我国新能源行业研究与投资机会分析 77页

'2.5.1TechnologicalClassificationofNewEnergyVehicle(NEV)..........................372.5.2IndustrialChainsBreakDown.........................................................................402.5.3SegmentProfitabilityAnalysis–Batterysector...............................................412.5.4SegmentProfitabilityAnalysis–Engineandelectriccontrollersystem..........422.5.5SegmentProfitabilityAnalysis–Upstreamrawmaterials...............................432.5.6SegmentProfitabilityAnalysis–Chargingstation..........................................442.5.7MajorListedCompaniesandTheirInvestmentAttractivenessBrief..............453VerificationofFundamentalLinkstoExcessReturninChina’sSecurityMarketandNewEnergyIndustry...............................................................................................................463.1Pastaccountingperformanceandfuturestockabsolutereturninthewholemarket473.1.1Dataandsample................................................................................................473.1.2Modelspecificationandregressionmethod.....................................................493.1.3Regressionresults.............................................................................................493.2Pastaccountingperformanceandfutureexcessreturninthewholemarket............523.3Pastaccountingperformanceandfutureexcessreturninnewenergyindustry.......553.3.1Dataandmethod...............................................................................................553.3.2Regressionresults.............................................................................................553.3.3Comparisonofregressionresultsinnewenergyindustryandinthewholemarket584TheDerivationandApplicationofCompanyAppraisalModel.....................................594.1TheTheoryandApplicationofPrincipalComponentsAnalysis(PCA).................594.1.1ThePrinciplesandMotivationofPCA............................................................594.1.2MethodologyOverview....................................................................................604.1.3EmpiricalTestonPrincipalComponents’LinktoReturn...............................604.1.4ApplicationoftheCompanyAppraisalModel.................................................624.2Valuationanditsinfluenceonappraisalmodel.......................................................634.2.1Valuationlevel,futureexcessreturnandaccountingratios.............................644.2.2Adjustmentforvaluationfactors......................................................................654.3OutofSampleEmpiricalTestfortheModel...........................................................665Conclusion.......................................................................................................................68 Bibliography............................................................................................................................69Acknowledgments...................................................................................................................71 AbstractAlongwiththeglobalclimatechangeandflourishingofnewenergy,agreatinvestmentopportunityhasemergedinthisindustry.Thispaperintroducesatopdownresearchmethodwhichcombinesthequalitativeindustryresearchandquantitativecompanyappraisalmodelforstockpicking.Onthefundamentalresearchside,itexploresintovarioussub-segmentsofnewenergyindustrythroughcomprehensiveanalysisoftechnologicalstatus,industrychainsstructures,downstreamdemandaswellasmarketcompetition.Thereforeidentifythespecificindustrialsectorswhichhasthegreatestprofitpotentialvisibilityinthefuture;Inthecompany-specificside,thepaperfirstverifiestheexistenceoffundamentallinkstomarketreturninA-sharemarketaswellasnewenergyindustrybyregressnextperiodreturnonselected14accountingratios.Thenitdevelopscomprehensiveappraisalindicatorsbyprincipalcomponentsofsignificantratios.Theindicatorsareweightedbythevariancecontributedpercentageofeachprinciplecomponents.Byapplyingthemodeltoourselectedcandidatecompanies,andtakevaluationriskintoconsideration,wecanconstructaportfoliowithtop10scorerankings.Theempiricaltestverifiesthevalidityofthemethodologyandshowstheperformanceofrecommendedportfolioearnsasignificantabnormalreturnthanindustryindex(37%beat)andmarketbenchmark(60%beat),andthemodifiedSharperatioofrecommendedportfolioismuchbetterthantheindustryindex.Thishybridresearchmethodincorporatesthemeritsofqualitativefundamentalresearchandquantitativeevaluationmodel,andhasadvantagesofreliabilityandcomprehensiveness,andisalsoeasytoapplyinpracticeinnewenergyindustry.Keywords:newenergyindustry,industryresearch,fundamentallinks,companyevaluationmodel,empiricaltest,Sharperatioii 摘要随着全球气候变化与不可再生化石能源储量急剧下降等问题的加剧，国际社会对节能减排已达成高度共识,新能源行业逐渐成为21世纪最具发展潜力的行业之一，其投资机会也持续受到投资者的关注。本文引入了一种行业研究与基本面评估模型相结合的自上而下的投资机会分析方法，旨在帮助投资者控制投资风险，获取超额收益。其中，行业研究部分以价值投资理念为指导，通过对我国新能源行业各细分产业的技术现状、产业链结构、下游需求与市场竞争程度的深入研究与比较，寻找中长期内最具盈利实现能力的新能源子行业及其产业环节；数量化评估模型部分首先选取了代表上市公司盈利能力、偿债能力、增长能力、经营效率等4方面的财务指标，以历史实证数据证明了基本面指标在中国A股市场和新能源行业中与下期收益存在显著相关性，之后将对收益显著相关的指标进行主成分分析，依据主成分方差解释比例构建综合评价指标。最后，以行业研究中选定的投资领域中的上市公司为待选标的，以基本面评估模型对公司投资价值进行评分与排序，在考虑了估值风险后,每期选择得分最高的10只公司作为建议投资组合。在此基础上，本文将建议投资组合样本外的市场表现与行业基准、市场基准分别进行了实证对比，投资组合市场累计收益分别超出新能源行业指数37%，超出沪深300指数60%，且推荐投资组合的拟夏普指数超过行业指数一倍以上,实证结果证明了行业研究与评价模型的有效性。本文有效地引入了一种结合定性行业研究和定量评价模型的选股方法，并在此方法下提出了指导新能源行业价值投资者的五条投资参考准则，旨在帮助投资者控制投资风险，获取超额收益。此方法具有综合性、可靠性、易操作性等优点。关键词关键词：关键词：：：新能源,行业研究，基本面选股，投资评价模型，实证检验，夏普指数iii FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustry1Introduction1.1BackgroundandMotivationWithglobalclimatechangesandsharplydeclineofno-renewablefossilenergy,internationalcommunityhavepaidunanimousattentiontoenergysaving,pollutionreductionanddevelopmentofnewenergy.AfterCopenhagenMeeting,severalmajordevelopedanddevelopingcountrieshavemadeexplicitpromisetoreductionofgreenhousegasemissioninnext10yearsandproposedsomespecificmovesandinvestmentrequirementsfromtheperspectiveofpolicy.China,asanimportantplayerontheworldstageinenergysavingandpollutionreduction,hascommittedtoreducethecarbondioxideemissionpercapitaGDPby40%-50%from2005till2020.Thisgoalhasbeenincludedinthenation’stwelfthfiveyearplanasacompulsorytarget.Therefore,itisexpectedthatenergysavingandpollutionreductionwillgeneratesubstantialinvestmentopportunityandconsiderableexpectedreturnforChina’snewenergyindustry.Theflourishingnewenergyindustryandgreatpresenceofinvestmentopportunitiesmotivatethethesis.ThepurposeofthestudyistohelpinvestorscaptureinvestmentopportunitiesofNEindustryandgenerateexcessreturnbyidentifyingpromisingsubsectors,andutilizingapracticablestockpickingstrategy.1.2LiteratureReview1.2.1ForeignLiteratureReviewJohnBurrWilliams,recognizedasafounderanddeveloperoffundamentalanalysis,arguedthatstockpriceshouldreflectanasset"sintrinsicvalue.Williamsbuilt1 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryatheoreticalfoundationwhyweusefundamentalmodelstodostockselection.DoddandGrahamarepioneerswhoformallyderivedtheimportanceoffundamentalfactorsinsecurityvaluationprocess.ThenGordonandShapiro’sDDMmodelfurtherillustratetherelationshipbetweensharepriceandfundamentalfactors.EarlierworkbyLevandThiagarajan(LT)(1993)introducedacollectionoffundamentalsignalsthatreflectrelationsincurrentaccountingdatathatarepurportedtopredictfutureearningschanges.Theydemonstratethevaluerelevanceofthesesignalsbyshowingtheyaresignificantlyassociated,inthedirectionspredicted,withstockreturnscalculatedcontemporaneoustothedisclosureofthesignals.AbarbanellandBushee(AB)(1997)finddirectevidencethatbothfutureearningsand,toalesserextent,analysts"forecastrevisionsoffutureearningsaresignificantlyassociatedwithseveralofthesignalsoverthesampleperiodtheyexamine.WayneE.FersonandCompbellR.Harvey(1998)providesaglobalassetpricingperspectiveonthedebateovertherelationbetweenpredeterminedattributesofcommonstocks,suchasratiosofprice-to-bookvalue,cash-flow,earnings,andothervariablestothefuturereturns.Somearguethatsuchvariablesmaybeusedtofindsecuritiesthataresystematicallyundervaluedbythemarket,whileothersarguethatthemeasuresareproxiesforexposuretounderlyingeconomicriskfactors.Itisnotpossibletodistinguishbetweentheseviewswithoutexplicitlymodellingtherelationbetweensuchattributesandriskfactors.Theypresentanempiricalframeworkforattackingtheproblematagloballevel,assumingintegratedmarkets.Ourperspectivepullstogetherthetraditionalacademicandpractitionerviewpointsonlaggedattributes.Theypresentnewevidenceontherelativeimportanceofriskandmispricingeffects,usingmonthlydatafor21nationalequitymarkets.Theyfindthatthecross-sectionalexplanatorypowerofthelaggedattributesisrelatedtobothriskandmispricinginthetwo-factormodel,buttheriskeffectsexplainmoreofthevariancethanmispricing.WayneFersonandCampbellR.Harvey(1994)studyaverageandconditionalexpectedreturnsinnationalequitymarketsandtheirrelationtoanumberof2 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryfundamentalcountryattributes.Theattributesareorganizedintothreegroups.Thefirstarerelativevaluationratios,suchasprice-to-book-value,cash-flow,earnings,anddividends.Thesecondgroupmeasuresrelativeeconomicperformance,andthethirdmeasuresindustrystructure.Wefindthataveragereturnsacrosscountriesarerelatedtothevolatilityoftheirprice-to-bookratios.Predictablevariationinreturnsisalsorelatedtorelativegrossdomesticproduct(GDP),interestratelevels,anddividend-priceratios.Weexplorethehypothesisthatcross-sectionalvariationinthecountryattributesproxiesforvariationinthesensitivityofnationalmarketstoglobalmeasuresofeconomicrisks.Wetestsingle-factorandtwo-factormodelsinwhichcountries’conditionalbetasareassumedtobefunctionsofthemoreimportantfundamentalattributes.LouisK.C.Chan,YasushiHamaoandJosefLakonishok(1991)relatecross-sectionaldifferencesinreturnsonJapanesestockstotheunderlyingbehavioroffourvariables:earningsyield,size,booktomarketratio,andcashflowyield.Alternativestatisticalspecificationandvariousestimationmethodsareappliedtoacomprehensive,highqualitydatasetthatextendsfrom1971to1988.TheirfindingrevealsasignificantrelationshipbetweenthesevariablesandexpectedreturnsintheJapanesemarket.Ofthefourvariablesconsidered,thebook-to-marketratioandcash-flow-yieldhavethemostsignificantpositiveimpactonexpectedreturns.Morethanahalfofthecomprehensiveevaluationsystemisbasedonthecompany"sfinancialstatements,andarecalculatedaccordingtothespecificinterpretationofsomefinancialratios.Empiricalstudyontherelationshipbetweenfinancialratiosandstockperformanceshowedalargenumberofmeaningfulresults.Petras,Michael,andCarappliedprincipalcomponentanalysis(PCA)tostudyfouryearsfinancialfiguresof221companiesin1957,1951,1963and1969.Theygrouped48kindsoffinancialindicatorsintosevengroups:①returnoninvestedcapital;②capitalstructure;③inventorystatus;④financialleverage;⑤accountsreceivable;⑥short-termliquidity;⑦cashposition.KaizandBeaubelievethatPetras’studyignored3 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustrythedifferenceofcashflowandprofitabilityindicators,andtheestimateofcashflowisinaccurate--simplytotakenetincomeplusdepreciationasasubstitute.KaizandBeaudesigned40accountingindicatorsincludingadjustedworkingcapitalandcashflowfromoperatingactivities.PCAanalysisshowedthat8principalcomponentscanapproximatelyrepresentall40indicatorsandoperatingcashflowbelongedtotheprincipalcomponents.1.2.2DomesticLiteratureReviewGuidedbytheresearchandinvestmenttheoryaboard,domesticprofessionalsconductedmanyresearchonhowtobuildacompanyevaluationmodel."FundamentalAnalysisofListedCompaniesinChina",compiledbyChinaChengxinCreditManagementCO.,LTD,nowhasagreatinfluenceindomesticmarket.Itrankedcompaniesbycurrentearningsandlongterminvestmentvaluethroughindustry,companyandmarketanalysis.Thevaluationincorporatesfactorsincludelevelofprofitability,growthrateandfinancialcondition,andassessindicatorsasROE,totalassetgrowthrate,profitgrowthrate,leverageratio,quickratioandtotalcapitalizationratio.Thevaluationweightsareshownbelow:Table1:ValuationweightsIndicatorsWeightsROE55%AssetGrowthRate9%EarningsGrowthRate13%LeverageRatio7%Quickratio7%TotalCapitalizationRatio9%Source:Paperresultsbyotherliterature4 