Citibank: It is believed that GCL TECH (03800) will benefit from the rising prices of polycrystalline silicon due to industry capacity integration, giving GCL TECH a "buy/high risk" rating.

Citi released a research report stating that the polysilicon industry in China is driving against internal competition. Beijing Guangheqiancheng Technology Co., Ltd. (Guangheqiancheng) was officially registered recently, seen by the outside world as a platform for integrated acquisition of polysilicon production capacity. GCL TECH (03800) holds approximately 16.79% of the stakes in this joint venture, making it the second largest shareholder. Citi has given GCL TECH a "buy/high risk" rating with a target price of HK$1.72. Citi views the establishment of this joint venture as a step towards purchasing inefficient polysilicon production capacity and promoting industry consolidation. It pointed out that GCL TECH's shareholding in the joint entity seems to be lower than market expectations compared to its market share based on sales volume. If annual demand in the polysilicon market remains flat, it is estimated that GCL TECH's capacity utilization rate may decrease from about 60% this year to about 50% next year. However, Citi still believes that if capacity integration is successful, polysilicon prices will rise, and GCL TECH can also benefit from margin expansion, with profitability still able to grow even with a 50% capacity utilization rate.