2008 The Golden Age for Xinguang Silicon

Transcription

1 2008 The Golden Age for Xinguang Silicon Baoding Tianwei Baobian Electric (600550) Company visit Report Power Equipment Corporate Research Hold (Maintained) Investment Highlights The year 2008 will be a golden age for silicon material enterprises to make windfall profit. The polysilicon material almost becomes the hottest hard currency in China at present when the selling price stays extremely high, while there is hardly any supply available on the market. Many domestic downstream enterprises engaged in photovoltaic products, under the pressure of production, seek hard for source of silicon materials. A considerable portion of silicon materials can only be acquired at high prices through non-market means. Downstream manufactures of silicon wafer and battery generally run into an embarrassing condition of meager profit or even loss. It is predicted that the situation of shortage of silicon materials will remain in 2008 when the average selling price will reach up to 2,200,000 Yuan/Ton. Sichuan Xinguang Silicon Science & Technology Co., Ltd will achieve huge profits in The Company has suspended production for annual overhaul for 30 days or so in March, 2008; the 80 tons/month production capacity will be achieved after production is resumed. About 800 tons of polysilicon materials can be produced in 08, 1,000 tons in 09 and 1,200 tons in 10. According to estimate, Xinguang Silicon and the Phase II Project can contribute 0.47 Yuan, 0.38 Yuan and 0.33 Yuan respectively to the Company s 08-10results. The production capacity of silicon material will be released on a large scale and the current windfall profit prevailing in the trade is hard to go on for a long time. It is forecast that the newly added production capacity of manufacturers at home and abroad will be released on a massive scale after 2009, thus fully meeting the demand for photovoltaic industry. The price of domestic bulk products will trend in line with international market price while profits of the industry will gradually transfer to downstream module manufacturers, where the profitability of manufacturers of battery module will improve step by step; in particular, there will be an even brighter prospect for domestic leading enterprises with advantages in scale and cost, like Shangde and Yingli Solar. The rapid expansion in production capacity and the recovery of gross margin level will make the year 2009 the age of explosive results for Yingli Solar. The Company plans to expand its production capacity to an enormous level of 400MW and 600MW respectively by the end of 08 and 09. At that time, the scale advantage and market brand of Yingli Solar will put it in a relatively favorable position in market competition. Moreover, the profitability of Yingli Solar will improve remarkably owing to the situation in which the strained relation between domestic supply of and demand for silicon materials will be largely appeased in The contribution made to the Company s results will be 0.26 Yuan, 0.52 Yuan and 0.63 Yuan respectively in Potential risks. Newcomers in polysilicon industry will increase sharply; the cost pressure in raw materials, like silicon steel, will further intensify. Earnings forecast and investment ratings. For Baoding Tianwei Baobian Electric Co., Ltd., (08/09 EPS: 1.14/1.46 Yuan; 08/09 PE: 47/37 x; the target price: 45~55 Yuan; the rating: Hold ). In our opinion, Baoding Tianwei Baobian Electric Co., Ltd possesses a relatively complete photovoltaic industry chain, which enables it to fully enjoy the swift growth resulting from the upbeat business climate for photovoltaic battery industry all along against the background of drastic price fluctuation in silicon materials. In view of the high growth potentials of new energy business of the Company in the future, it is considered relatively reasonable to assign 35x 09PE to the Company. The current valuation is slightly high. The rating of Hold is maintained with the target price at 55 Yuan. Current price Target price Analysts Liu Lei Chief power equipment analyst of CITICS Tel: liul@citics.com Yang Fan Tel: yangf@citics.com Performance Relative to Indices S P/CITIC 300 Power equipment Baoding Tianwei Baobian Electric Source: Quantitative Investment Analysis System of CITICS Main data S&P/CITIC 300 (Point) Total equity/shares o/s (mm) / LTM High/low (Yuan) / month absolute gain 7.80% 6-month absolute gain 52.95% YTD absolute gain -5.84% LTM average daily turnover (Rmb mm) Source: Quantitative Investment Analysis System of CITICS Item/Year E 2008E 2009E Business revenue (Rmb mm) Growth rate YoY% Net profit (Rmb mm) Growth rate YoY % Gross margin % EPS(Yuan) PE Source: Quantitative Investment Analysis System of CITICS Please do read the disclaimer attached to the text.