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryBaiWenjie,YinXiangqingclassified9accountingindicatorsof14listedbanksintothreeassessmentdimension–profitability,growthpotentialandstockexpansioncapability.Theyconstructedcriteriaforeachdimensionasfollows:Profitability:ROE,EPS,BPS.It’sfundamentaltothevalueofacompany.Growthpotential:Earningsgrowthrate,Revenuegrowthrate.Theyreflectsthedevelopingtrendsofcompanies.Commonstockexpansioncapability:BPS,CapitalReservesPerShare.Theybelievedabovethreedimensionsarecomplementarytoeachotherandcannotbeisolatedwhenconductingavaluationoflistedcompanies.GuWenjiongandWuGufengbelievesinvestmentvalueliesintheinternalgrowthandprofitabilityoflistedcompanies,sotheyconstructedarelevance-freeevaluationmodelincorporatingindicatorssuchasgrossmargin,profitmargin,expenseratio,ARturnover,inventoryturnover,PPEturnover,totalassetturnover,equityturnover,currentratio,quickratio,leverageratio,ROE,revenuegrowth,earningsgrowth,industrygrossmargin,etc.Hanzhaozhou,XieMingjieselected58pharmaceuticalandbiotechnologicalfirmsandderivedsixcommonfactorswhichwereinterpretedasassetmanagementcapability,ROE,short-termsolvency,profitability,developingcapacity,earningsqualityandcashrecoveredcapacity.Empiricalresultsshowedthevarianceofsixfactorsaccounted87.747%varianceofallrelatedfactors.ChenZhilingandWangHeng,selected42financialindicatorsforPCAanalysisandfoundthetop12oneswitheigenvalues>1caninterpret87.859%oftotalvariance.ConclusionofliteratureReview:Althoughaboveresearchinstancesshowussomeimplications,domesticresearchininvestmentevaluationisstillintheexploratorystage.Theyfocusedmoreontheoreticalresearchanditsapplicationsuchastheefficiencyofmarket,influentialfactorstostockprice,qualifiedinductionofaccountingratios,buthaven’tbuiltamodelspecificallytooneindustrybasedonacomprehensivesectorresearch.Moreover,fromabroadexperienceweknowthatfundamental5 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryresearchcanjustifyabettermarketvalue.However,whetherthefundamentalfactorscanpredictfutureabnormalreturnisuncertaininChina’smarket.Inthispaper,weemphasizeonfundamentalresearchintheindustryanalysispartandverifywhetherthefundamentalfactorshavelinkstomarketreturninChina’smarketaswellasthenewenergyindustry.IftherelationsholdalsoinChina’smarket,wecanthenproposeanevaluationmodelforportfolioconstruction.1.3MethodologyandPurposeA,industryfundamentalresearch:identifythepromisingsubsectorsofNEindustryMacrolevelanalysis:Byanalyzingthreekindsofnationalstatistics—monetary,investment,wealth,wecanhaveanunderstandingofcurrenteconomicsituation.Distinguishaneconomyfromdifferentlifecycle,whetherit’sinprospectivestageorarecession,recovery.Frommonetarystatisticssystem,weuseM1,M2,newlending,currencyrate,interestrate,rediscountrate,etc.Basedonthetrendsandchangeswithintheseindicators,wecanmakeajudgmentthatwhetherthemonetarypolicyispositiveornegative.Asweknow,positivemonetaryplayanimportantpartinboostingdomesticmarketandbusiness.Frominvestmentstatistics,wecanknowthetotalinvestmentinfixedasset,totalbudgetofgovernmentspendingaswellasmunicipalsinvestingplans.Throughtheseindicatorswecantelldifferentattractivenessofrealindustryasgovernmentspendingwillbefollowedbyaplentyofprivatecapitalinsomespecificareas.Withregardstothenationalwealthsystem,whichservesasadirectsignaltoshowthequantityandqualityofaneconomy,wecanrefertoGDP,IndustrialAddedValue,NetIncomeperCapital,DisposalIncomeperCapita.Theseindicatorswillshowustheconsumptionpoweranddomesticpeopleandthegrowthfutureofthewholeproduction.6 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryIndustrylevelanalysis:Sectorresearchisabondbetweenmacroeconomicsandcompaniesanalysis.Allfirmscanbenefitfromthedevelopmentofaprospectiveindustryandwillhaveanaveragegrowthrateassameasthegrowingpaceofthesector.Firstly,wehavetoidentifythelifestagesofsectors—initialstage,growingstage,matureorrecessivestages,sincetheriskandreturndiffersalotindifferentlifecycles.Asforinvestors,theynormallyprefergrowingormatureindustries,ratherthaninvestinsomeinitialexplorativeandrecessivesectors.Secondly,competitionanalysisisessentialinthesectorresearch.Weclassifiedthecompetitionstateintoperfectcompetition,oligopolisticandmonopolisticcompetition.Perfectcompetitiondescribesnoparticipantsarelargeenoughtosetthepriceofahomogeneousproduct.Thereforetheirrevenuesaremainlydecidedbysupplydemandbalanceinthemarket,implyingthattheirprofitabilitywillhavealargefluctuationandrisk.Imperfectcompetitionisthecompetitivesituationinanymarketwheretheconditionsnecessaryforperfectcompetitionarenotsatisfied.Thirdly,thepaperwillbreakdowntheproductionchainsofeachsectorsanddoaseparateprofitabilityanalysisbasedonthehistoricalperformanceanddemand,supplysituationforecasted.Aftertheindustryfundamentalresearch,weshouldbeabletoselectsubsectorswhichhasanoutstandingfundamentalsinChina’sNEindustry.B,Verificationoffundamentallinkstonextperiod’smarketreturn:findsignificantaccountingratiostowardsnextperiod’smarket/excessreturninChina’sAsharemarket.Afteridentifyingpromisingsubsectorsinnewenergyindustry,thestudyisalsoconcernedabouthowtopickupstockswhichhavegoodfundamentalsandwouldsubsequentlygenerateexcessreturns.Althoughitisnotnaturalthatgoodfundamentalswouldascertainagoodreturnsincerelativemarketperformanceofacompanyisalsoinfluencedbyvaluationlevel,someresearchesexploreintotheexistenceofthefundamentallinkbetweenaccountinginformationthatisreflectiveof7 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustrycompanyfundamentalsandcompanystockperformance.Previously,somestudyhasverifiedaccountingsignalsprovideinformationaboutfuturereturns(J.S.AbarbanellandB.J.Bushee,1998,OuandPenman,1989a).ThesectorwouldfirstinvestigatethelinkinoverallstockmarketinChinaandthenwouldensurewhethercertainrelationshipcanbefoundinnewenergyindustry.IemployFama-Macbethapproachtoexaminetherelationshipbetweenpastaccountingratioandfuturemarketreturn.Themajorpurposeistofigureoutwhetheraccountingratiocansignalfuturereturnratherthanfiguringoutthetruecausalitybetweenfactorsorcomingupwithadelicatemodeltoexplainmarketreturn.Therefore,theregressionmodeljusttakestheaccountingratiointoconcernandusesthemasindependentvariable.AccordingtoFama-Macbethapproach,Ifirstregressnextperiodmarketreturnoneachaccountingratioonebyoneandthencombineresultsacrosseachperiodtodeterminewhetherthecoefficientissignificant.Next,Iselectthosesignificantly-correlatedaccountingratiosandrunmultivariateregressioninordertoinvestigatethejointeffectofaccountingratioonfuturemarketreturn.C,buildacomprehensivefundamentalindicator.Byapplyingprincipalcomponentanalysistothesignificantaccountingratios,wecanbuildacomprehensivefundamentalindicatoronprincipalcomponentsweightedbytheircontributedvariancepercentage.D,considerationofthevaluationleveleffects.Sinceweareexploitingrealinvestmentopportunities,valuationlevelshouldbeconsideredinthedeterminationofrecommendedportfolios.Thepaperwilllookintotherelationbetweenvaluationlevelsandnextperiodmarketreturnbyregressnextperiod’sreturnoncurrentvaluationlevel(PE,PEG).Asignificantrelationwillshowthevaluationreversal/orvaluationremainedtrendsinA-sharemarket.E,constructstocksportfolioandrunoutofsampleempiricaltest.Giventhe8 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryfindingsonfundamentalfactorsandvaluationlevels,wecanapplythemodelinrealNElistedcompaniesandconstructrecommendedportfolios.Theoutofsampleempiricaltestwillmakeaperformancecomparisonbetweenportfolioreturn,industryindexandthemarketbenchmark.2FundamentalResearchofChina’sNewEnergyIndustry2.1MacroeconomicAnalysisofChinastIn21century,China’seconomygrowsfastandsteadilyunderthefavorofthereformandopeninguppolicy.In2010,China’sGDPreachedabout39.7trillionRMBandreplacedJapan’spositionworldwidewiththemetricsofwholeeconomyscale(Figure2).Asthesecondlargesteconomy,Chinamainlandisgraduallybecomingthemostattractiveplaceforinternationalcapitalsandinvestors.Alongwiththeexpansionofeconomicscale,China’sindustryisexperiencingseveralgoldendecadestodevelopandmakecontinuousprofit,especiallysectorsrelatedtoemergingmarketanddomesticconsumption.Inthedevelopingstageofthecountry,capitalinvestmentconstitutesthemajorityofwholeGDP,whichhasprovidedasteadyfoundationforfurthereconomicdevelopmentinrelatedsectors.InFigure3,thecapitalformationratiorosefrom40%in2000toaround55%in2010,buildingupagreatdevelopingpotentialofrealindustriesinChinamainland.Witha10%+CAGRinChina’sGDP,wecanexpectthemacroeconomicprovideafertilelandforlocalbusiness.9 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustry16tnUSDGDPRankingin200914121086420Source:CSMARDatabaseSource:WorldBankFigure2:GlobalGDPRankingin2009Figure3:China’sGDPandCapitalFormationRatioPositivefiscalandmoderatelyloosemonetarypoliciesacceleratetherealizationofindustrialopportunities.Topreventtheeconomyfromdamageof2007-2008internationalfinancialcrisis,Chinagovernmentadopteda4trillionRMBinvestmentplantocuretheeconomybycreatinggreatdemandforindustrialproductsfrominfrastructuralconstruction,citizen’swelfareprojectsandR&Dsupportingfunds.Figure4showsthesynchronizedgrowingoffiscalexpensefrom2000to2009andwecanexpecttheratiooffiscalspending/GDPtoremainaround5%inthefuture.AndthefixedassetinvestmentisstableatanaggressivelevelinFigure5.1.8tnRMB20%30tnRMBFixedAssetInvestmentGrowthRate(YoY)35%17.4%1.616.6%18%30%2528%27%30%1.413.8%14.5%14.3%16%26%25%26%24%24%14%25%1.211.2%2012%1.09.6%17%20%10%150.813%6.4%8%15%0.6104.5%6%10%0.44%50.22%5%0.00%-0%200020012002200320042005200620072008200920002001200220032004200520062007200820092010Source:CSMARDatabaseSource:BloombergFigure4:CentralGovernmentFiscalExpenseandGrowthRateYoY(R)10 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryFigure5:FixedAssetInvestmentandGrowthRateYoY(R)Itgoeswithoutsayingthatgreatamountofgovernmentspendingwillbringingreaterprivatecapitalintotheeconomywiththeexpectationofpoliciessupportingandsufficientcapitalcultivation.Ontheotherhand,M2growthrateandbankcreditloansremainatarelativehighlevel,providingsufficientfluencyforrealindustryaswellasfinancialmarkets.Furthermore,themoneybaseisledbythepoliciesintoemergingindustrialsectorsratherthancreatebubblesinfinancialmarkets.Therefore,themonetarypoliciesareabletoacceleratetherealizationofindustrialopportunities,especiallythosewhichareconsistentwithnational“twelfth-five”plans.60tnRMB1280tnRMB35%M2AmountYoYBankloansintotalBankmonthlyaccumulativenewloans(R)70501030%6025%4085020%3064015%3020410%20102105%0000%-1-5-9-1-5-9-1-5-9-1-5-9-1-5-9-120062006200620072007200720082008200820092009200920102010201020112005/12005/52005/92006/12006/52006/92007/12007/52007/92008/12008/52008/92009/12009/52009/92010/12010/52010/92011/1Source:CSMARDatabaseSource:BloombergFigure6:M2keepgrowingat15%+sinceFigure7:Bankcreditloansremainatahigh2006levelStatisticindicatorsshowthehealthydevelopingtrendsafterfinancialcrisis.Morespecifically,leadingindicators(Figure8)suchasPMI,OECD,andnewstartedrealestateconstructionareaarealsoshowingthestrongdemandandgreatconfidenceinChina’seconomy.TheIndustrialaddedvaluealsorealizedaCAGRof10%+since2005.Whenthemajordevelopedcountriesaresufferingfromtheearthquakesleftby2007-2008worldfinancialcrisis,Chinahassuccessfullypreventitselffromtherecessionofrealindustrybypositivegovernmentalinferenceandrecoveredsoon.Byreferringtotheseindicators,11 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryweexpectagrowthpremiumandgreaterdevelopingpotentialinChina’seconomyamidtheglobaleconomicrecoveringtrends.x100mnM^21850%NewStartedRealEstateFloorSpaceGrowthYoY(R)1645%1440%7010835%PMIOECDLeadingIndicator(R)1210630%601025%10450820%10240615%10030410%9825%209600%1094092-1-3-5-7-9-1-3-5-7-9-1-3-5-7-9-11-11-11200820082008200820082009200920092009200920102010201020102010200820092010SSource:BloombergSource:CSMARDatabaseFigure8:PMIandOECDIndicatorsshowaFigure9:NewStartedRealEstateFloorSpaceprospectiveeconomicrecoverywillboomthedemandforinfrastructuralindustrialproductsActually,supportedbythegovernmentinvestmentandgreatdomesticconsumptionpower,theindustrialproductioninChinarecoversquicklyfromthe07-08crises.InFigure10afterarapiddropbackto5%aroundtheendof2008,industrialaddedvaluegrowthratereboundedto15%+laterin2009andhasstabilizedgraduallyatthisstablelevel.25%IndustrialAddedValueGrowthRate(YoY)201510502005/22005/62006/22006/62007/22007/62008/22008/62009/22009/62010/22010/62011/22005/102006/102007/102008/102009/102010/10Source:BloombergFigure10:IndustrialAddedValuehasstabilizedgraduallyat10-15%.12 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryStructuraltransformationofChina’seconomy:Therisingoflaborcostandconsumptionupgradearethetwomainthemeswithinfuture10yearsinChina.Figure11indicatesthatChineseaveragewageperhourremainslowerthanotherbigeconomies,evennotcompetitivethanourcompetitors,suchasBrazil,Philippines,Mexico.USD/H40AverageSalaryforManufacturingEmployees35302520151050Source:CICCResearchDept.Figure11:GreatgapexistsintermsofaveragesalarybetweenChinaandothereconomiesConsideringLewisdemographicturningpointinChina’spopulation,ourdemographicdividendispassingaway.AccordingtoChinacensusstatistics,theChineseagemedianisincreasingfrom29.6of2000to41.1of2030.Alongwiththeeconomicdevelopmentandtheagingofpopulation,Chinesehaveahugedemandtoimprovetheirearningsqualityandconsumingpower,includingfoods,clothing,shelterandtransportation.Source:GuolianSecuritiesFigure12:China’sPopulationDistributionin2010and2030(Expected)13 