD below historical 52-week range HKD2.03 – HKD3.40 average, it is waiting for catalysts to boost sentiments. 3-mth ave. T/O HKD 75.1mn

Robust growth and superb profitability amid industry cycles. As the Price as of 18 Oct 2016 world’s largest PV glass supplier, Xinyi Solar has established strong positioning in the solar space and achieved a solid track record in weathering market downturns. It recorded a 17%/8% gross/net profit margin even in the last bust cycle in 2012, and took the lead in profitability among top suppliers of glass and solar components.

Stock rel HSI performance (%) On-track capacity expansion to solidify Xinyi’s leading position. 10.0% Production lines in Wuhu and Malaysia are on schedule to commence 0.0% operation and would be the major effective capacity expansion in the -10.0% industry by Jun-17. Riding on the strong installations during the same -20.0% period, we find it positive to revenue growth and market share gain. -30.0% -40.0% Oct-15 Feb-16 Jun-16 Oct-16 Strong growth at solar power to enhance profitability. We estimate HSI XINYI SOLAR HLDS solar power sales to grow at a 110% CAGR during 2015-18E, holding up blended GPM at c.45%. Given the potential acceleration in tariff cuts, the impacts on Xinyi Solar would be limited thanks to its distinct cost advantages in project financing and unit investments.

Growth prospects intact even under downturn pressures. Revenue and net profit are expected to see a 3-year CAGR of 27%/31% from 2015. PV glass sales would be driven by volume growth from capacity ramp-up which counterweights potential ASP declines; while PV glass gross margins would normalise from 1H16 onwards, though blended margins would be resilient owing to lower production costs and rising contribution from high-margin solar power business.

Undemanding valuation. We initiate coverage of Xinyi Solar with a BUY rating and a DCF-based price target of HKD3.61, which is equivalent to 10.2x forward PER. Market sentiment has turned weak towards Analysts renewables due to the draft tariff cuts, which had led to the recent ZHU Kexin sell-off. Xinyi Solar is currently trading at a forward PER and PBR of 8.0x (CE No.: BEZ998) and 1.9x respectively, which is over 1SD below its historical average. [email protected] +852 3465 5653

Please read the disclaimer on the last page. Xinyi Solar: Solid growth amid downcycle

Business overview Robust growth and superb profitability amid industry downcycles As one of the leading solar plays in China, Xinyi Solar established strong positioning as the world’s largest PV glass supplier and it is also involved in downstream solar farm development and operation. It recorded a 35% 5-year revenue CAGR from 2010-2015, driven by strong PV glass demand and improving product mix. Xinyi Solar produces and sells both ultra-clear PV raw glass and processed glass, and currently over 90% of its raw glass is processed internally to enjoy higher product margins. Meanwhile, with the first commercial solar farm having achieved grid-connection in 2H14, Xinyi Solar started generating revenue from solar electricity sales and supplementary EPC services.

Figure 1: Historical revenue, 2010-1H16 Figure 2: Gross margin by segment, 2010-1H16

(HKD mn) 100% 5,000 80% 4,000 60% 3,000

2,000 40%

1,000 20%

- 0% 2010 2011 2012 2013 2014 2015 1H15 1H16 2010 2011 2012 2013 2014 2015 1H16 Raw glass Processed glass Other glass Solar power EPC PV glass - blended Solar power EPC

Source: Company, CSCI Research Source: Company, CSCI Research

Despite cyclical pricing, Xinyi Solar delivered solid financial performance in its PV glass segment and demonstrated a solid track record in weathering market downturns, for instance, even amid the difficult environment in 2012, Xinyi Solar achieved gross and net margins of 17% and 8% respectively. In 1H16, gross margin reached a historical high of 49%, which was attributed to the natural gas price cut, enhanced production efficiency and increased contribution of solar power business (GPM of c.75%). Compared with the top suppliers of other glass and solar components, Xinyi Solar has also taken the lead in profitability.