2 Content 2008; The Golden Age of Xinguang Silicon...1 The Profitability of Yingli Solar will improve after Earnings Forecast and Valuation...10 Figures Fig.1: Structure of Silicon Business Possessed by Baoding Tianwei Baobian Electric Co., Ltd....1 Fig. 2: Flow Chart of the Modified Siemens Process...2 Fig. 3: Fluctuation in Price of Trichlorosilane Unit (10,000 Yuan/Ton)...2 Fig. 4: Cost Structure of Domestic Kiloton-level Polysilicon Manufacturers...3 Fig. 5: Forecast of Polysilicon Price Trend Unit (U.S. dollar/kg)...3 Fig. 6: Change in and Forecast of Gross Margin of Yingli Solar...7 Fig.7: Price Trend of Solar Module...8 Fig. 8: Forecast of Annual Installed Capacity of Global Solar Cell Unit: MW...9 Fig. 9: Program for Production Capacity Expansion of Yingli Solar Unit: MW...9 Tables Table 1: Output Forecast of Xinguang Silicon and of Phase II Project...1 Table 2: Output Forecast of Xinguang Silicon and of Phase II Project...2 Table 3: Program for Output Expansion of Overseas Mainstream Polysilicon Manufacturers Unit: Ton...4 Table 4: Statistics of Major Domestic Polysilicon Investment Projects Unit: Ton...4 Table 5: Earnings forecast of Xinguang Silicon...5 Table 6: Sensitivity Analysis of the Profitability for Xinguang Silicon. Unit: sales price (10,000 Yuan/Ton) /output (ton)...5 Table 7: Earnings Forecast of Phase II Project of Xinguang Silicon. (If being commissioned in November, 2009 and officially put into operation in 2010)...6 Table 8: Supportive Policies of Developed Countries for Photovoltaic Industry...8 Table 9: Earnings Forecast of Yingli Solar...10 Table 10: Forecast of Traditional Transformer Sector...10 Table 11: Composition of Results Contributed by Sectors...11 Table12: Forecast of Income Statement...11 Table 13: Forecast of Balance Sheet...12 Table 14: Forecast of Cash Flow Statement...12