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryFigure13showthatthesalaryincreasingpaceexceedstheinflationrateandtendstogrowinthefuture.Thisimpliesanecessarytransformationinoureconomyturningfromlaborintensive,lowaddedvalueindustriestocapitalandtechnologyintensive,highaddedvalueindustries.Also,internationalexperiencetellswhenGDPpercapitareach4000USD,thedemandforconsumptionupgradebeyondtraditionalformswillbeenhanced.In2010,China’sGDPpercapitalreached4000USD.25%CPIInflationRate(YoY)SalaryGrowingRate(YoY)30000EquivalentlineforUSD400020%25000GDPpercapita2000015%1500010%100005%50000%20012002200320042005200620072008200920100-5%20002001200220032004200520062007200820092010Source:CSMARDatabaseSSource:NationalBureauofStatisticsofChinaFigure13:SalarygrowsmuchfasterthanCPIFigure14:TherisingGDPpercapitaindicatesrateatendencyforconsumptionupgradingInconclusion,China’seconomyisdeterminedtoexperienceastructuraltransformationinthenearfuture,fromtraditionalindustries(lowendmanufacturing,lowvalueaddedexportingandhighenergyconsumingsectors)toemergingindustries(highendprocessing,technologyintensiveandenvironmentalfriendlysectors).SeeFigure15.RisingLaborCost…LaborintensiveTechnologyandcapitalintensiveLowvalueaddedHighvalueaddedHighenergyefficiencyandHighenergyconsumingEnvironmentalfriendlyCurrentIndustrialStructureIndustrialEvolvingTrendConsumptionUpgrading…Source:FromownanalysisFigure15:China’sindustriesevolvingtrends14 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustry2.2MidLevelAnalysisofNewEnergyIndustryConceptsandClassificationsofNewEnergy:Comparedtoconventionalenergysources,newenergyisutilizedstepbystepwiththedevelopmentofnewtechnology.ItsconceptcomesfromUnitedNationsNairobiConferenceheldin1981,whichisdifferentfromconventionalfossilfuels,andisabletokeepdevelopingandevolving.Mostimportantly,theyareinexhaustibleandhavebaredamagetotheenvironment.Currently,theUnitedNationsDevelopmentProgramme(UNDP)dividesthenewenergyandrenewableenergysourcesinto3categories:(1)largeandmediumhydropower;(2)newrenewableenergy,includingsmallhydropower,solarenergy,windenergy,modernbiomass,geothermalandoceanpower;(3)traditionalbiomass.InChina,newenergyandrenewableenergyrefertobiomasselectricity,solar,wind,hydropower,geothermalandoceanenergyexceptforconventionalfossilfuels.Morespecifically,photovoltaiccellsarechargedbysolarenergy;windandwatermomentumaswellasnuclearchemicalreactionscanreleasehugevolumejouleofheatwhichfinallyturnsintoelectricityoverthecountry.Thesepromisingalternativeformsofenergywillbecomethecornerstoneoftheworld"senergyfuture.Table2showstheclassificationsofenergybasedonthecharacteristicsandsources.Primaryenergyisnaturallyformedwithoutartificialinterference,andcanbedividedintoconventionalenergywhichhasbeenadoptedbyhumanbeingforalongtimeandnewenergy.Inconventionalenergy,non-renewableenergyisgoneonceyouuseitwhilerenewableonescanbere-bornquicklyinthenaturalrecyclingprocess.Besidesprimaryenergy,electricityandproductsfromfossilfuelconstitutesthesecondaryenergybymeaningthattheycomefromtheprocessionofprimaryenergyresources.15 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryTable2:ClassificationofEnergyPrimaryEnergyConventionalEnergyNewEnergySecondaryEnergyRenewableNon-RenewableEnergyEnergyHydropower,Fossilfuel(coal,Solarpower,windElectricity,coalgas,Biomasspetroleum,power,nuclearproductsfromfossilfuelenergynaturalgas)powerSource:FromownanalysisAsthedecreasingstockofnon-renewableenergyandtheenhancementofcitizen’senvironmentprotectionattitudes,newenergyisplayingmoreandmoreimportantroleinthedevelopmentofthesocietybecauseofitsextremevolumeandenvironmentfriendlyqualities.IndustryExpansionFavoredbyStatePolicy:Governmentsupportisessentialfortheinitialdevelopingofanemergingindustry,especiallynewenergysectorswhichrequireagreatamountofcapitalandR&Dinvestment.Table3showsthelistofdirectivestatepolicies,includingsubsidiaries,taxreduction,interestbenefits,etc.Table3:ListfornewenergyindustrysupportingactDateTitleContent2005/5《StateRenewableEnergyAct》Confirmthepriorityfordevelopingrenewableenergyindustriesincludinghydropower,windpower,solarandnuclear.2011/3《NationalTwelfth-FivePlan》By2015,nonfossilfuelshavetoconstitute11%+ofthetotalpowersupply2H2011,expected《NewEnergyDevelopingPlan》MakecleardevelopinggoalfornewenergyintermsofCO2emissionreductionandenergystructurereform.5tnRmbinvestment.Source:PublicannouncementIntermsofinvestment,fixedassetinvestmentinnewenergyindustryremainshighinrecentyears.Subsectormaturityanalysis:fromtheclassificationofnewenergyindustry,therearemanysubsectorsexistinginChina—nuclearenergy,windpower,solarenergy(photovoltaicsector),newenergyvehicleaswellasbiomassenergy.However,theirfundamentalsituationdiffersalotsowehavetodistinguishthe“story”stage,“realization”or“bubbles”stage.GiventhehugedemandforenergyinChinaalong16 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustrywiththefasteconomicgrowingpace,subsectorsofnewenergyallhavegreatgrowingpotentialswhereastheyhavedifferenttimehorizonstorealizetheirprofits.Thispaperwilltalkaboutthemwhohavebeenoraretobeindustrializedandmaturewithin3yearsinChina.Therefore,earningsaremorevisibleforinvestingintheserelativematuresectors.We’dliketomakethejudgmentbasedoncurrentpowerproductionratio,enterprisenumbersandpoliciesguidance.Figure16iscurrentpowergenerationdistributioninChinaclearenergysupply.Solar,windandnuclearenergyconstitute16.31%ofcurrentcleanenergygenerationinChina,whichmeansthetechnologies,consumersandproducersaremorematureatthismoment,comparedwithothersubsectorsinnewenergyindustry.EnergyStructureRatioinCleanEnergySupplyFossilFuelsCleanEnergyWindEnergySolarPowerNuclearPowerHydroelectrivity0.24%12.28%4.28%27%73%83.20%Source:StateEnergyAdministrationFigure16:Solarpower,windandnuclearenergycontributethemostincurrentcleanenergysupplyFigure17issortedbymarketcapandnumbersoflistedcompaniesineachsector.Besideswind,nuclearandphotovoltaicsectors,wefindnewenergyvehiclehavethegreatestmarketcapinChina,althoughit’snotasourceforenergy.Betreatedasanefficientwaytomakeuseoftheenergy,thevehiclesectorisanalternativewaytorealizethecarbondeductionandenergysavinggoals.17 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustry2500100mnRMB25MarketCapListedEnterpriseNumber(R)200020150015100010500500PhotovoltaicWindPowerNuclearEnergyNewEnergyVehiclesSource:Wind,tradingdata:2011/3/18SSource:ByownanalysisFigure17:OverviewofthebusinessinFigure18:ComprehensivereviewforthesubsectorsofnewenergymaturityofnewenergysubsectorsAfterthe9.0earthquakeinJapanof11st,March2011,theterribletsunamicausedaseriesofaccidentstoFukushimaOrinenuclearstation.Thenuclearleakcausedanxiety,concernsandevenpublicparadesworldwideagainstnuclearpowergenerationindustries.OurgovernmentimmediatelyissuedmanysecuritycheckinstructionsforChina’snuclearpowerstationsandstoptoacceptinstallmentapplicationsofnewnuclearstationsuntiltheapprovalofChina’slongtermnuclearpowerdevelopingstrategy.Theaccidentsbringinuncertaintytoglobalnuclearpowerdevelopmentandtheeffectsarehardtoestimateatthismoment.ButonethingisclearthatthecapacitytargetforChina’snuclearpowerwillbereducedinsomedegreeandthegapwillenhancethedemandforothernonfossilfuels,especiallythesafestwindandphotovoltaicenergy.Therefore,thispaperwillemphasizeonthefundamentalresearchofwindpower,photovoltaicandnewenergyvehicles,whicharemorelikelytorealizetheirdevelopingpotentialinChina.2.3PhotovoltaicSectorResearch2.3.1DefinitionsandCurrentDevelopmentofPhotovoltaic(PV)industryPhotovoltaic(PV)isamethodofgeneratingelectricalpowerbyconvertingsolar18 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryradiationintodirectcurrentelectricityusingsemiconductorsthatfigurethephotovoltaiceffect.Mono-crystallinesilicon,polycrystallinesilicon,amorphoussilicon,cadmiumtelluride,andcopperindiumselenide/sulfideareusuallyusedasmanufacturingmaterialsfortypicalPVsystems.Alongwiththedevelopmentofresearchandmanufacturingtechnologies,theprocessionofsolarcellsandphotovoltaicarrayshasadvancedconsiderablyandleadtoagreatimprovementfortheperformanceofPVpowergeneration.AccordingtoWikipedia,morethan90countriesappliessolarphotovoltaicelectricityasof2009,however,thetotalPVpowersupplyonlycomprisesatinyfractionofthe4.8TWtotalglobalpowercapacityfromallsources.Asthefastestgrowingalternativepowertechnologyintheworld,grid-connectedPVcapacityincreasedwithaCAGRrateofover60percent,to21GWbetween2004and2009.Asarenewablecleanenergy,photovoltaichasthecharacteristicsofreliability,noiselessandenvironmentalfriendly,andisregardedasanimportantalternativeenergyinthefuture.Crystallinesiliconphotovoltaicsystemdominatesamajorpositioninthismarket.Withthetechnologicaldevelopmentofchipprocessionandpolysiliconpurification,photoelectricconversionrateandtheefficiencywillbeimproved,thuspushtoreducethecostsofphotovoltaicmanufacturing.Photovoltaicindustryhasbeingpopularworldwidein21stcenturywithfullsupportingpoliciessuchastaxcredits,subsidies,low-interestloans,etc.inGermany,Japan,theU.S.,SpainandItaly.GlobalPVmarketcompisition,Units:GW0.310.210.36Spain0.23Germany0.242.46Korea0.28ItalyJapan1.86UnitedStatesOtherAreainEuropeOthersSource:byownanalysisFigure19:GlobalPVmarketcompositionasof2008In2010,ChinahasaPVcapacityof380MW,whichjustaccountsforabout2%19 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryofglobal16GW.Comparedwithdevelopedcountries,China’sPVmarketisstillintheinitialstage.Inpoliciesaspect,jointlyledbyMinistryofFinance,MinistryofScienceandtheNationalEnergyBoard,national"GoldenSun"projectwasofficiallylaunchedforthephotovoltaic’ssakeon21st,July2009.Thispolicymainlyprovidessupportsfortwocategories:1)demonstrativeprojectsintheareasofgrid-connectedandindependentphotovoltaicgeneration;2)keytechnologyimprovingforsiliconpurificationandgridconnected.Favoredbytheseindustrialpolicies,ourPVindustryhasbeenexperiencingarapiddevelopment.InFigure21,weexpectaninstalledcapacityin2020toreach20GW,500timesincreasethan2008,whichwillexponentiallyincreasetheamountofthedomesticinstalledphotovoltaiccapacityandthenbringinahugedomesticmarket.9000MVGlobalnewinstalledcapacityGrowth(YoY,Right)120%140MV600%DomesticnewinstalledPVcapacityGrowth(YoY,Right)8000120480%100%500%7000100600080%400%50008060%300%400060200%300040%150%167%200%40200020%100%20100000%00%20012002200320042005200620072008200920052006200720082009Source:2009PVIndustryResearchReportbyYongjunSource:2009PVIndustryResearchReportbyYongjunLiLiFigure20:StatisticsofglobalannuallyFigure21:Statisticsofdomesticannuallyadditionalphotovoltaicinstalledcapacityadditionalphotovoltaicinstalledcapacity(2002-2009)(2005-2009)2.3.2IndustrialChainsBreakDownTheindustrialchainscanbeclassifiedsequentiallybyPolycrystallinesiliconresources
Siliconchips
Photovoltaiccellsmanufacturing
Componentpacking
Photovoltaicsystemintegration(SeeFigure22).20 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryUpstreamMidstreamDownstreamSiliconSiliconchipsComponentsComponentsSystemresourcesprocessionManufacturepackingintegrationSource:byownanalysisFigure22:IndustrialChainsofPVbusinessTheupstreammainlyreferstomineralsiliconresourcewhichisusedastherawmaterialsofphotovoltaiccellsbyabout90%ofmanufacturers.Generallyspeaking,themineralcompanieswillnotextendtheirproductlinestothesiliconchipsprecessionbecauseoftherelativehighopportunitycost.Siliconchipsprocessionandsolarcellmanufacturingbelongtomidstreambetweenrawmaterialsandsystematicpowergenerationproducts.Weclassifiedcomponentspackingandintegrationasthedownbreachofthelinesincetheyarelaborintensitysectorswhicharefinalstepstousableproducts.Intheviewoflifecircle,wealsocanclassifythemintoinitialperiod,developingperiod,matureperiodandrecessiveperiod.AccordingtoFigure23,profitabilityreachesitspeakinthedevelopingandmatureperiodthendecreasegraduallyintherecessiveperiod.SincePVindustryjustbeginstogrowinChina,theindustrialsectorsarealllyingininitialanddevelopingperiodwhileindevelopingandmaturestagesindevelopedcountriessincetheyenterthemarketin2001andhavegreatpoliciessupportingandcapitalinvestmentsuchasSpain,Germany.Profitability120%OthersWiringHighIntegrationDC/ACInverters100%5%5%SolarcellsManu.SolarcellsManu.Installment6%PVcellsandkeycomponents80%11%Polycrystallinesilicon13%60%40%Photovoltaicpowerapplication60%Low20%InitialperiodDevelopingperiodMatureperiodRecessiveperiodLifecircle0%PVSystemSource:byownanalysisSource:byownsortedFigure23:lifecircleofphotovoltaicindustrialFigure24:CostdistributioninatypicalPVchainssystemFigure24showsthecostdistributioninatypicalPVproductandcangiveussomeimplicationsonthesegmentedmarketsizes.21 