Figure 3:GPM of glass and solar suppliers, 2009-1H16 Figure 4: Profitability and ROE comparison, 2015

(%) 35 60 Luoyang 30 Glass

Xinyi Solar 40 25 Canadian Solar Flat Glass 20 Fuyao Glass 20 Jinko Xinyi Glass 15 GCL Poly

ROE (%), 2015 (%), ROE JA Solar Longi - 10 CSG Trina Daqo (20) 5 Ancai Zhonghuan 2009 2010 2011 2012 2013 2014 2015 1H16 - Xinyi Solar (968 HK) Glass suppliers - 5 10 15 20 25 30 Poly & Wafer Module Net margin (%), 2015 Source: Company, Bloomberg, CSCI Research Source: Company, Bloomberg, CSCI Research

Solidifying leading position from on-track capacity expansion Xinyi Solar has production facilities in Wuhu (Anhui province), Tianjin and Malaysia. Wuhu and Tianjin bases have established cost advantages arising from synergies with Xinyi Glass Group; specifically, the Wuhu plant is close to China’s solar glass demand hub and its own wharf along the Yangtze River provides cheaper water transport; meanwhile, the Tianjin plant is positioned for product exports with its proximity to

Please read the disclaimer on the last page. 2 18 October 2016 Xinyi Solar: Solid growth amid downcycle

harbour facilities. Also, the Malaysia plant is positioned to enjoy the preferential import duty and reduced costs of production and delivery to customers in Southeast Asia, which should see robust demand in light of the rapid overseas expansions of module manufacturers.

Two production lines in Wuhu and Malaysia are scheduled to commence production by the end of 2016, which will increase the total daily glass melting capacity by 49% to 5,800tons, and another 1000ton production line in Wuhu is due to commence operation in 1Q17. In particularly, the large-scale furnaces employed by the new production lines would further strengthen its cost advantages, as the increase in melting volume would notably reduce fuel and raw material consumption which constitutes more than 50% of production costs. With strong installations to continue during 4Q16-1H17, effective capacity expansion in the industry would only come from the aforesaid production lines of Xinyi Solar, which we view as positives to revenue growth, cost reduction and market share gain.

Downstream solar power enhances future growth To ride on the supportive solar regime in China and buffer cyclicals in the manufacturing segment, Xinyi Solar entered downstream solar farm business with electricity sales registered since 4Q14. It has also set up Xinyi Energy which is expected to lower its debt pressure and introduce strategic investors, and targets a separate listing in the medium term. As the profit return of solar farms largely depends on utilization hours, FiT, construction and financing costs, we view Xinyi Solar is equipped with the key success factors for downstream development, namely XXXXXXXXX

 Quality solar farm portfolio with strong project pipeline: As Xinyi Group is the leading private company in Anhui province, Xinyi Solar has established a solid relationship with the local government, which allows the company to secure a high win rate of local installation quota, and as of Jun-16, 72% of its grid-connected capacity is located in Anhui. Meanwhile, in light of its strong branding and execution capabilities, Xinyi Solar has expanded into Henan, Hubei, Tianjin and won biddings for Top Runner projects. We are confident that the company would achieve the 1.7GW grid-connection target by this year end. Moreover, the utilisation hours of all of its projects (both in operation and in pipeline) located in the more developed areas are protected from grid curtailments.

 Healthy balance sheet and low financing costs: With a strong balance sheet and cash flow, up to 50% of Xinyi Solar’s projectscan be funded by debt, with average financing costs of 2-3% (vs. 70-80% debt financing with 8-10% interests among other pure solar farm developers).

 Lower construction costs more than offset declining FiT: The majority of its operating projects currently enjoy a 20-year FiT of Rmb1.0/kWh; whereas new installations are likely to be affected by the inevitable downward tariff trend. Xinyi Solar has recently been selected in Anhui’s 2016 Top Runner projects with a Rmb0.78/kWh bidding tariff, which is 20% below the standard 2016 FiT. Meanwhile, with its own EPC capability, Xinyi Solar saw lower construction costs relative to the industry average and is likely to continue to benefit from the declining module pricing;, while unit investment costs have also declined to approximately Rmb5.5/watt from Rmb6.0/6.5 per watt at the beginning of 2016/2015.

Please read the disclaimer on the last page. 3 18 October 2016 Xinyi Solar: Solid growth amid downcycle

Financial and forecasts Revenue and profit We expect three-year revenue and net profit CAGR of 27% and 31% from 2015 to 2018E respectively. Sales of PV glass would remain as the major revenue source with c.70% share in 2016E-18E, and the increase in sales volume would be partly offset by a mild ASP decline after incorporating the industry-wide downside risks. We estimate full-year operating capacity to be 1.5mn/2.0mn/2.4mn tons for 2016E-18E respectively, taking into account the expansion plans and full-scale overhaul of two 500ton furnaces in the coming years.