3 2008: The Golden Age of Xinguang Silicon It is estimated that Xinguang Silicon can produce 800 tons of polysilicon materials in Xinguang Silicon has undergone several times of system modification and overhaul after firing and commissioning in 07M2. The stable production capacity of 60 tons/month was achieved in 07M12, when the annual output/sales volume of silicon materials totaled 228 tons with the profits estimated at about 135,000,000Yuan. The Company has suspended production for annual overhaul for 30 days or so since March 18, 2008; the 80 tons/month production capacity is estimated to be achieved after production is resumed. About 800 tons of polysilicon materials can be produced in 08, 1,000 tons in 09 and 1,200 tons in 10. Table 1: Output Forecast of Xinguang Silicon and of Phase II Project E 2009E 2010E Xinguang Silicon Tianwei. Sichuan Silicon 1000 Leshan Tianwei 1000 Two new polysilicon projects with a production capacity of 3,000 tons/year will be put into operation at the end of The 3,000 tons/year of production capacity of solar grade polysilicon shall be constructed for Xinjin Project affiliated to Tianwei Sichuan Silicon Co., Ltd. (51% of its shares are held by the Company) and Leshan Project affiliated to Ledian Tianwei (49% shares held by the Company) respectively, mainly relying on the technical strength of and the support for engineering construction offered by Xinguang Silicon. Tianwei Sichuan Silicon Co., Ltd. has already entered a procurement contract for equipment of reducing furnace and hydrogenation furnace with U.S. Polysilicon Equipment & Engineering Company. Both projects are predicted to officially commence in March of 2008 and to be put into operation in November of 2009, and will achieve a production capacity of 1,000 tons/year in After the construction of both projects is completed, Baoding Tianwei Baobian Electric Co., Ltd will possess 3,450 tons/year of attributable production capacity for silicon materials. Fig.1: Structure of Silicon Business Possessed by Baoding Tianwei Baobian Electric Co., Ltd. Baoding Tianwei Baobian Electric Co., Ltd. Tianwei Sichuan Silicon Co., Ltd. (Xinjin) 3,000 tons/year Sichuan Xinguang Silicon Science & Technology Co., Ltd. (Leshan) 1,260 tons/year Ledian Tianwei (Leshan) 3,000 tons/year The price of trichlorosilane is pushed high by the hot investment in polysilicon. The preparation of trichlorosilane is a vital link in the modified Siemens Process used to prepare polysilicon. Usually, 12~15 tons of trichlorosilane or so are used to produce 1 ton of polysilicon materials. Generally, for Sichuan Chuantou Energy Co., Ltd and overseas large-scale silicon material enterprises, trichlorosilane is synthesized through reaction of silica fume, chlorine liquid and hydrogen gas. In the domestic hot investment in polysilicon in large-scale and swift manner, many 1

4 investors often replace the process of synthesizing trichlorosilane with outsourcing during construction of project for the purpose of early operation and windfall profit. This enables the markup of trichlorosilane from 5,000 Yuan/Ton, at the time of feasibility study by Xinguang Silicon, to the current level of 17,000 Yuan/Ton or so Fig. 2: Flow Chart of the Modified Siemens Process Arc furnace Rectification tower (Chemical use) Rectification tower (Electronic grade) Boiling bed (Chemical use) Recovery of chemical gas Tail gas Siemens Reaction Power supply Feeding Fig. 3: Fluctuation in Price of Trichlorosilane Unit (10,000 Yuan/Ton) M ay,2005 Oct Dec Feb Apr June,2006 Aug Oct Dec Feb Apr June, 2007 Aug Oct Dec Feb Apr The price of trichlorosilane will remain high, but the impact produced on Xinguang Silicon will decrease gradually. It is estimated that the price of trichlorosilane may reach up to above 20,000 Yuan/Ton along with the gradual release of production capacity of each manufacturer in At present, the synthesizing capacity of Xinguang Silicon can only meet half of its demand, while the other half has to be outsourced from Yongxiang Co., Ltd., etc. However, the second unit of synthesizer will be started up after the completion of the overhaul in April, It is predicted that the influence produced by fluctuation in the market price of trichlorosilane on the Company will gradually decrease. Table 2: Output Forecast of Xinguang Silicon and of Phase II Project 2007E 2008E 2009E 2010E Actual output (Ton) Use level of trichlorosilane (Ton) Average cost of trichlorosilane (10,000 Yuan/Ton) There is still a gap in cost between domestic enterprises and overseas enterprises. The electricity consumption per unit is a significant indicator to measure the technical level of polysilicon enterprises. In the current stage, the general electricity consumption of domestic enterprises, including Xinguang Silicon, mostly goes beyond 300 kwh/kg, while that of overseas large-scale manufacturers is 2