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustry2.3.3SegmentsofProductionChainAnalysisandComparisonRawmineralmaterials:Polysiliconandmonocrystallinesiliconwillstayasthemainstreamofsolarcellmaterials.Astherawmaterialsofwholeindustrialchains,thedemandwillkeepincreasingalongwiththePVmarketexpansion.Inaninternationalview,morethan90%ofPVcellsaremadebyhigh-puritypolysilicon,resultinginalastingunder-supplyofsiliconresourcesbefore2009.Accordingtomediareports,Chinaproducedabout300tonsofpolycrystallinein2006whichcouldonlymeetthematerialrequirementof30MWPPVcellswhilethedomesticPVcellsproductionwereashighas370MWP.Wehavea95%+exportingrelianceonpolysiliconthen.FromFigure25wenotethatthespotpriceofpolycrystallinereacheditspeakof450dollar/kgin4Q2008andthegrossmarginwasestimatedashighas80%.Polycrystallinesiliconspotprice($/kg)Source:http://pvinsights.comFigure25:SpotpriceforpolysiliconButthingshavechangedinrecenttwoyears.Withtheexpectationofhighmarginandlitterregulations,moreandmoreenterprisesextendedtheirproductlinestopolysiliconthroughmergersandacquisitions.In2010,Chinahasadomesticsiliconcapacityof85thdtonesandrealizedproductionof45thdtones,withanexportof47.5thdtones.Theexportdependencyratehasdecreasedfrom97%to50%in2010andthistrendwillcontinueinrecent2-3years.Thespotpriceisdecreasingalongwithworldwideproductionexpansionin2009andarriveditsbottomin2Q2010becauseofmorestrictentrypoliciesandregulations,especiallyinChina–ourgovernment22 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustrystoppedtoapprovenewinstalledpolysiliconcapacityinlate2009andthenofficiallyissuedthe“StandardsControlforNewentrantsinPolysiliconProductionSector”whichsetupaseriesofcontrollingcriteriafornewentrantssuchasthe3000t/yproductionslimitandenvironmentalprotectionrequirements.PertheestimateofNationalDevelopmentandReformCommission,wehave20-30domesticfirmsprovidingpurifiedpolysiliconproductsofPVclass.Comparedwithinternationalgiants’20-30dollar/kg,theaverageproductioncostfordomesticfirmsare40-60dollar/kg.Thegrossmargindependsheavilyonthespotpriceofpolysilicon.WebelievethatbenefitedfromthelaunchofdomesticPVdemand,thespotpriceeventhecontractpricewillremainstablearound80dollar/kg,left30%grossmarginforqualifiedrawmaterialsproviders.2.3.4SegmentProfitabilityAnalysis—componentsmanufacturingKeycomponentsmanufacturingisthemidstreamofPVindustry,whichisthemostcomplexanddiversifiedsegment.Wewillfocusontwoprofitableandtechnology-intensiveparts:PVcellsmanufacturingandAC/DCinverter.PVcells:PVcellssectorhaslessentrybarriersthanitsupstreampolysiliconpurificationsectorandthereforefacesmorecompetitivesituationinChina.China"sPVcellsmanufacturingsectorhasexperiencedanextraordinarydevelopmentsince2003withaCAGR100%-300%.Havingmorethan200PVcellsfirms,ourannualproductionreached700MW,becomingthethirdlargestproducerafterJapanandEurope.BecausethecostsarestillhighinthecellmanufacturingprocessanddomesticPVmarketisnotboomednow,90%+ofourPVcellsareexported.ContinuousnewentrantsandlimitedupstreamsupplyweakenthebargainingpowerofPVcellmanufacturers.Consideredthegrowingsupplyofdomesticpolysilicon,theembarrassedsituationshouldbeeasedthroughthedescendingofupstreampriceandtheactivatingofdomesticPVapplicationmarket.Butitneedsalmost3yearforthenewinstalledsiliconcapacitycomingintoproductionandtheboomingofdomestic23 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryapplications.WethinktheprofitabilityofPVcellswillcontinuesufferingfromtheover-supplysituationinthefuture2-3years.AC/DCinverter:PVinverterservesastheintermediabetweenPVpowergenerationsystemandgridwiththefunctionofconvertingAlternativeCurrenttoDirectiveCurrent(inFigure26).Source:google.comFigure26:FigureionofasolarinverteranditspositionofwholesystemCurrentlyinvertermarketismonopolizedbyforeigngiantssuchasSMA,Fronious,KacoandSiemens,whichdominateover60%ofglobalmarket,whiledomesticproducersonlyaccountforlessthan5%ofthemarket.Theunderlyingreasonisthatthegiantsenteredthemarketinabout2003,muchearlierthanourfirms,whichbegantodevelopfastin2010.Furthermore,thecertificationprocessfortheinvertersalsorequire1-2yearshorizon,thereforethedomesticproducerscannotexpandtheirproductioninashorttime.However,thesituationisturningaroundinthisyearandnext.Thecompetitionisturningfromtheentranceadvantagestoemphasizecostandtechnologyleadership,whichisfavorablefordomesticcompetitors.Ouradvantageslieinthreeaspects:1.Marketadvantage:WehavebecomeoneofthelargestPVcellmanufacturingbaseandPVinverterisanessentialpackagedcomponentforPVcell.24 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustrybnRMB160MarketSizeofSolarInverter1401201008060402002005200620072008200920102011E2012E2013E2014E2015ESource:GuojinSecurities,andbyownanalysis,assumetheusinglifeofinverteris5yearsFigure27:MarketSizeofSolarinverter2.Laborcostleadership:therelativelowerlaborcostinmanufacturingpartsmakesdomesticfirmsmorecompetitive.3.Materialadvantage:Electroniccomponents,IGBT,MetalshellarethreeimportantpartsinPVinverters.Fortunately,wehavesufficientexperienceandadvancedtechnologyintheexplorationandproductionofthesecomponents.ThesufficientsupplyandmaterialadvantageswillgiveourPVinverterproducersmorebargainpowerinthevaluechain.Theaveragegrossmarginofdomesticsolarinvertersproducersisaround20%butwebelievethescaleadvantageswillbringdownthecostandimprovethemarginapproachingtotheinternationalgiantcompanies(around35%+).Figure28showsusthesalesandEBITMarginforaninternationalsolarinverterspecializedcorporation—SMACorp.(S92G.DE).AndwebelievetheboomglobalPVmarketwillbringsimilarprospectsfordomesticgiantcompanies.100030%SalesEBITMargin(R)90025%80070020%60050015%40010%3002005%10000%2006200720082009Source:BloombergFigure28:SalesandEBITMarginofSMACorp.(S92G.DE)25 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustry2.3.5SegmentProfitabilityAnalysis—packingandintegrationPackingandintegrationlieinthedownstreamofPVindustrialchains.Theircharacteristicsofsmallcapitalinvestment,shortconstructionperiod,lowtechnologybarriersandclosertomarketattractlotsofmanufacturersandthusbecomethefastdevelopingsegmentinPVchains.Perourestimate,there’remorethan200PVpackingandintegrationcompaniesindomesticmarketmostofwhicharecertifiedbyTUV,ULinternationalstandards.Greatcompetitioninthisfieldweakenstheirbargainpowerandbringsinbigthreatforsubstitutionofeachother.WiththeconcernsthatthedomesticPVapplicationmarkethasnotboomedyetandthestrongpositionintheirupstream,weexpectthegrossmarginofpackingandintegrationcompanieswilldropfromcurrent15%-20%toastable12%-15%level,whichisnotattractiveforourvaluedriveninvestors.2.3.6MajorListedCompaniesandTheirInvestmentAttractivenessCategoryGiventheconsensusofafastdevelopingPhotovoltaicpowermarket,webelievetheupstreamsiliconmineralsandmidstreamofsolarinverterswhichhasrelativehighentrybarrierscanremainwithahigherprofitabilityinthefutureboomingmarket,basedonabovePVindustrialchainsanalysis.Table4showsthemajorlistedA-sharecompaniesinPVindustriesandthoseinreddashedlinesarequalifiedforvaluedriveninvestorsbasedonouranalysis.26 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryTable4:ListforattractivePVindustrycompaniesTypeCompanyCodePVMechanicalJinggongScience&Technology002006EquipmentSino-CrystalDiamond300064CSGHolding000012TBEA600089JiangsuSunshine600220TianweiBaobian600550PolysiliconChaoriSolarEnergy002506LeshanElectricPower600644AerospaceAutomobileElectromechanical600151ChuantouEnergy600674KstarScienceAndTechnology002518RongxinPowerElectronic002123KehuaHengsheng002335PVComponentsClouElectronics002121(SolarInverters)JiuzhouElectric300040XjElectric000400HeshunElectric300141GuangdianElectric601616NingboShanshan600884XinNanyang600661FengfanStock600482NorthElectro-Optic600184PVComponentsTopraysolarCo.002218（Cells&Others）HaitongFoodGroup600537HengdianGroupDMEGCMagnetics002056TianlongPhotoelectric300029RisenEnergy300118Source:byownsorted2.4WindEnergySectorResearch2.4.1DefinitionsandCurrentDevelopmentofWindEnergyWindenergyistheconversionofwindpowerintoausefulformofenergy.Mostpopularity,itreferstousewindturbinestoproduceelectricity.Alsotheconversioncanbemadeinothercases,suchasmechanicalpowerproducingthroughwindmiles,windpumpsforpumpingwater,orsailstopropelships.Inthispaper,wetalkabouttheconversionofwindpowertoelectricity(Figure29).Figure30showsthedistributionofwindenergycapacityintheworld.27 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryMW4,009China5,2043,7525,660UnitedStates5,66042,287Germany13,065Spain20,676India40,180Italy27,214FranceUnitedKingdomCanadaDenmarkSource:GlobalWindEnergyCouncilSource:www.baidu.comFigure29:Top10WindEnergyCapacityFigure30:Graphforawindenergygeneration(Unit:MW)stationAlongwiththecostreductionprocessinthewindpowergenerationoverthelastdecade,windenergyhasevolvedintoamatureandboomingglobalbusiness.Lowercostincreasesitspricecompetitivenessagainstconventionalformsofenergyandfurthermore,modernwindturbineshaveimprovedtheirpowerrating,efficiencyandreliabilityduetotechnologicaladvancement.Givenabovegrowingfascinatingadvantages,theglobaldemandforemissions-freewindpowerishugeandfastgrowing.Overthepastdecade,globalwindpowercapacityhasexperiencedaCAGRgrowthrateof30%,and2008wasanotherrecordyearwithmorethan27GWofnewinstallations,bringingthetotaluptoover120GW.In2010,thenumberjumpedto194GW(Figure31).GlobalwindenergycapacityGrowth(YoY)250GW40%35%20030%25%15020%10015%10%505%00%Source:GlobalWindEnergyCouncilSource:GlobalWindEnergyCouncilFigure31:GlobalwindenergyinstalledFigure32:AccumulativeCapacitySortedbycapacityhasgrownfastinrecentdecadeRegions28 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryIndomesticmarket,China’stotalexploitablecapacityforbothland-basedandoffshorewindenergyisaround700-1,200GW,whichisclosesttothatoftheU.S.andgreatlypasswindresourcesinGermany,SpainorIndia,accordingtothethirdNationalWindEnergyResourcesCensus.Consideredthehugewindresourcesandfavorgovernmentpolicies,China’swindmarketdoubleditselfeveryyearbetween2006and2009intermsoftotalinstalledcapacity.In2010,ChinasurpassedtheUnitedStatesasthemostinstalledwindenergycapacitycountrybyexperiencinga64%increaseon2009,andChina’stotalwindenergycapacityreached42.3GWintotal.Figure33andFigure34showthepercentageofglobalaccumulativeandadditionalwindcapacitydistributionin2010.1.93%China1.68%China1.93%2.06%UnitedStatesUnitedStates2.65%2.68%13.67%13.27%21.77%GermanyIndia2.91%2.69%Spain46.09%Spain2.91%3.03%6.73%IndiaGermany20.68%10.64%Italy4.17%France14.01%France4.23%14.29%UnitedKingdomUnitedKingdom5.97%ItalyCanadaCanadaDenmarkSwedenSource:GlobalWindEnergyCouncilSource:GlobalWindEnergyCouncilFigure33:Top10WindEnergyAccumulativeFigure34:AdditionalwindcapacityCapacityin2010(Unit:MW)distributionin2010(Unit:MW)Despiteitsrapidexpansion,China’swindpowerstillfacessignificantchallenges,includinggridaccessandintegrationissues,reliabilityofturbinesandacoherentstrategyfordevelopingChina’soffshorewindresource.AccordingtotwelfthFive-YearPlan,Chinesegovernmentisexpectedtocontinueandreinforcethecommitmentinwindpowerdevelopment,withnationalwindenergytargetsof90GWfor2015and200GWfor2020.2.4.2IndustrialChainBreakDownTheindustrialchainforwindenergycanbesplitintokeymechanicalcomponentsproduction,windturbinesmanufacturingandwindfarmoperation.Keymechanical29 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustrycomponentsincludehigh-speedgearbox,slewingbearings,generators,pillarbase,hub,base,shaft,tower,torque,transformers,etcwhicharerawmaterialsforthemanufacturingandintegrationofturbines.Windturbinesarethefunctionalequipmentswhichconvertwindenergyintoelectricityandthereforearethemosttechnologyintensivesegment.Themanufacturersofwindturbinesselltheirproductstowindfarmoperatorsandthelattergenerateandprovidehugeamountofwindsourcedelectricitytonationalgridcompanies.UpstreamMidstreamDownstreamMechanicalWindTurbinesWindFarmNationalGridComponentsProviderManu.OperatorCorporationSource:byownanalysisFigure35:WindEnergyIndustrialSegments2.4.3SegmentProfitabilityAnalysis—mechanicalcomponentsprovidersGenerallyspeaking,blades,gearbox,motor,navigationsystemsandelectroniccontrolsystemconstitutemajorpartofwindturbines.Benefitingfromtheexponentialdemandofwindenergy,thecomponentshaveapromisingmarketsizeinthefuture.Figure36showsthecostdistributionofatypicalwindturbine.BladeGearbox15%20%Motor8%Bearings9%15%Towerpost13%12%8%EnginecasingControllingsystemOthersSource:GuolianSecuritiesFigure36:MechanicalComponentsValueDistributioninaTypicalWindTurbine30 