Gross profit margin is expected to expand to c.45% for 2016-18E from 36% in 2015. Concerning the PV glass segment, reduction in production costs would counterweight the depressed pricing, as the large-scale furnaces enjoy high efficiency from economies of scale and the Malaysian plant would enjoy lower energy and raw material costs. Furthermore, we expect the price of natural gas, soda ash and silica sand to remain stable. Meanwhile, the rising revenue contribution from solar power generation would enhance the blended profit margin, as solar power enjoys a high GPM of c.75%.

CAPEX and gearing CAPEX is expected to peak in 2016 at c.HKD5.0bn, with 80% to be spent on solar farms and 20% on solar glass production capacity expansion; from 2017 onwards, with no other major PV glass expansion projects in the pipeline, CAPEX would be mainly focused on solar farm development. We forecast annual installations of 500MW in 2017-18E and unit investments of c.Rmb5.5/watt. Concerning the c.HKD2.0bn CAPEX in 2H16, we expect funding to mainly come from OCF, cash on hand and bank loans; accordingly, net gearing ratio would increase to 75% in 2016 (vs. 52% at the end of June), with upsides resulting from introduction of strategic investors or sale of operating projects.

Cash flow and dividend Despite working capital has been affected by the delay of solar FiT subsidies, we expect to see improvements in 2018,, given that Xinyi Solar has a relatively strong balance sheet and healthy operating cash flow compared with other solar plays. Moreover, it is the only solar play that commits to a dividend distribution with 47% payout ratio in 2014-15, and the management expects the ratio to range between 45-47% going forward.

Figure 5: Segment information (HKD mn) 2010 2011 2012 2013 2014 2015 2016E 2017E 2018E Revenue 1,077.39 1,233.68 1,533.13 1,967.51 2,410.00 4,750.41 6,051.34 8,370.67 9,730.28 Sales of solar glass 1,077.39 1,233.68 1,533.13 1,967.51 2,379.42 3,910.91 4,325.93 5,666.86 6,521.84 Solar power generation - - - - 30.58 313.03 1,325.42 2,403.81 2,908.43 EPC service - - - - - 526.47 400.00 300.00 300.00 Revenue composition (%) Sales of solar glass 100% 100% 100% 100% 99% 82% 71% 68% 67% Solar power generation - - - - 1% 7% 22% 29% 30% EPC service - - - - 0% 11% 7% 4% 3%

GPM (%) 51% 36% 17% 30% 32% 36% 46% 45% 45% Sales of solar glass 51% 36% 17% 30% 31% 35% 39% 34% 33% Solar power generation - - - - 87% 73% 75% 75% 75% EPC service - - - - - 22% 20% 20% 20%

Source: Company, CSCI Research estimates

Please read the disclaimer on the last page. 4 18 October 2016 Xinyi Solar: Solid growth amid downcycle

Valuation We initiate coverage of Xinyi Solar with a DCF-based TP of HKD3.6, which is equivalent to 12.7x 2016E PER and 10.2x one-year forward rolling PER, slightly below its 3-year historical average of 13.2x. After the recent sell-off, Xinyi Solar is currently trading at one-year forward rolling PER and PBR of 8.0x and 1.9x respectively, which is over one standard deviation below the historical average. Based on Bloomberg consensus, Xinyi Solar is trading at 2017E PER of 7.6x, versus GCL Poly (3800 HK) of 7.4x and Xinyi Glass (868 HK) of 7.9x; we think Xinyi Solar deserves a valuation premium for its prospective profitability and dividend yield.