5 only 100~150 kwh/kg. At present the power rate for industrial use is 0.55~0.60 Yuan/kwh for Xinguang Silicon, which doesn t benefit from the preferential policies such as direct power supply from power plant. Overseas enterprises engaged in silicon production make full use of by-products like silicon tetrachloride and chlorine hydride in tail gas, where the source of profits is expended. However, the utilization ratio of such products is relatively low at home. Xinguang Silicon has to pay more than 1,000 Yuan/Ton to transportation companies for disposal of its tail gas. Hence, the cost is increased to a certain extent. The current production cost of domestic kiloton-level manufacturers stays above 70~80 U.S. dollars/kg while that of overseas large-scale manufacturers turns out to be only U.S. dollars/kg. A large gap in cost still exists. Fig. 4: Cost Structure of Domestic Kiloton-level Polysilicon Manufacturers Power rate Consumable materials Depreciation Others The year 2008 will be a golden age for silicon material enterprises to make windfall profits. The polysilicon material almost becomes the hottest hard currency in China at present when the sales price stays extremely high, while there is hardly any supply available on the market. Many domestic downstream enterprises engaged in photovoltaic products, under the pressure of production, seek hard for source of silicon materials. A considerable portion of silicon materials can only be acquired through the non-market means at a price above 2,500,000 Yuan/Ton. This price makes downstream manufactures of silicon wafer and battery in an embarrassing condition of meager profit or even loss. For Xinguang Silicon, the sales price climbed from 1,650,000 Yuan/Ton in July to 2,650,000 Yuan/Ton at the end of the year It is predicted that the situation of shortage of silicon materials will remain in 2008 when the average sales price will reach up to 2,200,000 Yuan/Ton. Fig. 5: Forecast of Polysilicon Price Trend Unit (U.S. dollar/kg) International Price of domestic bulk market price The production capacity of silicon material will be released on a large scale and the current windfall profits prevailing in the upstream trade are less likely to go on in a long time. In the current stage of desperate shortage and high price of silicon materials, a lot of domestic enterprises start manufacturing silicon materials to share the cake. It is forecast that the newly added production capacity of manufacturers at home and abroad will be released on a massive scale in 2009, and hence the demand of photovoltaic industry can be fully met. The price of domestic 3

6 bulk products will trend in line with the international market price, staying at 80~100 U.S. dollars/kg. Profits of the industry will transfer to the downstream gradually, where the profitability of manufacturers of battery module will improve step by step; in particular, there will be an even brighter prospect for domestic leading manufacturers with advantages in scale and cost, like Wuxi Shangde and Yingli Solar. Table 3: Program for Output Expansion of Overseas Mainstream Polysilicon Manufacturers Unit: Ton Company E Hemlock Wacker REC Tokuyama MEMC Mitisubishi mat Mitisubishi polysil Sumitomo Total available to photovoltaic industry.) (60% of production capacity can be made Table 4: Statistics of Major Domestic Polysilicon Investment Projects Name of Company Area Designed production capacity Production capacity of Phase I project Commissionin g time of Phase I project Major investors Unit: Ton Xinguang Silicon Leshan, Sichuan Chuantou, Tianwei, Qimingxing Jiangsu Zhongneng Xuzhou, Jiangsu Zhongneng Photovoltaic Technology Shenzhen CSG Holding Co., Ltd. Yichang, Hubei CSG Group Luoyang Zhonggui Luoyang, Henan MCC Yongxiang Co. Ltd. Leshan, Sichuan Tongwei, Juxing Group Dong Fang (E mei) Steam Turbine Co., Ltd. Leshan, Sichuan Q3 DE Ningxia Sunshine Shizuishan, Ningxia End 2008 Jiangsu Sunshine Co. Ltd. Asia Silicon Xining, Qinghai Asia Silicon Industry Jiangshu Shunda Yangzhou, Jiangsu In the middle year of 2008 Jiangsu Shunda Group Chaolei Industry Xinjin, Sichuan End 2008 Sichuan Chaolei Industry Meishan Shunda Meishan, Sichuan End 2008 Beijing Shunda-Xinye Energy Daquan Group Wanzhou, Chongqing End 2008 Jiangsu Daquan Group Tianwei Sichuan Silicon Tianwei, Chuantou, Sichuan Minjiang Xinjin, Sichuan Co., Ltd Hydropower Co., Ltd. Ledian Tianwei Leshan, Sichuan Leshan Electric Power Co., Ltd., Tianwei Sichuan Ruineng Meishan, Sichuan Zhejiang Yuhui Sunshine Aixing Technology Silicon Qujing, Yunnan Yunnan Hengchang Non-Ferrous Metal Mining Green Energy Investment Meishan, Sichuan Green Energy (UK) Investment Co., Ltd. Shenzhou Industry Silicon Hohhot, Mongolia Inner Shanghai Aerospace Automobile Electromechanical Co., Ltd. Jiangxi Saiwei Xinyu, Jiangxi Jiangxi Weisai LDK Tianhe Photoenergy Lianyungang, Jiangsu End 2009 Changzhou Tianhe Photoenergy Shaanxi Tianhong Xianyang, Shaanxi End 2009 Shannxi Non-Ferrous Metal Group Shanghai Gongtou Group Mudanjiang, Heilongjiang Shanghai Gongtou Group 4