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryBlade,gearbox,bearingsarethewindenergyspecializedcomponentsthusarehavegreatertechnologicalbarriersaswellashighprofitmarginswhileotherpartsareuniformmechanicalproducts.Giventheexponentialexpansionofwindturbinesector,thekeywindenergy-specializedcomponentshaveexperiencinganunder-supplysituationafter2005withanexportdependencyofover50%providingbyVESTAS,GAMESA.From2009domesticfirmsbegintoconquerthetechnologybarriersandenterthekeycomponentsmarketssuchasblades,gearboxesandbearings.Andwebelievethedemandfornewproductionofturbinesandthetrendingforexportsubstitutionwillbringinhighreturnandmarketsharetodomestickeycomponentsmanufacturers.Figure37tellsustheaveragegrossmarginofA-sharelistedkeycomponentmanufacturersreaches31%in2010andthetrendisstillupwardslopingnowbecauseoftheincreasingcapacitydemand.SegmentAverageGrossMargin32%31%31.00%31%30%29.97%30%29%29%28%27.93%28.09%28%27%27%26%2007200820092010Source:AnnualReportsforSegmentListedCompaniesFigure37:4yearsaveragegrossmarginofA-sharelistedkeycomponentsmanufacturers2.4.4SegmentProfitabilityAnalysis—windturbinesmanufacturingThroughthedevelopmentofChina’swindenergyin2008-2010,domesticwindturbinesproducershavegreatlyexpandedbothinnumberandsize.In2004-2005,foreignproducersprovided70%-75%ofChina’sannualnewinstalledwindenergycapacity.Butthesituationhasimprovedgradually.AccordingtoFigure39in200987%31 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryofnewinstalledwindenergycapacitywasprovidedbylocalproducers.MW45000140%100%LocalForeignChina"saccumulatedwindenergycapacityGrowth(YoY)87%4000090%120%3500080%75%75%70%100%70%3000059%60%56%2500080%50%2000060%41%42%40%1500030%40%30%25%25%1000020%20%13%500010%00%0%20002001200220032004200520062007200820092010200420052006200720082009Source:ChineseRenewableEnergyAssociationSource:China’swindenergydevelopmentReport2010Figure38:GlobalwindenergyinstalledcapacityFigure39:NewInstalledCapacityMarketSharehasgrownfastinrecentdecadeDistribution(LocalProvidersVS.Foreign)Twodevelopmenttrendscurrentlyevolvingindomesticwindturbinesegment:1)industrialconcentrationisincreasingandwell-knownbrandswillaccountformostofthemarketshare.AccordingtoBTMconsultingstatistics,internationaldevelopmentpatternofwindpowerequipmentmanufacturershastakenshape,VESTAS,GEWIND,Sinovel,GAMESA,ENERCONandotherworldfamousenterprisesaccountedformostoftheglobalmarketshare.Thetop10windturbinecompaniesprovided90.2%ofglobalaccumulativeinstalledwindenergycapacityin2010;Intermsofnewinstalledwindenergycapacity,theratiowas78.7%.Indomesticmarket,thetop10localproducersaccountedfor84.8%ofnewinstalledcapacity.Becauseofthetechnicalandscalebarriersinturbineproductionarea,enterpriseswithawell-knownbrands,advancedtechnologyandstrongfinancialstrengthwillbuildreliablereputationfortheirproducts,andgraduallyachievedthecomparativeadvantagesinthecompetition,makingtheindustrymoreconcentratedinthefuture.32 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryTable5:2008-2009GlobalWindEnergyProvidersRanking2009New2008NewInstalledInstalledRankingCompanyCapacity(MW)PercentageCompanyCapacity(MW)Percentage1Vestas476612.9%Vestas558117.8%2GEWind474112.8%GEWind523916.7%3Sinovel35109.5%Gamesa337310.8%4Enercon32218.7%Enercon28069.0%5GoldWind27277.4%Suzlon25268.1%6Gamesa25466.9%Siemens19476.2%DongfangSinovel7Electric24756.7%14034.5%8Suzlon24216.5%AccionaEnergy12904.1%9Siemens22656.1%GoldWind11323.6%10Repower12973.5%NPRDEX10743.4%Top10Top10Accumulated2996981.0%Accumulated2637184.2%Others703419.0%Others495515.8%Total37003100.0%Total31326100.0%Source:BTWconsultingreportforwindenergyindustry2)Theupgradeofwindturbinetechnologyhasbeenpushedtolarge-scaleandhighpowerefficiency.AccordingtoBTMstatistics,MW-classwindturbinesaccountedformorethan91.4%in2009newinstalledcapacity,and86.9%of1.5MW-class.TheshorteningoflifecycleandaccelerationofequipmenttechnologywillcallforhigherstandardsforR&Dabilityofturbinesproviders.ThefuturetrendsforwindturbinesegmentmeansthattheindustrygiantsareabletobenefitfromtheproductionconcentrationandwillenhancetheirmarketpositionthroughM&As.TakeGermanyforinstance,ithas46windturbinemanufacturersbefore2002.After3years’mergersandacquisitions,only10leftin2010.Currently,therearemorethan80windturbinecompaniesindomesticChina.Inordertorestrainexcesscapacityinemergingindustries,theStateCouncilissuedregulationstoprohibittheduplicationandoversupplyofrelatedproductioninAugust,2009.Guidedbythepolicies,ourmarketshareshavebeingconcentratedandgiantturbinecompaniessuchasSinovel,Goldwind,DongfangElectricareexpandingtheirmarketinhomeandabroad.33 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustrymnRmb/MWAverageturbinesprice76.76.56.56.4666.15.55.454.54.543.52004200520062007200820092010Source:GoldmanSaches,GaohuaSecuritiesSource:NewspaperofChinaSecuritiesFigure40:AverageturbinepricecontinuesgoingFigure41:SinovelandGoldwindacquired80%+downsince2007ofrecentordersIntermsofprofitability,theover-supplysituationofdomesticturbinesmarkethasn’tchangedin2010andisexpectedtocontinuein2011(Figure42).Wepredictthattheprofitmarginwillgodowninsomedegreein2011.Whereasconsideredthecostreductionbytechnologyupgradeandtherealizationofscale-effect,domesticgiantswillenjoyastableprofitmargininthefutureandthuscanalsoprovidesteadyreturnforvaluedriveninvestors.Source:AnnualReportsFigure42:AveragegrossmarginforA-sharelistedwindturbineproviders2.4.5SegmentProfitabilityAnalysis—windenergyoperatorsChina’spowergenerationmarketisakindofmonopolisticcompetitivemarket,with’BigFive’powerproducersdominatingthemarketwithmorethan80%oftotalwindpowermarket.ThebigfiveoperatorsareGuodian(LongyuanElectricGroup),34 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryDatang,Huaneng,Huadian,GuohuaandChinaGuangdongNuclearPower.Mostofthelocalstate-ownednon-energyenterprises,aswellasforeignownedandprivateenterpriseshaveretreatedfromthemarket.Consideredthecontinuousdeclinationofupstreamwindturbinesandtheexpansionfornationalgridconnectedquota,theprofitmarginofwindfarmskeepsoaringintherecent3years.Figure43showstheaveragegrossmarginforthewindgenerationbusinessofA-sharelistedcompanies.Thegrossmarginreachesashighas53%andwebelievetheprofitabilitywillremainunderthefavorofpoliciesandcompetitionofupstream.Source:AnnualReportsFigure43:AveragegrossmarginforA-sharelistedwindfarmoperators2.4.6MajorListedCompaniesandTheirInvestmentAttractivenessBriefBasedonthefundamentalresearchontheindustrialchainsofwindenergy,weselectedthefollowingcompaniesinthereddashedlinesofTable6,whichhavegreatprofitabilityandsteadyfundamentalsupport.Theyareexpectedtoserveasgoodinvestmenttargetsforourvaluedriveninvestors.35 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryTable6:ListedwindenergycompaniesandtheirattractivenessbriefTypeEnglishNameCodeAttractivenessGoldwindScience&Technology002202Completeindustrialchains,costleadershipSinovelWindGroup601558Completeindustrialchains,costleadershipWindDongfangElectric600875Completeindustrialchains,costleadershipturbinesXiangtanElectricManufacturing600416LargepowerturbinesandforeignmarketHuayiElectric600290LargepowerturbinesandforeignmarketTaishengWindPower300129Advancedwindtowerpostmanu.SinomaScience&Technology002080GiantbladeproducerRongxinPowerElectronic002123ExportsubstituteofwindcurrentconverterJiuzhouElectric300040ExportsubstituteofwindcurrentconverterKeyDajinHeavyIndustry002487Advancedwindtowerpostmanu.componentsTianmaBearing002122TurbinebearingFangyuanSlewingRing002147TurbinebearingDonlyTransmissionEquipment002164GearboxforwindpowergenerationJiudingNewMaterial002201HighqualityfiberglasWindfarmYinXingEnergy000862WindfarmoperatoroperationMindongElectricPower000993Windfarmoperator,off-shorewindenergygenerationSource:byownsorted2.5NewEnergy-VehicleSectorResearchChinaisbecomingthelargestautomobileproducerandconsumerintheworld,andconfrontedwiththechallengesofenergysavingandcarbondioxideemissionreduction.ThequantityofChina’spossessedmotorvehiclesisexpectedtosurpasstheU.S.in2020.Meanwhile,thefuelconsumptionforvehiclesislikelytoexceed300milliontonswithmorethan70%dependenceonforeignimportingpetroleum.Thepromotingofelectricautomobilesisconsideredasessentialstrategicinitiativesforourcountrytoreduceoilimportingdependencyandprotectnationalenergysecurity.36 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustry300mnton60%ImportDomesticProductionImportDependencyRatio54%55%52%25049%50%47%20044%45%41%41%15040%35%10030%5025%020%2004200520062007200820092010Source:CCIDFigure44:Thepetroleumimportdependencyratiokeepincreasinginthelastyears2.5.1TechnologicalClassificationofNewEnergyVehicle(NEV)Generallyspeaking,newenergyvehicles(NEVs)weredefinedashybridcars-batteryelectricvehicles(BEV),fuelcellelectricvehicles(FCEV),hydrogen-fueledvehiclesandvehiclespoweredbyothernewtypesoffuel.TheinternationalstandardsforNEVsareshownbelowinTable7.Table7:InternationalStandardsforNEVClassificationNameCharacteristicsAdvanceddieselvehiclesTraditionalfossilfuelsnotivatedvehicles1HybridpoweredvehiclesbutmoreenvironmentalfriendlyCompressednaturalgasvehiclesNaturalgasandpetroleum-associated2LiquifiednaturalgasvehiclesproductspoweredcarsCoal-to-liquids(CTL)vehicles3Gas-to-liquids(GTL)vehiclesAlternativefuelspoweredvehiclesDimethylether(DME)vehiclesEthanolvehicles4BiofuelpoweredvehiclesBio-dieselvehiblesFuelcellvehicle5CelldrivenvehiclesElectriccarsSource:CCID37 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryBeingtreatedasthemainsolutionsto"nextgenerationofcars,"wecanranknewenergyvehicle’stechnicalfeasibilityandindustrializationpossibilitybyshortterm,mediumtermandlongtermstrategies.Fromtheinternationalexperience,webelievehybridpowervehiclesandpureelectricvehiclesareshortandmediumtermstrategies,respectively.NeartermsolutionMediumtermsolutionLongtermevolvingdirectionTraditionalEnergyHybridAlternativePureFuelBiomassfossilandsavingpowerfuelscarelectriccellorotherdieselcarenginecarcarcarcarNEVsSource:byownanalysisFigure45:TechnicalevolvingtrendsfornewenergyvehiclesIninternationalperspectives,therearethreetrendsinthedevelopingofNEVindustryindevelopedcountries.Firstly,theONLYNEVwhichhasrealizeditsindustrializationishybridpowerautomobiles.Thehybridautosconstituteover4%oftotalvehiclessalesinJapanandtheU.S.,suchasnamesofPrius,Civic,andCamry.Secondly,technologicalroadsdiversify.TaketheU.S.asaninstance,Fordcorp.emphasizesonhydrogenfuelsandhybridpowervehicleswhileGeneralMotorsfocusesonelectricpowervehicleswithoutsiderechargeablebatteryandhybridpowervehicles.Thirdly,thedevelopmentofNEVshasaverystrongstrategicsignificanceintermsofenergyconservationandoildependencereduction.Therefore,thestrengthofsupportivepolicieskeepsincreasing,andevengoestonationalstrategiclevel.TheU.Sgovernmentencouragesconsumerstobuyenergyefficientvehicles,andstrivetoachievehybridcarsalesof100millionunitsby2015.By2050,thegoalis100millionunitswith80%carbondioxideemissionreduction.Japanimplementsa"greentax"fromApril2009,whichisapplicabletopureelectric,hybrid,cleandiesel,natural38 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustrygasvehiclesandthosewhicharecertifiedaslowemissionandfuelconsumptionvehicles.Thepurchaseofsuchcarscanenjoyavarietyoftaxexemptionbenefits.Table9showsthetechnicalgapsbetweenhomeandabroad.EnginetechniquesandsystemintegrationrequiresmoreR&Deffortsforourcountrywhilewearestrongcompetitorsinpureelectricvehicles.ItcanhelptoexplainwhyweemphasizethesimultaneousdevelopmentinHybridandpurepowervehicles.Hybridpowervehiclesarethenearestandeasiesttoupgradeandindustrializethroughcurrenttraditionaltypes,whilethepureelectricvehiclesaremid-termevolvingtrendforNEVswithstrongtechnologicalfeasibility.Table8:Thetechnicalgapbetweenhomeandabroadmainlyliesinengineandsystemintegration(Hybridpowervehicle)Source:byownanalysisInordertopromotethedevelopmentofNEVs,ourcountryissuedaseriesofpoliciesfromthebeginningpilotsalestotherecentsubsidiariesbenefits.Underthesefavoredrules,thedownstreammarketsizeandcitizens’demandareenhancedinastrongdegree.Table9:NEVsSupportivePoliciesSource:sortedfrompublicresources39 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustry2.5.2IndustrialChainsBreakDownBasedontheindustrialdataresearch,webreaktheNEVindustrychainsintofourpartsfromupstreamtodownstream–rawresources,keycomponents,chargingdevicesandautomobileintegration.Automobileintegrationisthelastsectorintheindustrialchain.AutomobileKeyComponentsUpstreamChargingDevicesIntegrationResourcesBatteryChargingStationCar(nickelUpstreamhydride,resources(nickel,ChargingPileBuslithium,fuellithium,platinum,cell,etc)rareearth,etc)TruckPowerGridRestructuringEngineMotorElectricControlSystemSource:byownanalysisFigure46:IndustrialchainsofNEVGuidedbythenationalcapacityplanandthepolicytarget,wehavetheexpectedcapacityforNEVsinnext5yearsasfollows.TheboomingofNEVsmarketwillalsoopenthe“bluesea”demandforitsupstreamsectors,suchaskeycomponents,chargingdevicesaswellasrawminerals.Source:byownanalysis40 