Figure 6: PER band Figure 7: PBR band 4.5 4.5 4.0 4.0 3.5 3.5 3.0 3.0 2.5 2.5 2.0 2.0 1.5 1.5 1.0 1.0 Dec-13 Aug-14 Apr-15 Dec-15 Aug-16 Dec-13 Aug-14 Apr-15 Dec-15 Aug-16 Price 2x 2.4x 2.8x 3.2x 3.6x Price 8x 10x 12x 14x 16x Source: Company, Bloomberg, CSCI Research Estimates Source: Company, Bloomberg, CSCI Research Estimates

Figure 8: Peers valuation Close Mkt cap EPS Growth (%) PER (x) PBR (x) ROE (%) Yield (%) Net Gear (%) Company Ticker (Local$) (USD mn) FY16E FY17E FY16E FY17EFY16EFY17E FY16E FY17E FY16E FY17E FY16E FY17E Glass manufacturers Fuyao Glass 3606 HK 23.1 6,774 2% 13% 16.8 14.8 2.8 2.6 17% 18% 3.9% 4.3% 2% 4% Xinyi Glass 868 HK 6.9 3,461 40% 15% 9.2 7.9 1.9 1.7 21% 22% 5.0% 5.9% 35% 26% CSG 000012 CH 11.5 2,884 47% 28% 26.0 20.3 2.7 2.6 10% 12% 0.0% 0.0% - - Average 29% 19% 17.3 14.3 2.5 2.3 16% 18% 3.0% 3.4% 18% 15% PV glass manufacturers Xinyi Solar 968 HK 2.9 2,523 61% 28% 9.8 7.6 2.5 2.1 30% 32% 4.3% 5.7% 46% 55% Flat Glass 6865 HK 1.7 397 -12% 7% 5.1 4.7 0.7 0.7 19% 17% 0.0% 0.0% - - Average 24% 17% 7.4 6.2 1.6 1.4 25% 24% 2.2% 2.8% 46% 55% Polysilicon & Wafer manufacturers Longi 601012 CH 14.4 4,242 131% 24% 20.1 16.2 3.8 3.1 21% 21% 0.7% 0.8% -11% 17% GCL Poly 3800 HK 1.1 2,612 -12% 3% 7.4 7.2 0.8 0.7 13% 11% 0.0% 0.0% 131% 136% Daqo DQ US 23.5 245 79% -5% 5.0 5.3 0.8 0.7 20% 15% 0.0% 0.0% 113% 109% Average 66% 7% 10.8 9.6 1.8 1.5 18% 16% 0.2% 0.3% 78% 87% Module manufacturers Trina TSL US 10.4 963 -5% -68% 11.0 35.0 0.8 0.8 9% 4% 0.0% 0.0% 111% 141% Canadian Solar CSIQ US 15.1 867 -47% 32% 9.3 7.0 0.9 0.8 12% 14% 0.0% 0.0% 196% 119% Jinko JKS US 16.4 516 -20% -28% 3.6 5.0 0.7 0.6 22% 14% 0.0% 0.0% - - JA Solar JASO US 6.4 303 -60% -113% 10.0 - 0.3 0.3 1% -4% 0.0% 0.0% 67% 55% Average -33% -44% 8.5 15.7 0.7 0.6 11% 7% 0.0% 0.0% 125% 105% Downstream solar farm GCLNE 451 HK 0.5 1,180 2126% 124% 19.2 8.6 1.5 1.2 10% 22% 8.3% 0.0% 310% 336% United PV 686 HK 0.7 437 -77% 57% 33.1 21.1 1.2 1.2 3% 6% 0.0% 0.0% 221% 314% Singyes 750 HK 4.1 444 13% 4% 5.8 5.6 0.7 0.6 11% 11% 1.1% 1.1% 74% 70% Average 687% 61% 19.4 11.8 1.1 1.0 8% 13% 3.2% 0.4% 202% 240% Source: Bloomberg, Company, CSCI Research estimates Prices as of 14 Oct, 2016 (13 Oct for US-listed stocks)

Please read the disclaimer on the last page. 5 18 October 2016 Xinyi Solar: Solid growth amid downcycle

Appendix – Company background Xinyi Solar is the world’s leading PV glass manufacturer which was established in 2011 by Xinyi Glass Group (868 HK) and opted for a separate listing in 2013. And to ride on the supportive solar regime in China and buffer cyclicals in the manufacturing segment, it entered the downstream solar farm sector with electricity sales registered since 4Q14.