7 According to estimate, Xinguang Silicon and the Phase II Project can contribute 0.47 Yuan, 0.38 Yuan and 0.33 Yuan respectively to the Company s results in It is also estimated that, for Xinguang Silicon and Phase II Project, the sales price of silicon material will decrease year by year from 2008 to 2010, i.e., 2,200,000 Yuan/Ton, 1,600,000 Yuan/Ton and 900,000 Yuan/Ton respectively, with the total net profit reaching up to 962,000,000 Yuan, 784,000,000 Yuan and 558,000,000 Yuan respectively. The contribution to the results of Baoding Tianwei Baobian Electric Co., Ltd will be 0.47, 0.38 and 0.33 Yuan respectively during these three years. Table 5: Earnings forecast of Xinguang Silicon 2007E 2008E 2009E 2010E Actual output (Ton) Average sales price (10,000 Yuan/Ton) Sales revenue (10,000 Yuan) Electricity consumption per kilogram(kwh) Power rate (Yuan/kwh) Electricity expense (Yuan) Trichlorosilane: Proportion of polysilicon Use level of trichlorosilane (Ton) Average cost of trichlorosilane (10,000 Yuan /Ton) Cost of trichlorosilane(10,000 Yuan) Other manufacturing cost(10,000 Yuan) Depreciation cost(10,000 Yuan) Core business cost(10,000 Yuan) Core business profit(10,000 Yuan) Financial expense(10,000 Yuan) Administrative expense (Excluding depreciation) and operating expense(10,000 Yuan) Gross profit(10,000 Yuan) Income tax rate(%) 15% 15% 15% 15% Net profit(10,000 Yuan) Shareholding ratio of Tianwei(%) 35.66% 35.66% 35.66% 35.66% Contribution to investment gain(10,000 Yuan) Contribution to EPS of Tianwei(Yuan) Shareholding ratio of Chuantou Energy (%) 38.90% 38.90% 38.90% 38.90% Contribution to investment gain(10,000 Yuan) Contribution to EPS of Chuantou Energy(Yuan) Table 6: Sensitivity Analysis of the Profitability for Xinguang Silicon. Unit: sales price (10,000 Yuan/Ton) /output (ton) 2008E 2009E 2010E Sales price/ Output Sales price/ Output Sales price/ Output

8 Table 7: Earnings Forecast of Phase II Project of Xinguang Silicon. (If being commissioned in November, 2009 and officially put into operation in 2010) Tianwei Sichuan Silicon Co., Ltd. Leshan Tianwei Total Actual output (Ton) Average sales price (10,000 Yuan/Ton) Sales revenue (10,000 Yuan) Electricity consumption per kilogram (kwh) Power rate (Yuan/kwh) Electricity expense (10,000 Yuan) Trichlorosilane: Proportion of polysilicon Use level of trichlorosilane (Ton) Average cost of trichlorosilane (10,000 Yuan/Ton) Cost of trichlorosilane (10,000 Yuan) Other manufacturing cost (10,000 Yuan) Depreciation cost (10,000 Yuan) Core business cost (10,000 Yuan) Core business profit (10,000 Yuan) Financial expense (10,000 Yuan) Administrative expense (Excluding depreciation) and operating expense (10,000 Yuan) Gross profit(10,000 Yuan) Income tax rate (%) 15% 15% Net profit(10,000 Yuan) Shareholding ratio of Tianwei (%) 51.00% 49.00% Contribution to investment gain (10,000 Yuan) Contribution to EPS of Tianwei (Yuan)