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryFigure47:CapacityexpectationforNEVsinChina,5yearsCAGR117%+ThenweshouldlookintothecostdistributioninthevaluechainsofNEVindustryandthenranktheirprofitabilitybygrossmargin.Thereforewecanidentifywhereinvestorscangetconsiderablereturn.CostbreakdownforavehicleCostbreakdown:electricdrivensystemElectricdrivensystemComponentsotherthandrivensystemBatteryEngineControllerSystemOthers30%7%11%70%41%11%Source:byownanalysisFigure48:Costbreakdownforelectricvehicles2.5.3SegmentProfitabilityAnalysis–BatterysectorLithiumbatteriesaregenerallyconstitutedbyanode/cathodematerials,membrane,andelectrolyte.Anodematerialsaccountforaboutonehalfofthemanufacturingcostofbatteries.Whileabout15%ofcostbelongstocathodeandmembranematerials.Intermsofthereturnrate,manufacturingofmembraneranksthefirst,whileotherpartsalsoreach20%investmentreturn.Source:ProspectusofDangshengTechnology(300073.CH)Source:PinganSecuritiesFigure49:CostdistributionbreakdownofFigure50:GrossmarginofdifferentsectorsinlithiumbatterylithiumbatterychainThereforewe’dliketopickupcompanieswithmainbusinessinmembrane,41 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryelectrolyteorotherbatterymaterialsintoourstockpool.2.5.4SegmentProfitabilityAnalysis–EngineandelectriccontrollersystemEnginedrivensystemisthemainimplementationstructureforNEVs,whoseperformancedeterminesthekeycharacteristicssuchasfuelconsumptionrate,emissionfiguresandeconomicutilityofthecar.Inpureelectricvehiclesandfuelcellvehicles,thedrivemotoristheonlydrivecomponentsanditisalsothekeycomponentforhybridpowervehicles.Inthevehicleenginesystem,motorandmotorcontrollersharethecostratioofabout1:1.Valuedistributionofpermanent-magnetmachineValuedistributionofenginecontroller30%6%13%40%ManufacturingSensor33%15%BuslineSiliconsteelsheet10%CapacitanceCoppermaterialSwitchingtube20%33%magneticmaterialsOthersSource:StateInformationCenterSource:StateInformationCenterFigure51:ValuedistributionofFigure52:Valuedistributionofenginepermanent-magnetmachinecontrollerDrivenmotorscanbedividedbyDC,ACinductionmotors,permanentmagnetsynchronousmotorandswitchedreluctancemotors.Intheperspectiveoftechnicalperformance,permanentmagnetsynchronousmotorsaremoresuitablefortherequirementofhighpowerandlargeelectricaldensityofelectricvehiclesandarebelievedtogetlarge-scaleapplication.Alsopermanentmagnetsynchronousmotorsaregenerallyusedinhybridcarsnow.42 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryBasedonthecalculationofgrossmarginoftherelativelistedA-sharecompanies,theaveragegrossmarginremainsabove20%intherecentseveralyearsinaccordancewiththepublishedannualreports(Figure53).Soengineandcontrollersystemsshouldalsobeattractiveforourvaluedriveninvestment.Grossmargininenginesector25%22%20%20%17%16%15%10%5%0%2007200820092010Source:AnnualReportsFigure53:Grossmarginremainshighinengineanditscontrollersectors:20%+2.5.5SegmentProfitabilityAnalysis–UpstreamrawmaterialsFromtheperspectiveofindustrychains,mineralresourcesindirectlybenefitfromNEVindustry,andwillhavemorepositiveeffecttogetherwiththepromotionofNEVsales.We’dliketofocusonlithiumandrareearthamongallotherrelatedmineralsconsideringthequantityandutilityinNEVequipments.Lithiumistheprinciplecomponentofbatterymanufacturingwhilerareearthisupstreamofthemotorengine.lithiumcarbonatedemandforcasting10thdtonlithiumrequirementratioindownstreamindustries35%20demandfromelectricvehiclesfromtraditionalindustry1830%161425%121020%8615%4210%0200420052006200720082009201020102011E2012E2013E2014E2015ESource:AnnualReportofQSM(NYSE:SQM)Source:AijianSecuritiesFigure54:downstreamlithiumrequirementFigure55:lithiumcarbonatedemandratiokeepsgrowingforcastingAsforrareearth,especially“NdFeB”willbeboostedalongwiththeincreasing43 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustrysizeofNEVs.PerPingansecurities’analysis,thedomesticmarketsizeofrareearthwillexceed20billionRMBby2020.Figure56showsthegrossmarginofmineralcompanyinrecent4years.Andthegrossmarginashighas35%isattractiveforthevaluedriveninvestors.Source:CompaniesAnnualReportsFigure56:GrossmargininNEVrelatedmineralsectors:35%+2.5.6SegmentProfitabilityAnalysis–ChargingstationAsthekeycomponentofthechargingstation,thechargingstationshouldhavethreepiecesofbusiness:distribution,charging,andbasicmanagement.Themaintaskofdistributionpartispowersupply,whereexistingtechnologyworksverywell.However,chargingpartistheessentialandmoredifficultbetweenthethreepieces.Wehavetotakethebalancebetweenspeedandsecurityintoaccount,whichrequiresacontinuoustechnologicalupgrade.Themanagementsectiondoesn’tbelongtoelectricalequipmentsandonlyrelatetosomeapplicationsoftwareandcontrolplatforms,thereforethereisn’tabigtechnologicalentrybarrierinmanagementsection.Werankedtheprofitabilityofthethreesegmentsas:chargingequipments>distributionequipment>managementequipments.44 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustrygrossmarginofchargingequipments39%38%39%38%38%38%37%37%37%36%36%36%35%35%34%2007200820092010Source:CompaniesAnnualReportsFigure57:Grossmargininchargingstationsectors:35%+FromFigure57,the35+%grossmarginmeansthechargingequipmentssegmentinNEVindustryisanotherpromisinginvestmenttargetinAsharemarket.2.5.7MajorListedCompaniesandTheirInvestmentAttractivenessBriefBytheindustrialchainsclassificationandanalysis,wecomeupwiththelistedcompanyinA-sharemarketanditsbriefintroductionasfollows.45 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryTable11:MajorlistedcompaniesandtheirinvestmentattractivenessbriefSource:byownanalysisThestocksinreddashedlinearetheattractivepartsinNEVindustrybaseonourprofitabilityanalysis:theylieinthehighrankinggrossmarginindustrialsegments.3VerificationofFundamentalLinkstoExcessReturninChina’sSecurityMarketandNewEnergyIndustryAfteridentifyingpromisingsubsectorsinnewenergyindustry,thestudyisalsoconcernedabouthowtopickupstockswhichhavegoodfundamentalsandwouldsubsequentlygenerateexcessreturns.Althoughitisnotnaturalthatgoodfundamentalswouldascertainagoodreturnsincerelativemarketperformanceofacompanyisalsoinfluencedbyvaluationlevel,someresearchesexploreintotheexistenceofthefundamentallinkbetweenaccountinginformationthatisreflectiveofcompanyfundamentalsandcompanystockperformance.Previously,somestudyhas46 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryverifiedaccountingsignalsprovideinformationaboutfuturereturns(J.S.AbarbanellandB.J.Bushee,1998,OuandPenman,1989a).Thethesisstartsfromthefundamentalofnewenergyfirms,usessomeaccountinginformationtorepresentfirms’fundamentalandthentriestopickupgoodstockbasedontheaccountingratios.Thismethodisnotvalidunlessasignificantoflinkbetweencompanyfundamentalandstockreturnisprovedinexistence.Therefore,beforedirectlypickingtheexactstockswithinthenew,thissectorshouldfirstinvestigatethefundamentallinkandthusprovidetheprerequisiteoffurtheranalysisifanylinkisfound.Itisnotclearwhethersuchalink,moreconcretely,whetherpastaccountingperformancewouldsignalsfuturestockreturn,wouldexistinChinamarket.ThesectorwouldfirstinvestigatethelinkinoverallstockmarketinChinaandthenwouldensurewhethercertainrelationshipcanbefoundinnewenergyindustry.3.1PastaccountingperformanceandfuturestockabsolutereturninthewholemarketSection3.1examinestherelationshipofpastaccountinginformationandfuturestockreturninabsolutelevelinthewholestockmarketinChina.Thebasicideaistoregressnextsemi-annualreturnonthecurrentaccountingratiosandtofigureoutwhetherthecoefficientbeforetheaccountingratio(s)issignificantandeconomic-reasonable.Byrollingoversuchasingle-periodregressionandutilizingFama-macbethmethod,thestudycanbetterdealwithtimeseriesdataandenhancetherobustnessoftheresults.3.1.1DataandsampleThesamplecontainsall1040publicfirmsthatwentlistedinShanghaiandShenzhenexchangebefore2001,includingA-sharemainboardandSMEsBoard.Sampleperiodstartsfrom2001till2010,including18semi-annualdata.Icollectaccountingdatafromsemi-annualandannualreportandsemi-annualmarketreturnforeachsamplecompanies.Table12showsthatfirmdistributionbysector.AccordingtoWINDindustrycategorization,samplefirmscanbegroupedinto25sectors.47 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryTable12FirmdistributionbysectorSectorcategoryNumberPercentage1Energyequipmentandservice262.5%2Chemicals898.6%3Containerandmaterial242.3%4Metal,andnonmetalmining595.7%5Paperandwoodproducts161.5%6Aerospaceanddefense70.7%7Construction191.8%8Electricalequipment232.2%9Miscellaneous383.7%10Machinery565.4%11Trading&service232.2%12Transportation201.9%13Infrastructure222.1%14Vehiclecomponents262.5%15Automobile,vehicle181.7%16Consumerdurables605.8%17Tourism212.0%18Media90.9%19Distributorsandretailers615.9%20Consumergoods,food&beverage858.2%21Pharmaceuticalandhealthcare646.2%22Financialservice141.3%23Realestate12712.2%24Telecommunication&electronicdevices827.9%25Utility514.9%Total1040100.0%Source:TheindustryidentificationandcategorizationisfromWINDFollowingisalistoftherelevantaccountingratiosusedtoreflectfirmfundamentalqualityindifferentdimensions:Profitabilityratios:grossmargins,profitmargin,returnonequity(ROE)andreturnonasset(ROA).ThedenominatorsofROEandROAarebothmeasuredbyaverageequityorassetatbeginningandattheendoftheperiod.Operatingefficiencyratios:inventoryturnover,accountpayableturnover,accountreceivableturnover.Solvencycapability:debt-to-assetratio.Growthpotential:earninggrowth,revenuegrowth.Thesetworatiosare48 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustrymeasuredbypercentagechangeofcurrentperiodearnings(sales)tolastperiodearnings(sales).Iusehalf-a-yearasoneperiod.3.1.2ModelspecificationandregressionmethodIemployFama-Macbethapproachtoexaminetherelationshipbetweenpastaccountingratioandfuturemarketreturn.Themajorpurposeistofigureoutwhetheraccountingratiocansignalfuturereturnratherthanfiguringoutthetruecausalitybetweenfactorsorcomingupwithadelicatemodeltoexplainmarketreturn.Therefore,theregressionmodeljusttakestheaccountingratiointoconcernandusesthemasindependentvariable.Thetopandbottom5%ofdependentandindependentvariablesarewinsorizedtoexcludeoutliervalue.AccordingtoFama-Macbethapproach,Ifirstregressnextperiodmarketreturnoneachaccountingratioonebyoneandthencombineresultsacrosseachperiodtodeterminewhetherthecoefficientissignificant.Next,Iselectthosesignificantly-correlatedaccountingratiosandrunmultivariateregressioninordertoinvestigatethejointeffectofaccountingratioonfuturemarketreturn.3.1.3RegressionresultsTable14presentstheregressionresultsoffuturestockreturnoncurrentaccountingratiosinthewholestockmarket.Model1-10regresseseachcurrentaccountingratiolistedaboveonthenextperiod(nexthalfyear)marketreturn.Theunivariateregressionresultsshowthatgrossmargin,profitmargin,revenuegrowthrate,ROE,ROAarepositivelycorrelatedwithfuturestockreturnrespectivelywithin5%significancelevel.NotethatalltheregressionsinTable13include24industrydummies(25sectorsintotal)tocapturefixedeffect.Model11-17employmultivariateregressionbycontrollingthesesignificantratiosinthemodelandaddingotherratioonebyoneintheregression.SinceROAhasrelativelyhighcorrelationwithROEandgrossmarginishighlycorrelatedwithprofitmargin,model11-17useROE,grossmargin,revenuegrowthascontrolvariable.Themultivariateregressionresultsdemonstratethatdebt-to-assetratioalsoexhibitsignificantpositivecorrelation49 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustrywithfuturestockreturnwithoutchangingthesignificanceofcontrolvariables.Inshortsummary,theregressionresultsindicateexistenceoflinkbetweenfundamentalsignalsandfuturestockreturn.Currentperiodgrossmargin,profitmargin,revenuegrowth,ROA,ROEanddebt-to-assetratioarepositivelycorrelatednextperiodmarketreturn.Companiesthatareperformingwellincurrentperiodarelikelytohavepositivestockreturnduringnextperiod.Table13Correlationmatrixforselected10accountingratiosinChinaentiremarketgrossnetROAROED/AEarningRevenueARINVAPCorrelationmarginmarginGrowthGrowthTurnoverTurnoverTurnovergrossmargin1.000.370.200.06-0.180.020.000.000.01-0.02netmargin0.371.000.190.09-0.080.040.000.000.010.00ROA0.200.191.000.31-0.200.120.020.000.01-0.02ROE0.060.090.311.00-0.090.050.010.000.000.00D/A-0.18-0.08-0.20-0.091.00-0.020.020.00-0.02-0.03EarningGrowth0.020.040.120.05-0.021.000.100.000.00-0.01RevenueGrowth0.000.000.020.010.020.101.000.000.000.00ARTurnover0.000.000.000.000.000.000.001.000.000.00INVTurnover0.010.010.010.00-0.020.000.000.001.000.01APTurnover-0.020.00-0.020.00-0.03-0.010.000.000.011.0050 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryTable14Regressionresultsoffutureabsolutereturnoncurrentaccountingratiosinthewholestockmarketfrom2001to2009ModelDependentvariable:FutureAbsoluteReturnObservation=151381234567891011121415161718esti.0.1170.1320.1200.1280.1140.1120.1080.1040.1180.1330.0920.0810.0740.0570.0680.0630.0780onstantt-stat.1.2311.4381.2951.3911.3691.2101.1231.3191.1231.0320.8710.5840.7140.9130.9210.6390.9248esti.0.0540.0420.0520.0540.0520.0520.0520.0546GrossMargint-stat.