Figure 9: Historical milestones Year Key events 2006 Xinyi Glass Group established Xinyi Ultra-clear Dongguan to expand into solar glass business 2008 Dongguan plant commenced production of ultra-clear PV glass 2009 Wuhu plant commenced production, which was first in China to use a glass melting furnace of up to 500 tons/day with four parallel raw glass output lines 2011 Xinyi Solar was established and Xinyi Glass Group underwent restructuring Dongguan plant was shut down with facilities sold back to Xinyi Glass Group, while Tianjin plant commenced production 2012 Continuous capacity expansion at Wuhu and Tianjin plants, and 20MW roof-top solar farm at Wuhu plant commenced power generation for own use Disposed ultra-clear float glass and TCO glass to Xinyi Glass Group as lowering expectations on demands from thin-film modules 2013 Xinyi Solar (968 HK) completed the spin-off and listed on HKEX, with the controlling shareholder Xinyi Glass (868 HK) holding 31% stake Adjusted product portfolio to focus on ultra-clear PV processed glass with anti-reflective coating, which generated a higher profit margin 2014 Commenced two large-scale PV raw glass production lines with melting production of 900 tons/day each in 3Q14 and 4Q14, increasing daily raw glass production capacity by 90% to 3,800 tons/day Started expansion in Malaysia, planning one 900tons/day raw glass production line and corresponding processing facilities Completed Top-up share placement in Jul by issuing 380mn new shares at HKD2.07/share, gross proceeds were HKD787mn and net proceeds HKD779mn, used for funding solar farm projects and general working capital Launched solar farm projects and started to generate electricity sales in 4Q14, projects completed include 250MW ground-mounted solar farms in Jinzhai County and Wuhu, 13.1MW and 25MW roof-top systems at Wuhu and Tianjin plants for self-consumption 2015 Completed Top-up share placements in Mar (issuing 500mn new shares at HKD2.30/share) and in Nov (168mn new shares at HKD3.22/share), with proceeds used for funding solar farm projects, solar glass production expansion in Malaysia, and general working capital Xinyi Energy was established in Jul to hold all operating solar farm projects and targets separate listing in medium term for alternative financing; Xinyi Energy received HKD1,580mn capital injection from management

Source: Company, CSCI Research

Figure 10: Corporate structure

Management

Xinyi Glass (868 HK)

32% 30% Xinyi Solar Auto Glass Float glass Low-E Glass (968 HK) (8328 HK)

25% 75% Xinyi Energy PV glass (list in 2017)

Source: Company, CSCI Research

Please read the disclaimer on the last page. 6 18 October 2016 Xinyi Solar: Solid growth amid downcycle

Figure 11: Management background Name Title Appointment Background Datuk LEE Yin Yee, Chairman And Jun 2011  Founder, Chairman and Executive Director of Xinyi Glass (868 HK) B.S.S. Non-Executive Director  Committee member of the 12th Chinese People’s Political Consultative Conference  Life Honorary Chairman of the Hong Kong Quanzhou Clans United Association and the Fukienese Association Limited in Hong Kong  27-years’ experience in the glass industry Mr. TUNG Ching Sai Executive Director and Jun 2011  Executive Director and CEO of Xinyi Glass Vice Chairman  Committee member of The Chinese People’s Political Consultative Conference of Fujian Province  Vice chairman of the China Architectural and Industrial Glass Association in Hong Kong  Graduated from the Sun Yat-Sen University with a senior executive master degree in business administration in 2007 Mr. LEE Yau Ching Executive Director and Nov 2010  Graduate from HKUST in 1999 with BBA in Finance, joined Xinyi Glass Group in CEO 1999  Worked in various functions in Xinyi Glass Group from 1999 to 2004, including overseas sales, finance, etc.  Former Chief Marketing Officer of Xinyi Glass Group in Hong Kong  Former COO of Xinyi Glass Group  Committee member of the 12th Chinese People’s Political Consultative Conference of Dongguan, Guangdong Province Mr. LI Man Yin Executive Director Sep 2013  Former Executive Director of Xinyi Glass  Responsible for overseeing the purchase and procurement functions Mr. CHEN Xi Executive Director Sep 2013  Graduate from Sichuan Industrial Institute in 1983 with a bachelor degree in machinery manufacturing technology, equipment and automation  Former assistant engineer and engineer of Zhongshan Tractor Factory  Former general manager of Grand Engineering Glass Co., Ltd,  Former COO of Xinyi Glass Group Mr. CHU Charn Fai Financial Controller and Apr 2011  Former Financial Controller of Minmetals Resources Limited (1208 HK) Company Secretary  Four years of international accounting firm experience  Fellow Member of Association of Charted Certified Accountant and a member of the Hong Kong Institute of Certified Public Accountants Mr. LIU Xiao Rong General manager Dec 2013  Joined Xinyi Glass Group in July 2007 as a raw material engineer of solar glass business  Former vice general manager of production  Appointed as general manager of ultra-clear photovoltaic glass buisness Mr. WEN Jie Vice general manager May 2009  Former sales manager in Tianjin Nippon Sheet Glass Co. Ltd. of Sales  Formely worked for Tianjin NFG Glass Fibre Co., Ltd.