9 The Profitability of Yingli Solar will improve after 2009 Gross margin slides down owing to effect produced by the markup of polysilicon at home. Part of silicon materials for Yingli Solar comes from domestic manufacturers. Under the effect produced by the polysilicon price hike at home in 2007, the gross margin of Yingli Solar sided down remarkably from 27.6% in 2006 to 23.6% in In our opinion, the price of polysilicon materials will remain high in 2008, and Yingli Solar will still be faced with a considerable cost pressure. Fig. 6: Change in and Forecast of Gross Margin of Yingli Solar Future supply of silicon material will be basically guaranteed, with the benefit of decreased price for silicon material after Yingli Solar entered a long-term contract with Wacker, an international large-scale polysilicon plant for the supply of silicon material. The former will be offered silicon materials totaling 1,200MW from 2009 on. Moreover, the operation of Xinguang Silicon and that of Phase II one after another will provide a significant guarantee of stable source of silicon materials for Yingli Solar. When it comes to the direction of cooperation between Xinguang Silicon and Yingli Solar, the relation between supply and demand shall be in a manner of guarantee of quantity instead of price. That is to say, based on the market price, Xinguang Silicon will give priority to the demand of Yingli Solar. Therefore, the price of silicon materials acquired by Yingli Solar will remain relatively high in But it will drop back along with the domestic price trend of silicon materials after Possessing a complete industry chain of silicon wafer, solar cell and modules with scale advantage, Yingli Solar will enjoy the greatest benefit, and its gross margin is estimated to rise to above 25% gradually. The decreased price for modules is an inevitable course of history. On the one hand, from the perspective of long-term trend of industry development, a prerequisite for photovoltaic industry to enter the sound track of development shall be the continuous drop in the cost of photovoltaic power generation, which means the objective requirement of drop in the price of photovoltaic battery. This is already proved by the swift development of wind power generation in recent years. On the other hand, from the perspective of industry policies issued by countries engaged in photovoltaic market, like Germany, for photovoltaic power generation, the on-grid power rate will be revised down at a rate of 5%~7% per year, which also impels the drop of battery module price. Furthermore, certain conditions for the drop in modules price is created due to the improved manufacture technology of photovoltaic battery, the less material consumption and the less manufacturing cost owing to scale effect. 7

10 Fig.7: Price Trend of Solar Module Source: solarbuzz, Prepared by Research department of CITICS The drop in module sales price will be far less than that of silicon material. Although the markets of Germany and Japan slowed down their paces due to change in subsidy policy in the latest two years, the markets of countries including the U.S.A. and Spain showed a strong trend of development due to the intensified support from industry policies. Hence, the high-speed growth is maintained for the global photovoltaic industry. According to an estimate by authorities, the global installed capacity of photovoltaic battery can still enjoy a rate of growth exceeding 30% every year, and the annual new installed capacity can reach up to above 5GW after In our opinion, under such a thriving market demand, the price of photovoltaic module will witness a mean decrease of 5% or so annually; the drop of module sale price will be far less than that of domestic silicon materials; and the profitability of domestic leading photovoltaic manufacturers, like Yingli Solar, will improve remarkably. Table 8: Supportive Policies of Developed Countries for Photovoltaic Industry Country Germany Japan U.S.A. Spain Supportive Policies and Measures for Photovoltaic Industry Renewable Energy Law was emended in 2004 to determine Feed-in-Tariff, where allowance of EUD/kWh was to be given for 20 years. New Sunshine Program was publicized in The total installed capacity is planned to 7.6 GW by The Subsidy for Roof Power Generation Program is realized through New Energy Law (the subsidy is 50% for the initial year and will be degraded year by year), but it is canceled in California Solar Initiative was publicized and implemented in It is planned to install 1,000,000 solar power generating systems in 10 years. The government makes various preferential policies like the policies on taxation and loan for photovoltaic power generating system from the year 2007 on, so as to ensure that the total installed capacity of photovoltaic power generation can exceed 7 GW by Real Decreto was implemented in Feed-in-tariff was put forward in 2006 to give allowance of EUD/kWh to systems of different installed capacities. The government plans to achieve the total installed capacity of 1,200 MW by