(2.139)**(1.999)*(2.116)**(2.333)**(2.130)**(2.104)**(2.126)**(2.5686)**esti.0.0130.0050.0061NetMargint-stat.(2.326)**0.9281.2189esti.0.3280.1210.1479ROAt-stat.(2.110)**0.6140.7667esti.0.1010.0680.0880.0840.0870.0880.0870.0576ROEt-stat.(2.155)**(1.738)*(1.941)*(1.911)*(1.931)*(1.931)*(1.929)*1.5853esti.0.0340.0520.0520.0520.0520.0510.0474D/At-stat.1.431(2.201)**(2.210)**(2.238)**(2.198)**(2.164)**(1.9746)*esti.0.0000.000-0.0000NIGrowtht-stat.0.536-0.198-0.4249esti.0.0030.0020.0020.0020.0020.0020.0020.0013RevGrowtht-stat.(2.259)**(2.011)*(1.723)*(1.751)*(1.793)*1.567(1.746)*1.0383esti.0.0000.0000.0000ARTurn.t-stat.1.4241.3741.0971esti.0.0000.0002.14E-6APTurn.t-stat.-1.642-0.5810.0840esti.0.0000.000-0.0000INVTurn.t-stat.-1.124-1.493-1.4031Note:***,**,*denotesignificanceat1%level,5%leveland10%levelrespectively;independentvariablesalsoinclude24industrydummies.51 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustry3.2PastaccountingperformanceandfutureexcessreturninthewholemarketSincethestudymainlyfocusesonexcessreturnratherthanabsolutereturnandcomeupwithatradingstrategythatoutperformsthebenchmark(bothbroadmarketindexandnewenergyindex),thestudyshouldfurtherprobeintothefundamentallinkwithexcessreturn.Thesampleselectionandregressionmethodisthesameassection3.1exceptthatexcessreturnisusedasdependentvariable.Theexcessreturn“alpha”ismeasuredbythedifferenceofstockreturnandmodelpredictedreturnusingCAPM.a=R-[R+b(*R-R)],ti,tif,t,tim,tf,tbforeachcompanyisdownloadedfromWind.Companybisupdatedonceit,it,ayear,whichiscalculatedusingpastthreeyearreturn.Ruses6-monthtreasuryft,billrate.Riscontemporarymarketreturn.Theindependentvariablesarethesamemt,assection3.1,including24industrydummiestocapturethefixedeffect.Thetopandbottom5%ofdependentandindependentvariablesarewinsorizedtoexcludeoutliervalue.Table15reportstheregressionresultsoffutureexcessreturnoncurrentaccountingratiosintheentirestockmarket.Model1-10exhibittheunivariateregressionbyemployingonlyoneaccountingratio.Coefficientsofgrossmargin,profitmargin,ROAandROEarepositiveandsignificant.Differentfromthatinabsolutereturnregression,revenuegrowthisnotsignificantlycorrelatedwithnext-periodexcessreturnhere.Model11-17employmultivariateregressionbycontrollingthesesignificantratiosinthemodelandaddingotherratiosonebyone.Resultsshowthatdebt-to-assetratioisalsopositivelycorrelatedwithfutureexcessreturninthemulti-multivariateregressionsignificantly.Ingeneral,fundamentallinkalsoexistsbetweenfutureexcessreturnandcurrentaccountinginformation.CurrentROE,ROA,profitmargin,grossmarginanddebt-to-assetratioaresignificantlycorrelatedwithnext-periodexcessreturn.Companiesthatreportagoodaccountingperformancetendtooutperformthebenchmarkinshortfuture.Itseemstotakestimeforinvestorstofullyincorporatethe52 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustrygoodaccountingperformanceintotheirinvestmentdecision-making.Anotherpossiblereasoncouldbegoodperformermightcontinuouslydelivergoodaccounting53 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryTable15Regressionresultsoffutureexcessreturnoncurrentaccountingratiosinthewholestockmarketfrom2001to2009ModelDependentvariable:FutureExcessReturnObservation=151381234567891011121314151617esti.0.01790.03340.02070.03060.02070.03470.03460.03470.03620.0355-0.0163-0.0181-0.0154-0.0168-0.0157-0.0153-0.0163Constantt-stat.0.72241.47640.76401.31220.87531.54121.54191.54521.61661.5727-0.5129-0.5645-0.4822-0.5237-0.4963-0.4786-0.4959esti.0.05760.04510.04430.04640.04600.04480.04480.0516GrossMargint-stat.(2.0322)**(2.2702)**(2.2300)**(2.3585)**(2.3455)**(2.2526)**(2.2293)**(2.4550)**esti.0.01870.0131NetMargint-stat.(1.8869)*(1.7478)*esti.0.39740.39460.41510.37830.38180.39520.39270.2707ROAt-stat.(1.9192)*(1.7768)*(1.8647)*(1.7412)*(1.7536)*(1.7775)*(1.7750)*1.0810esti.0.09380.0319ROEt-stat.(2.0092)**0.8440esti.0.02670.04790.04810.04580.04850.04740.04690.0479D/At-stat.1.2303(1.8634)*(1.8893)*(1.8189)*(1.8709)*(1.8668)*(1.8260)*(1.9993)*esti.0.0001-0.0003-0.0002NIGrowtht-stat.0.2617-1.5078-1.4532esti.0.00220.00130.0012RevGrowtht-stat.1.30630.93320.8744esti.0.00010.00010.0000ARTurn.t-stat.1.64431.47921.5130esti.0.0000-0.00001-5.08E-6APTurn.t-stat.-1.6037-0.2440-0.1825esti.0.0000-0.00001-9.70E-6INVTurn.t-stat.-0.4263-0.7741-0.6569Note:***,**,*denotesignificanceat1%level,5%leveland10%levelrespectively;independentvariablesalsoinclude24industrydummies.54 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryperformancebeyondmarketexpectation.ThefindingprobablysupportsargumentofinefficientmarketinChinaandwouldencourageustoresearchintofundamentalsandtakeadvantagesoffundamentalsignalsforinvestment.3.3PastaccountingperformanceandfutureexcessreturninnewenergyindustrySection3.3examinestheexistenceoffundamentallinkinthenewenergyindustry.Althoughthefundamentallinkbetweenaccountingratioandfutureexcessreturnhasbeenwitnessedintheentiremarket,thestudyshouldfurtherverifiedtheexistenceofsuchafundamentallinkinnewenergyindustryandinvestigatewhichaccountingratiosprovidemostsignificantsignalsonfutureexcessreturn.3.3.1DataandmethodSamplecontainsall58publicnewenergyfirms,accordingWINDindustrycategorization.Duetoashortlistinghistory,sampleperiodstartsfrom2006till2009.Thestudycollectsthestockreturn,stockbeta,correspondingaccountingratioduringthesampleperiodforeachsamplefirm.Inordertoenlargeobservation,Ialsousesemi-annualdata.Thus,thereare8half-yearsofobservation.ThestudyemploysFama-Macbethapproach.Thedependentvariablesarecurrentperiodaccountingratio(s)foreachfirmwhileindependentvariableisnext-periodexcessreturn.ExcessreturnismeasuredsimilarwithJensen’salpha,whichisthedifferenceofstockreturnandCAPMpredictedstockreturn.Ialsowinsorizethetopandbottom5%ofdependentandindependentvariables.3.3.2RegressionresultsTable17showstheregressionresultsoffutureexcessreturnoncurrentaccountingratiosinthenewenergyindustry.Model1-10exhibittheunivariateregressionbyincludingonlyoneaccountingratio.Thecoefficientofgrossmarginandrevenuegrowthissignificantandpositivewhilethecoefficientofaccountpayableturnoverisnegativeandsignificant.Model11-18employmultivariateregressionmethodbycontrollingthese55 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustrythreesignificantratiosandaddingotherratioonebyone.Noaccountingratioselseexhibitsignificantrelationshipwithfutureexcessreturn.Therefore,itcanconcludedthatfundamentallinkalsoexistsinnewenergyindustryfromanexpostperspective.Iftheserelationshipison-goingintothefuture,investorsarelikelytogeneratepositiveexcessreturninshortfuturebypickingstockswithhighgrossmargin,highrevenuegrowthrateorlowaccountpayablerate.Table16Correlationmatrixfortheselected10accountingratiosinnewenergyindustryNIRevARInvAPGrossProfitCorrelationROAROED/AGrowthGrowthTurnoverTurnoverTurnoverMarginMarginNIGrowth1.000.36-0.01-0.04-0.020.020.320.400.350.00RevGrowth0.361.00-0.01-0.080.01-0.040.000.120.240.12ARTurnover-0.01-0.011.000.370.20-0.040.040.170.12-0.03InventoryTurnover-0.04-0.080.371.000.09-0.110.080.140.05-0.11APTurnover-0.020.010.200.091.00-0.070.150.310.17-0.18GrossMargin0.02-0.04-0.04-0.11-0.071.000.360.100.06-0.17ProfitMargin0.320.000.040.080.150.361.000.590.46-0.23ROA0.400.120.170.140.310.100.591.000.79-0.30ROE0.350.240.120.050.170.060.460.791.000.16D/A0.000.12-0.03-0.11-0.18-0.17-0.23-0.300.161.0056 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryTable17Regressionresultsoffutureexcessreturnoncurrentaccountingratiosinnewenergyindustryfrom2006to2009ModelDependentvariable:FutureExcessReturnObservation=34912345678910111213141516171819esti.-0.0430.0610.0600.0790.0800.0670.0750.0680.2830.083-0.028-0.056-0.038-0.017-0.003-0.028-0.016-0.009-0.004Constantt-stat.-0.6770.8500.7921.0210.6791.1021.1550.7991.3071.202-0.338-0.630-0.408-0.186-0.015-0.364-0.189-0.088-0.017esti.0.4620.4760.6650.4810.4650.4140.4930.4550.4570.476GMt-stat.(2.431)**(2.566)**(3.241)***(2.548)**(2.706)**(2.327)**(2.728)**(2.519)**(2.317)**(2.444)**esti.0.034-0.360-0.187PMt-stat.0.093-0.916-0.354esti.0.9270.7410.268ROAt-stat.0.7160.6600.109esti.0.1150.073-0.199ROEt-stat.0.1990.160-0.271esti.-0.020-0.0140.042D/At-stat.-0.145-0.0780.142esti.-0.007-0.007-0.008NIgt-stat.-0.364-0.573-0.704esti.0.1670.1420.1330.0730.0710.1720.0410.1810.1770.017Revgt-stat.(1.875)*(1.737)*(1.801)*1.5291.547(1.822)*1.401(1.869)*(1.801)*1.479esti.0.000-0.001-0.013ARTurn.t-stat.-0.050-0.262-0.943esti.-0.009-0.004-0.005-0.008-0.008-0.010-0.009-0.005-0.0070.000APTurn.t-stat.(-3.230)***(-2.641)**(-2.812)**(-2.659)**(-2.427)**(-2.901)**(-2.402)**(-2.377)**(-2.826)**(-2.684)**esti.-0.006-0.004-0.000INVTurn.t-stat.-1.528-0.864-0.081Note:***,**,*denotesignificanceat1%level,5%leveland10%levelrespectively57 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustry3.3.3ComparisonofregressionresultsinnewenergyindustryandinthewholemarketNotethatfiveaccountingratiosaresignificantlycorrelatedwithfutureexcessreturninthewholemarket,includinggrossmargin,profitmargin,ROE,ROAanddebt-to-assetratio.However,someaccountingratiosarenolongersignificanttopredictfutureexcessreturninnewenergy.Itisworthcomparingtheregressionresultstogetdeepinsightintothecharacteristicsofnewenergyindustry.Comparison1:grossmarginissignificantlycorrelatedwithexcessreturnbothinnewenergyindustryandtheoverallstockmarket.Thestudybelievesthatgrossmargincanbetterreflectthefirms’advantagesoftechnology.Thehigherthegrossmargin,themorelikelythefirmistohavecutting-edgetechnologyandskillsinthenichemarket.Fewplayerscancompeteinconfrontationwiththefirmduetoalackofcoretechnology.Comparison2:profitmargin,ROEandROAarenolongersignificanttopredictexcessreturninnewenergyindustry.ThestudybelievesthatduetolargeR&Doutlayinnewenergysectorthatcanbeobservedinfootnote,companieswithloworhighearningstemporarilyarenotnecessarilypoororgoodperformers.Instead,oncecompaniescommercializedtheirresearchoutput,theirfutureearningswouldbeboosted.Therefore,duetoalotuncertaintyassociatedwithprematuredevelopmentstageofnewenergyindustry,earning-relatedratioisnotagoodmeasureoffirm’sprofitability.Comparison3:debt-to-assetratioarenotsignificantbutaccountpayableturnoverissignificanttopredictexcessreturninnewenergyindustry.Thesetworatioshavesomethingincommon.Debt-to-assetratiorepresentfirms’long-termleverageandsolvencycapability.Accountpayableturnoverreflectthefirms’bargainingpowertowardssuppliers.Infact,firmsborrowmoneyfromsuppliersthroughaccountpayables.Thesetworatiosbothreflectfirms’creditandtrustworthiness.Asfordebt-to-assetratio,itisknownthatmajoritydebtforChina’sfirmisthroughindirectfinancingfromlocalbank.Thecorporatebondmarketisreallyunderdevelopment.Sincenewenergyindustryarestronglysupportedbynationalandlocalgovernment,companiescangetpolicy-loanorother58 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryinterest-bearingloaneasilyfrombank.Thus,thedebt-to-assetratio,whichisaffectedbypoliticalandregulatoryfactors,cannolongermirrorfirms’realbusinessqualityandfinancingcapability.Onthecontrary,accountpayableturnovercantellmoretruth.Supplierswhoarewithintheindustryvaluechain,knowmoreoftheindustryandtheirclient.Thebetterthebusinessqualityandfuturegrowthprospectofafirm,themorewillingnessasupplierhastocorporatewiththefirmandsellmaterialsoncredit.Therefore,alowpayableturnoverimpliesthatthefirmislikelytobeingoodshapeandthatsuppliersmaythinkhighlyoffirm’sfuturegrowth.That’swhythecoefficientofpayableturnoverissignificantandnegative.Comparison4:revenuegrowth,whichisnotsignificantintheentiremarketregression,issignificantlycorrelatedwithexcessreturninnewenergyindustry.Newenergyindustryisemergingandexperiencingquickgrowth.Leadingcompanieswouldquicklyseizemarketshareandbemorestronger.Therefore,revenuegrowthrateisofgreatimportancetofirmgrowthpotential.4TheDerivationandApplicationofCompanyAppraisalModel4.1TheTheoryandApplicationofPrincipalComponentsAnalysis(PCA)4.1.1ThePrinciplesandMotivationofPCAPrincipalcomponentanalysis(PCA)isamathematicalprocedurethatusesanorthogonaltransformationtoconvertasetofobservationsofpossiblycorrelatedvariablesintoasetofvaluesofuncorrelatedvariablescalledprincipalcomponents.ByapplyingPCA,wecanreducemanyaccountingfactorstoseveralprincipalcomponentswhicharelinearcombinationsoforiginalfactorsbutcanaccountforahugepercentageofallinformation(over85%).Theweightsforeveryoriginalfactorcanbedeterminedbythecorrelationcoefficientswhenconstructingthecomponents.59 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryTherefore,principalcomponentanalysiscanhelpustobuildacomprehensiveindicatorsshowingoverallperformanceonthesignificantfundamentalfactorswhichweprovedinChapter3.4.1.2MethodologyOverviewThroughPCA,weaimtofindacomprehensiveindicatorwhichcanaccountformostoforiginalfundamentalinformation.Formula(1)and(2)showsthedetailedtransformationprocess.Component=Coeff1*Factor1+Coeff2*Factor2+…+Coeff6*Factor6(1)Score=Weight1*Component1+Weight2*Component2+…+Weight6*Component6(2)WhereWeightn=Eigenvaluen/tHowever,beforewemakeinvestmentdecisionbasedonstocks’principalcomponentsperformance,wehavetoconsideranothertwoissues.Firstissueiswhethertheprincipalcomponentshavesignificantrelationtowardsnextperiod’smarketreturn.SecondissueiswhetheravaluationreversalexistsinChina’sNEindustry.Therefore,thepaperfollowstheproceduresbelowtobuildtheappraisalmodel:1)FindtheprincipalcomponentsforallNElistedcompaniesfromJune,2006toJune,2009.AndregressnextperiodexcessreturnonprincipalcomponentsfromJune,2006toJune,2009.TotestwhethertheprincipalcomponentcanalsolinktomarketexcessreturninNEindustry.2)Regressnextperiodexcessreturnonthevaluationratios(PE/andPEG),totestwhetheravaluationreversalexistinChina’sNEindustry.3)Buildacomprehensivemodelincorporatingfundamentalandvaluationfactors.4.1.3EmpiricalTestonPrincipalComponents’LinktoReturnInChapter3,Ijustifiedthatcurrentgrossmargin,revenuegrowthandaccount60 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustrypayableturnoverissignificantlycorrelatedwithnext-periodexcessreturninChinanewenergyindustry.Section4.1.3investigateswhetherprincipalcomponentshavesignificantrelationshipwithfutureexcessreturn.Firstly,IperformedPCAbySPSSprogramming.Inordertoeliminatetheeffectsofdimensionandscale,Inormalizedthedatamatrixtomeanofzeroandvarianceofone.Thenwecalculatedtheeigenvalueandeigenvectorforthenormalizedmatrix.ThedetailedresultofprincipalcomponentwillbepresentedlaterinChapter4.Second,section4.1.3conductsregressionanalysisoffutureexcessreturnofnewenergyfirmontheprincipalcomponent.Thenexthalf-yearexcessreturnisdependentvariable.Principalcomponentswhicharederivedfromcurrentaccountinginformationareindependentvariables.Sampleperiodisfrom2005to2009,inlinewithregressionanalysisinsection3.3.Samplecoversall58publicnewenergyfirms.Table18RegressionresultsofprincipalcomponentsonfutureexcessreturninnewenergyindustryModelDependentvariable:ExcessReturnObservation=3491234estimate0.050.060.07-0.07Constantt-statistics(0.93)(0.85)(1.24)(-1.33)estimate0.060.05PC1t-statistics(2.39)**(2.51)**estimate0.040.02PC2t-statistics(1.99)*(1.87)*estimate0.020.02PC3t-statistics0.500.64Note:***,**,*denotesignificanceat1%level,5%leveland10%levelrespectivelyTable16showstwoofthreeprincipalcomponentsaresignificantlyandpositivelyrelatedwithfutureexcessreturn.Frommultivariateregressioninmodel4,thesetwoprincipalcomponentsalsoshowsignificantrelationwithfutureexcessreturn.ThethirdprincipalcomponenthasnosignificantcorrelationmainlybecausenoiseandotherunrelatedinformationwithregardtofuturereturnareincludedinPC3throughPCAprocess.61 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustry4.1.4ApplicationoftheCompanyAppraisalModelThebasicideaofcompanyappraisalmodelistousesemi-annualaccountingratioasinput,thentotransformthemintoPCsandfinallytocomeupwithappraisalmetrics.PCAprocessconcentratemostrelatedinformationintoafewPCs,whichhavesignificantrelationwithfutureexcessreturnCompanyappraisalmodeluses“active”PCsandlinearlycombinethemasasinglenewfundamentalmeasure,whichcanbeusedtopredictfutureexcessreturnandpickgoodstocks.Eachtimeacoveredcompanypublishesitsaccountingreport(here,Irefertosemi-annualandannualreport),IcollectedtherelatedratioandcalculatePCsbasedontheweightingofactivePCsduringlast8periods.Every6months,activePCsshouldbederivedbyconductingprincipalcomponentanalysisonlast8periodaccountingratioandregressingcurrentperiodexcessreturnonPCs.Theconstruction(weightings)oftheseactivePCswouldbeusedindevelopingappraisalmetricstowardsnextaccountingreport.Therefore,thisprocessison-goinganddynamic.TheactivePCsandtheirconstructionshouldberollingovertoincorporatenewinformationinflowinsteadofremainingunchanged.Inordertotesttheeffectivenessofthisappraisalmodel,weuseoutofsampledatafromFeb,2010.Table17exhibitsthePCswhicharederivedfrom2006to2009reportsofallnewenergyfirms.PC1andPC2explain69.17%oftotalvariation.RememberthatPC1andPC2aresignificantandpositiveinthepreviousregressiononfutureexcessreturn.PC3isnotsignificantlycorrelatedwithfutureexcessreturn.Table19TotalVarianceExplainedinPCAin2006to2009Eigen-valueExplainedAccumulativeComponentValueVariance%Variance%11.08536.15336.15320.99133.01769.1730.92530.83100ExtractionMethod:PrincipalComponentsAnalysis62 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryTable20:WeightingofaccountingratiosinsideeachprincipalcomponentExtractionMethod:PrincipalComponentsAnalysis,calculatedinexcelTable18reportstheconstructionofeachPC.PC1capturepositiveinformationofgrossmarginandaccountpayableturnover.PC2incorporatepositiveeffectofgrossmarginandrevenuegrowth.PC3onlyreflectpositiveeffectofrevenuegrowthbutincorporatenegativeinformationofgrossmarginandaccountpayableturnover.NextthestudycomesupwiththeappraisalscoreusingweightedaverageofPC1andPC2.TheweightiscorrespondtothehowmuchpercentthePCexplainsthewholevariationintheprincipalcomponentanalysis.Table19showsthelistofstockpickedfromthenewenergyfirmpoolbasedontheappraisalscorefromthehighesttolowest.Thestocksinredarethosenewlyincludedonesinthefinalassetallocationintheperiod.Table21ScoringResultsandFinalSecuritiesSelectionReportDate2009.12.312010.6.312010.12.31PortfolioDate2010.03.012010.09.012011.03.01StkcodeCompanyStkcodeCompanyStkcodeCompany000762TibetMineral002121ClouElectronics002028SieyuanElectric002121ClouElectronics600405DynamicPower002123RongxinPowerElectronic600405DynamicPower002028SieyuanElectric600405DynamicPowerPortfolio600432JinlinJiEnNickelIndustry000400XjElectric000862YinXingEnergyComponents002227AutoElectricPowerPlant002123RongxinPowerElectronic002227AutoElectricPowerPlant002123RongxinPowerElectronic002227AutoElectricPowerPlant002121ClouElectronics002028SieyuanElectric000862YinXingEnergy002164DonlyTransmissionEquipment002164DonlyTransmissionEquipment000009ChinaBaoan000009ChinaBaoan600406NARITechnologyDevelopment000762TibetMineral600406NARITechnologyDevelopment4.2ValuationanditsinfluenceonappraisalmodelSofar,thestudyjustfocusesonthefundamentalassociatedwiththefundamentallinktocapitalmarketwhenevaluationgoodstock.Itseemsthatthevaluationfactorhasbeenomitted.Classicaltheoryconsidersbothfundamentalaswellasvaluation63 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryleveltotargetstocks.Section4.2examinesthatwhetherpricemultiplewouldimpacttheappraisalmodelandhowweshouldtakevaluationlevelintoaccount.4.2.1Valuationlevel,futureexcessreturnandaccountingratiosFirst,IincludeP/Emultipleandrepeatregressionanalysisonexcessreturn.Thesampleselectionandperiodisthesameaspreviousregressioninnewenergyindustry.Theunivariateregressionintable20showstrailingP/Emultiplewouldnotsignificantlyinfluencenextperiodexcessreturn,implyingnosignificantP/Ereturnreversaltrend.Fromthemultivariateregression,P/Emultipledoesn’tchangethesignificantrelationshipbetweengrossmargin,accountpayableturnoverandrevenuegrowthwhileP/Emultipleremainsstillinsignificant.WhenIregressP/Emultipleonaccountingratios,thereisstillnosignificantrelationship.TrailingP/Emultipleisnotlikelytoincorporatecurrentaccountingratios.Table22RegressionresultsofP/Emultiple,excessreturnandaccountingratiosModelExcessReturnPEratioObservation=349123456esti.0.070-0.026333.56188.42288.75385.72Constantt-stat.1.098-0.2801.33(1.88)*1.351.45esti.0.0000.000PEt-stat.-0.206-0.093A/Pesti.-0.00674.20-30.05Turnovert-stat.(-3.030)***-1.15-1.12Grossesti.0.50470.57102.14Margint-stat.(2.349)**0.370.41esti.0.156-293.71-282.95RevGrowtht-stat.(1.792)*-1.14-1.11Note:***,**,*denotesignificanceat1%level,5%leveland10%levelrespectivelySincenewenergyindustryhasgreatgrowthmomentum,itwouldbebettertousePEGmultipletoincorporatethegrowtheffect.WhenIre-dotheregressionusingPEG,resultissimilarwiththatusingP/E.TrailingPEGisstillinsignificantwithshortfutureexcessreturn.Theprobableexplanationcouldbeittakeslongtime(maybemorethanoneyear)tocorrectvaluation.Butthestudyonlyusesnexthalfyearexcess64 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryreturnasdependentvariable.Anotherexplanationisthatnewenergyfirmshavedistinctivecharacteristicsfromoneanother.Relativevaluationmeasuredoesnotapplyheresincethereisnoappropriatebenchmarkandfewcomparablefirms.4.2.2AdjustmentforvaluationfactorsAlthoughregressionresultsshownosignificantrelationshipbetweentrailingPEGandnextperiodexcessreturningeneral,theextremevalueofPEGmultipleassociatedwithaccompanyingmarketcorrectionneedsgreatattention.Figure58plotsthetrailingPEGmultipleandfutureexcessreturn.Lookatthesecondquadrant,severalstockswhichhavesubstantiallyhighPEGmultipleunderperformthebenchmarkinnext6months.Forthepurposeofriskmanagement,thestudywouldtaketheextremehighPEGmultipleintoconcern.Thetradingstrategywouldavoidextremelyhighvaluedfirms.Sothenextquestionraisedishowtoidentifyover-valuedstocks.Table21depictsthekeystatisticsanddistributionpatternofPEG.ThePEGmultipleforalmost90%stocksareconcentratedfrommeanplusonestandarddeviationtothelowesttail.Forriskcontrolpurpose,thetradingstrategywouldavoidthosearehigherthanmeanplusonestandarddeviation.Thesestocksbeyondtheboundarycanbedeemedasextremelyhighvalued.ValuationreversalFigure58TrailingPEGmultipleandfutureexcessreturn65 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustryTable23StatisticsofPEGfornewenergyfirmsPEGDistributionDate2008/3/12009/3/12010/3/1Average1.912.182.13Std4.015.063.90Totalcompany120128147Company#in(0,average+std]109120136ConcentrationPercentage90.6%93.8%92.5%4.3OutofSampleEmpiricalTestfortheModelBasedon2009annualreportdata(whichshouldbereleasedbytheendofFebruary2010),weselectedthehighest10NEfirmsthroughthefundamentalscoringmodelaftercontrolforvaluationrisk.Andrebalancedtheportfoliowithregardsto2010semi-annualandannualreportinAugust,2010andMarch,2011,respectively.Source:BloombergFigure59:RecommendedPortfolioVS.Benchmarks(2010.02-2011.06)Empiricaltestshowsourportfolio’ssuper-performancethanIndustryIndexas66 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustrywellasSHSZ300.Theaccumulativereturnofrebalancingportfoliooutperformed37%and60%thanindustryindexandSHSZ300,respectively,withamuchhigherSharperatio.Resultsabovejustifiedthecredibilityandefficiencyofourtop-downapproachoffundamentalresearchandcompanyappraisalmodel,whichinvestorscanapplyinfutureinvestmentconsultancy.MarketIndustryPortfoliobenchmarkIndexAccumulative-8.90%14.50%51.90%ReturnVolatility1.50%1.84%1.95%SharpeRatio-0.0130.0390.078Figure60:Statisticsontheempiricaltest.67 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustry5ConclusionThroughfundamentalresearch,thepaperidentifiedfollowingpromisingsub-industryandproductionsectorsinChinaNewEnergyIndustry:1)Photovoltaicpower,windenergyandnewenergyvehiclesarethemostattractivesectorsinnewenergyindustrywithhighprobabilitytorealizetheirprofitanddevelopmentwithin3years.2)Companiesrelatedtoupstreamminerals,chargingstationandlithiumbatterieshaverelativehigherprofitabilityandgrowingpotentialinnewenergyvehiclesector.3)Inphotovoltaicsector,weshouldinvestinareaofPVmechanicalequipments,polysiliconmanufacturingandsolarinvertersbecauseoftheexpansionmarketandhighermargin.4)Giantwindturbineproviders,keymechanicalcomponentsmanufacturersandwindfarmoperatorswillbenefitthemostinthedevelopmentofwindpowerinChina,consideringtheexportsubstituteandmarketexpansion.Incompanyselectionlevel,empiricaldatashowsfundamentallinkstomarket/excessreturnexistsinChinaA-sharemarketandNEindustry.Althoughthevaluationreversalisnotsignificantincurrentmarketsituation,westillnotedthevaluationreversalexistsinextremePEGsituationinNElistedcompanies.Therefore,valuationriskshouldbecontrolledintheprocessofstockpickingbyeliminatetheoneswithPEGgreaterthanaverageplusonestandarddeviation.Finally,byapplyingtothecomprehensiveappraisalmodelderivedinthispaper,investorscanpickthestockswithhighestscorerankingsaftercontrolforvaluationrisk.Verifiedbyoutofsampleempiricaltest,thehalfyearrebalancingportfolioconstructedfromhighscorerankingsisexpectedtooutperformbenchmarkandbringinabnormalreturn.68 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FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustry致谢Acknowledgments本次论文能获得成功，要十分感谢费方域教授一直以来的指导和鼓励，没有费教授亲历亲为的指点，悉心的帮助和鼓励，并提出关键的指导意见，本次论文是不可能得以顺利完成的。费方域教授严谨的治学态度、不懈的钻研精神、高屋建瓴把握全局的能力将永远是我学习的榜样,也是导师传授给我最宝贵的精神财富。在此，谨向我的导师致以深深的敬意。同时感谢班级同学对我的热情周到地帮助，感谢我院同学祝舒、张淑健、郭皓、武煜、韩晖经常与我讨论遇到的问题并提出中肯的解决建议。感谢学院金融学项目组和学院领导为我们创造良好的学习与科研环境,感谢班主任刘训飞老师、陈丹萍老师给予我日常生活的关怀。同时，我也想对我的母校表达感激之情，是母校“起点高、基础厚、要求严、重实践、求创新”的优良传统和办学特色使我在研究生时光中全面充实自己，不断提高。我会始终铭记‘饮水思源，爱国荣校’的校训，在学业上继续攀登与进步！最后，要感谢我的父母，是他们毫无保留地支持和鼓励给了我永恒的动力，让我能够较高质量的完成硕士研究生学业！71 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustry72 FundamentalResearchandInvestmentOpportunitiesofChina’sNewEnergyIndustry73'