Source: Company, CSCI Research

Please read the disclaimer on the last page. 7 18 October 2016 Xinyi Solar: Solid growth amid downcycle

Income statement (RMB mn) Cash flow statement (RMB mn) Year end: D ec 2013 2014 2015 2016E 2017E 2018E Year end: D ec 2014 2015 2016E 2017E 2018E R evenue 1,968 2,410 4,750 6,173 8,529 9,913 EBIT 590 1,349 2,360 3,189 3,686 COGS (1,375) (1,649) (3,040) (3,355) (4,670) (5,432) Depreciation & amortisation 985 1,424 1,393 1,163 1,210 Gross profit 592 761 1,710 2,818 3,859 4,481 Net interest 5 16 89 127 127 Selling expenses (124) (98) (187) (185) (256) (297) Taxes paid (67) (130) (216) (351) (408) General and administrative (160) (318) (370) (512) (595) (648) Changes in working capital 117 (538) (984) 352 509 Other income, net 63 87 143 98 98 98 Others (914) (1,270) (1,068) (725) (672) EBITDA 684 1,574 2,773 3,754 4,352 4,896 Cash flow from operations 715 851 1,574 3,755 4,454 Depreciation & Amortization (316) (985) (1,424) (1,393) (1,163) (1,210) EBIT 369 590 1,349 2,360 3,189 3,686 Capex (2,381) (3,583) (4,953) (2,760) (2,210) Other gain loss 0 (13) 62 1 - - Acquisitions - (150) (1) - - Disposals 0 96 - - - Net interest 2 (5) (16) (89) (127) (127) Others 53 24 8 6 7 JVs and associates - - - 27 27 27 Cash flow from investing (2,328) (3,613) (4,947) (2,754) (2,203) P retax pro fit 370 572 1,394 2,299 3,089 3,586 Taxation (67) (79) (188) (261) (351) (408) Dividends (200) (434) (873) (1,136) (1,311) M inority interests - - - 179 319 386 Issue of shares 778 1,674 - - - N et pro fit 304 493 1,206 1,859 2,419 2,792 Change in debt 1,300 2,290 2,410 924 (1,033) Net profit (adjusted) 304 504 1,152 1,859 2,419 2,792 Others - 1,580 - - - Cash flow from financing 1,878 5,110 1,537 (211) (2,344) Basic EPS (HKD cent) 7.33 8.42 18.53 28.57 37.17 42.92 Diluted EPS (HKD cent) 7.33 8.42 18.53 28.56 37.17 42.92 Change in cash 265 2,349 (1,836) 789 (94) DPS (HKD cent) 1.80 4.00 8.70 13.41 17.45 20.15 Free cash flow (1,666) (2,732) (3,379) 995 2,244

Balance sheet (RMB mn) Key ratios Year end: D ec 2013 2014 2015 2016E 2017E 2018E Year end: D ec 2014 2015 2016E 2017E 2018E Cash 279 543 2,869 1,033 1,822 1,728 Operating ratios Short term investments ------Gross margin (%) 31.6 36.0 45.7 45.2 45.2 Accounts receivables 705 760 1,634 2,925 3,793 2,692 EBITDA margin (%) 65.3 58.4 60.8 51.0 49.4 Inventory 91 299 199 360 539 819 Effective tax rate (%) 13.8 13.5 11.4 11.4 11.4 Other current assets - - 192 217 217 217 Revenue growth (%) 22.5 97.1 30.0 38.2 16.2 Total current assets 1,075 1,602 4,893 4,535 6,371 5,457 Net income growth (%) 66.1 128.5 61.3 30.1 15.5 PP&E 1,368 3,685 7,104 11,395 13,584 15,123 EPS growth (%) 14.8 120.0 54.2 30.1 15.5 Intangible Assets 189 180 180 186 192 198 DPS growth (%) 122.2 117.5 54.2 30.1 15.5 Associates and JVs - - 175 202 229 256 Other long term assets 55 296 382 626 626 626 Efficency ratio s Total long term assets 1,612 4,162 7,842 12,410 14,632 16,203 ROE (%) 14.9 21.0 27.6 30.2 29.4 TOTAL ASSETS 2,687 5,764 12,735 16,945 21,003 21,660 ROCE (%) 13.2 13.5 18.5 21.2 23.7 Asset turnover (x) 0.4 0.4 0.4 0.4 0.5 Short term debt - 143 478 1,440 1,796 2,241 Op cash / EBIT (x) 1.2 0.6 0.7 1.2 1.2 Accounts payables 350 1,121 2,156 2,637 4,035 3,724 Depreciation / CAPEX (x) 0.4 0.4 0.3 0.4 0.5 Other current liabilities 17 28 75 120 120 120 Accounts receivable days 110.9 92.0 134.8 143.7 119.4 Total current liabilities 367 1,291 2,710 4,197 5,951 6,085 Accounts payable days 162.8 196.7 260.7 260.7 260.7 Long term debt - 1,157 3,116 4,674 5,375 4,031 Deferred tax 10 10 17 17 17 17 Leverage ratios Convertible bonds ------Net gearing (%) 22.9 12.6 75.5 66.8 47.9 Other long term liabilities - (0) 0 0 0 0 Net debt / EBITDA (x) 0.5 0.3 1.4 1.2 0.9 Total long term liabilities 10 1,167 3,133 4,691 5,393 4,049 Interest cover (x) 116.1 81.8 26.5 25.2 29.0 TOTAL LIABILITIES 377 2,458 5,843 8,888 11,344 10,134 Current ratio (x) 1.2 1.8 1.1 1.1 0.9

Shareholders’ funds 2,310 3,306 5,745 6,731 8,014 9,495 Valuatio n M inority Interests - - 1,146 1,326 1,645 2,031 PER (x) 34.4 15.7 10.2 7.8 6.8 TOTAL LIAB AND EQUITY 2,687 5,764 12,735 16,945 21,003 21,660 EV/EBITDA (x) 9.4 10.5 7.3 6.8 5.9 PBR (x) 5.1 2.7 2.3 2.0 1.6 Net cash / (debt) 279 (757) (726) (5,081) (5,349) (4,544) Dividend yield (%) 1.4 3.0 4.6 6.0 6.9 Source: Company, CSCI Research estimates

Please read the disclaimer on the last page. 8 18 October 2016 Xinyi Solar: Solid growth amid downcycle

Research Institutional Sales & Trading

LIU Taisheng, Steven XIANG Xinrong, Ron TMT (852) 3465 5633 (852) 3465 5652 [email protected] [email protected] CAO Xiaogang, Glen (852) 3465 5658 SO Lai Shan, Jennifer [email protected] Consumer (852) 3465 5781 ZHANG Meng, Maurice [email protected] (852) 3465 5656 [email protected] CHAN Ka Yeung, Duncan Commodity HO Wen Hao, Jack (852) 3465 5654 (852) 3465 5685 [email protected] [email protected] WANG Zhuo, Gary TIAN Yang (852) 3465 8655 Automotive [email protected] (852) 3465 5775 [email protected] HO Hung Wei (852) 3465 5687 SUN Lingxiao, Roger [email protected] Industrials LEE Ying Ju, Rose (852) 3465 5785 (852) 3465 5707 [email protected] [email protected]

XU Bo, Albert LI Jiageng, Mike Financials (852) 3465 5636 (852) 3465 5789 [email protected] [email protected] XIA Tian (852) 3465 5670 ZHU Kexin [email protected] Renewable energy (852) 3465 5653 XU Xiaowei, Vincent [email protected] (852) 3465 5795 [email protected]

LI Tianyi, Miranda (852) 3465 8653 [email protected]

Please read the disclaimer on the last page. 9 18 October 2016 Xinyi Solar: Solid growth amid downcycle

Company Rating Definition The Benchmark: Hong Kong Hang Seng Index; Time Horizon: 12 months Buy 12-month absolute total return: >=10% Hold 12-month absolute total return: >-10% but <10% Sell 12-month absolute total return: <=-10%

Disclosure of Interests As of the date of this report, 1. The research analysts primarily responsible for the preparation of all or part of this report hereby certify that: (i) the views expressed in this research report accurately reflect the personal views of each such analyst about the subject securities and issuers; and (ii) 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 research report. 2. The research analysts primarily responsible for the preparation of all or part of this report, or his/her associate(s), do not have any interest (including any direct or indirect ownership of securities, arrangement for financial accommodation or serving as an officer) in any company mentioned in this report, 3. This report has been produced in its entirety by China Securities (International) Brokerage Company Limited (“China Securities (International)”) (CE Number: BAU373, regulated by the Securities and Futures Commission in Hong Kong) 4. China Securities (International) and each of its group companies that carry on a business in Hong Kong in investment banking, proprietary trading or agency broking in relation to securities have no financial interest, in aggregate, equal to or more than 1% of the market capitalization in the stocks reviewed in this report. 5. China Securities (International) and each of its group companies that carry on a business in Hong Kong in investment banking, proprietary trading or agency broking in relation to securities may receive compensation from or mandates for investment banking services in the past 12 months from listed corporations whose stocks are being reviewed by China Securities (International) in this report. 6. China Securities (International) and each of its group companies that carry on a business in Hong Kong in investment banking, proprietary trading or agency broking in relation to securities do not have any individual employed by or associated with them serving as an officer of a listed corporation whose stocks are being reviewed by China Securities (International) in this report. 7. China Securities (International) and each of its group companies that carry on a business in Hong Kong in investment banking, proprietary trading or agency broking in relation to securities may act as the market markers in the stocks reviewed by China Securities (International) in this report.

Disclaimer This report is for information purposes only and should not be construed as an offer to sell or to solicitation of an offer to buy or sell any securities in any jurisdiction. The securities referred to in this research report may not be eligible for sale in some jurisdictions. This information contained in this report has been compiled by China Securities (International) from sources that it believes to be reliable and the opinions, analysis, forecasts, projections and expectations contained in this report are based on such information and are expressions of belief only and no representation, warranty or guarantee is made or given by China Securities (International) or any person for its accuracy or completeness. All opinions and estimates expressed in this report are (unless otherwise indicated) entirely those of China Securities (International) as of the date of this report only and are subject to change without notice. Such opinions and estimates may be different from or contrary to the opinions presented by the other business departments, units or affiliates of China Securities (International), as different assumptions and standards, different views and analytical methods may be adopted in the preparation of such other materials, and China Securities (International) is under no obligation to bring such other materials to the attention of any recipient of this report. Neither China Securities (International) nor its holding companies and affiliates accept any liability whatsoever for any direct or consequential loss arising from any use of material contained in this report or otherwise arising in connection therewith. Any investment referred to herein may involve significant risk, may be illiquid and may not be suitable for all investors. The value of or income from any investment referred to herein may fluctuate and be affected by changes in exchange rates. Past performance is not indicative of future results. This report does not take into account the investment objectives, financial situation or particular needs of any particular person. Investors are expected to make their own investment decision without relying on this publication. Before entering into any transactions in any securities referred to in this research report investor should consider their own individual investment objectives and financial situation and seek professional financial, tax and legal advice, as necessary. This report is strictly confidential to the recipient. It is being supplied to you solely for your information and may not be reproduced, redistributed or passed on, directly or indirectly, to any other person or published, in whole or in part, for any purpose. The distribution of this report in other jurisdictions may be restricted by law, and persons into whose possession this report comes should inform themselves about, and observe, any such restrictions. By accepting this report you agree to be bound by the foregoing instructions.

China Securities (International) Research 18/F, Two Exchange Square, Central, Hong Kong Tel: (852) 34655600 Fax: (852)21809495 Bloomberg: CSCR

Please read the disclaimer on the last page. 10 18 October 2016