11 Fig. 8: Forecast of Annual Installed Capacity of Global Solar Cell Unit: MW % 35% 30% 25% 20% 15% 10% 5% 0% Source: solarbuzz, prepared by Research department of CITICS Rapid production capacity expansion and rise in gross margin will make the year 2009 the age of explosive results for Yingli Solar. The production capacity for battery module already reached up to 200MW after the Yingli Phase II expansion project was put into operation in The Company plans to expand its production capacity to the enormous level of 400MW and 600MW respectively by the end of 2008 and At that time, the scale advantage and market brand of Yingli Solar will secure a relatively favorable position for the company in market competition. Moreover, the profitability of Yingli will improve remarkably owing to the situation that the strained relation between domestic supply of and demand for silicon materials will be greatly appeased in It is forecasted that the output of Yingli will reach as high as 260MW, 460MW and 580MW respectively in , with the respective net profit being 728,000,000 Yuan, 1,468,000,000 Yuan and 1,756,000,000 Yuan; the contribution to results of Baoding Tianwei Baobian Electric Co., Ltd. will be 0.26 Yuan, 0.52 Yuan and 0.63 Yuan respectively. Fig. 9: Program for Production Capacity Expansion of Yingli Solar Unit: MW 9

12 Table 9: Earnings Forecast of Yingli Solar E 2009E 2010E Output of battery module (MW) Unit Price (U.S. dollar/w) Exchange rate Revenue from battery module (Rmb mm) Other revenue (Rmb mm) Core business revenue (Rmb mm) Gross margin (%) 27.60% 23.60% 22.00% 25.00% 27.00% Core business profit (Rmb mm) Administrative, marketing and R & D expense (Rmb mm) Financial expense (Rmb mm) Gross profit (Rmb mm) Net profit (Rmb mm) Shareholding ratio of Baoding Tianwei Baobian Electric Co., Ltd.(%) 46% 26% 26% 26% 26% Contribution to EPS(Yuan) Earnings Forecast and Valuation Traditional transformer sector will undergo a stable growth. The layout of production bases of the Company is mostly completed along with the commissioning of transformer plants in Qinghuangdao and Hefei one after another. The transportation cost of transformer will moderately decrease. At the same time, the Company is the winner in many bids for UHV projects and nuclear power generation projects, with the purchase orders of above 80,000,000 KVA in hand. It is predicted that the rate of growth of 20% or so can be maintained in the future. The rate of income tax for Baoding Transformer Plant will be revised down from 33% in 2007 to 25% in Table 10: Forecast of Traditional Transformer Sector Transformer Lifting belt E 2008E 2009E Business revenue(10,000 Yuan) Growth rate YoY(%) 63.69% 39.75% 19.60% 19.77% Gross margin 12.56% 15.60% 15.80% 16.00% Business revenue(10,000 Yuan) 13, Growth rate YoY(%) 25.80% 33.00% 33.28% 28.01% Gross margin % 23.50% 23.00% Earnings forecast. It is estimated that the business revenue of the Company will be 3,050,000,000 Yuan, 3,610,000,000 Yuan and 4,330,000,000 Yuan, up -0.9%, 18.4% and 20.0% yoy respectively from 2007 to 2009; the net profit will be 38Rmb mm, 834,000,000 Yuan and 1,067,000,000 Yuan and the corresponding 07/08/09 EPS will be 0.52 Yuan, 1.14 Yuan and 1.46 Yuan respectively. 10

13 Table 11: Composition of Results Contributed by Sectors E 2008E 2009E Transformer sector, etc Yingli Solar Xinguang Silicon Total Table12: Forecast of Income Statement Item E 2009E I. Business revenue Minus: Operating cost Business tax and associate charge Sales expense Administrative expense Financial expense Asset impairment loss Plus: Gain from change of fair value Investment gain II. Business profit Plus: Non-operating revenue Minus: Non-operating expenditure III. Gross profit Minus: Income tax IV. Net profit Minus: Minority interest Net profit attributable to parent shareholders IV. EPS (Fully diluted) Valuation and investment advice. We consider that Baoding Tianwei Baobian Electric Co., Ltd possesses a relatively complete photovoltaic industry chain, which enables it to enjoy the swift growth resulting from the industrial upbeat business climate all along in the period of price fluctuation in silicon materials; the Company s position in transformer industry remains firm, while the prospect of wind power generation business deserves expectation. In view of the high growth potentials of new energy business of the Company in the future, it is considered relatively reasonable to render 35x 09PE to the Company. The current valuation is slightly high. The rating of Hold is reiterated with the target price at 55 Yuan. 11

14 Table 13: Forecast of Balance Sheet E 2008E 2009E Cash and cash equivalent (Rmb mm) Account receivable (Rmb mm) Inventory (Rmb mm) Total current assets (Rmb mm) Long term equity investment (Rmb mm) Fixed assets (Rmb mm) Intangible assets and others (Rmb mm) Total non-current assets (Rmb mm) Total assets (Rmb mm) Short-term loan (Rmb mm) Account payable (Rmb mm) Other current liabilities (Rmb mm) Total current liabilities (Rmb mm) Long-term liabilities (Rmb mm) Total liabilities (Rmb mm) Equity (Rmb mm) Capital reserve (Rmb mm) Surplus reserve (Rmb mm) Undistributed profit (Rmb mm) Minority interest (Rmb mm) Total interest attributable to owners of the parent company (Rmb mm) Total owners' interest (Rmb mm) Total liabilities and owners' interest (Rmb mm) Table 14: Forecast of Cash Flow Statement E 2008E 2009E Net cash flow from operating activities mm) (Rmb Net Cash flow from investment activities (Rmb mm) Net Cash flow from financing activities (Rmb mm) Net increase in cash and cash equivalent (Rmb mm)

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Stock ratings Industry ratings Ratings Buy Overweight Hold Sell Outperform Neutral Underperform Beijing Shanghai Shenzhen Capital Mansion, No.6 Xinyuan Nanlu, Chaoyang District (100004) 21/f., North Tower, Shanghai Securities Building, Pudong Nanlu 528, Shanghai Description Relative performance over S&P/CITIC 300 Inde >20%; Relative performance over S&P/CITIC 300 Inde 5% ~ 20% Relative performance over S&P/CITIC 300 Inde -10% ~ 5% Relative performance over S&P/CITIC 300 Index -10%; Relative performance over S&P/CITIC 300 Inde >10%; Relative performance over S&P/CITIC 300 Inde -10% ~10%; Relative performance over S&P/CITIC 300 Index -10%; A/f., China Merchants Bank Tower, No.7088 Shennan Boulevard, Shenzhen CITIC Securities International Company Limited 26Fl.,CITIC Tower, No.1 Tim Mei Avenue, Central, Hong Kong Tel: (010) (021) (0755) (852) Fax: (010) (021) (0755) (852) Hot line: (010) Websites: