China's economic | in the report is not the same as the "black gold" of huge profits and the damaged middle and lower reaches: the tragedy and joy of the photovoltaic industry chain

21st Century Business Herald reporter Cao Enhui and intern Qi Tianyi reported from Shanghai

In the domestic photovoltaic industry, the transfer of industrial chain profits to the downstream is a "chewed" argument for nearly a decade.

This is not a misconception, on the one hand, technological iteration and price changes in the industrial chain, resulting in profits will continue to transfer in all aspects of photovoltaics; on the other hand, cost reduction is the eternal theme of the industry, under the general trend of the decline in industrial chain prices, profits will also be redistributed.

However, the process was not smooth. Since the second half of last year, the domestic photovoltaic industry chain has set off a wave of price increases, shelving the process of profit downward movement. In the fierce game between upstream and downstream, the semi-annual report of the photovoltaic industry chain shows a differentiation trend of ice and fire. Rejoicers, upstream companies continue to enjoy excess profits, performance hit a record high; those who are sad, profitability fell to the bottom, and even losses.

"When the price of silicon material returns to the state of ten years ago, the upstream link will re-gather profits, and the trend of industrial profits shifting from manufacturing to application will be suspended." A photovoltaic company told the 21st Century Business Herald reporter that fortunately, this is only a short-term difficult state, and the excess profits of some links will eventually slowly return to the average rate of return.

<h4>Upstream: The "black gold" of huge profits</h4>

Looking at the financial reports of photovoltaic listed companies that have released interim results, it is not difficult to find that almost all companies with top net profits have "material" attributes.

LONGi Shares (601012. SH) is still the king of profits, but in the first half of this year, most of the company's profits were contributed by silicon wafers; 600438. SH) silicon gross margin hit a record high; Central (002129. SZ) officially opened the era of Li Dongsheng, and the sales of large-size silicon wafers were hot.

Also seeing a significant increase in net profit was 601865. SH), Foster (603806. SH), Jinlang Technology (300763. SZ) and other auxiliary materials enterprises, the average price of photovoltaic glass in the first half of the year is still higher than the same period last year, the volume and price of EVA film have risen together, and inverter manufacturers have even once sent a wave of price increases.

Overall, in the first half of this year, the upstream of the entire photovoltaic industry chain gathered quite a lot of profits.

Tongwei shares, which earned a net profit for the whole year of 2019 in half a year, showed the "madness" of the silicon business in the interim report released a few days ago. According to the financial report, the company achieved operating income of 26.562 billion yuan, an increase of 41.75% year-on-year; the net profit attributable to shareholders of listed companies was 2.966 billion yuan, an increase of 193.50% year-on-year. Considering the decline in the gross profit margin of the battery business, the main contributor to the profit of Tongwei in the first half of this year is silicon.

In the financial report, Tongwei did not announce the specific revenue figures of the polysilicon business. However, some information is difficult to hide the "huge profit": in the first half of this year, the company's polysilicon production capacity was fully sold, the capacity utilization rate was 126.50%, and the output was 50,600 tons. According to the 21st Century Business Herald reporter, in the second quarter, Tongwei polysilicon sales volume was about 26,000 tons, and the average price was about 160,000 yuan / ton. The average production cost of polysilicon materials in the first half of the year was 36,500 yuan / ton, and the continuously rising price of polysilicon materials pushed up its gross profit margin to 69.39%.

Daqo Energy (688303. SH) earnings report may be more intuitive.

As a leading enterprise with polysilicon sales as its main business, the company achieved operating income of 4.512 billion yuan in the first half of the year, an increase of 111.99% year-on-year; and the net profit attributable to the shareholders of listed companies was 2.161 billion yuan, an increase of 587.96% year-on-year. It is worth mentioning that the company's overall gross profit margin during the reporting period was also as high as 60.92%, an increase of 14 percentage points over the end of last year.

<h4>Restless industrial chain profits</h4>

From the current supply and demand point of view, the high gross profit margin of "black gold" is still likely to continue to be maintained in the second half of this year.

According to the latest price data released by the Silicon Industry Branch of the China Nonferrous Metals Industry Association (hereinafter referred to as the Silicon Industry Branch) on August 25, the average transaction price of monocrystalline compound material reached 209,100 yuan / ton, an increase of 1.60% week-on-week; the average transaction price of monocrystalline dense material reached 206,800 yuan / ton, an increase of 1.62% week-on-week. The 21st Century Business Herald reporter noted that when the price of silicon materials achieved three consecutive increases, its month-on-month increase was also expanding.

"The construction cycle of silicon materials is long, and supply and demand are prone to mismatch." A senior new energy analyst told the 21st Century Business Herald that the silicon link is an area with high investment barriers in the photovoltaic industry chain, with high technical thresholds, large investment amounts and long production cycles.

In fact, the current situation of the mismatch between supply and demand of silicon materials this year is difficult to improve. According to the statistics of Polaris Solar Photovoltaic Network, in 8 months, the number of long-term silicon materials signed was about 1.458 million tons, an increase of 70.71% over the 855,300 tons signed in 2020, of which 1,310,550 tons belonged to domestic silicon plants.

But what the industry is more worried about is that the rising price of silicon materials has triggered the restlessness of the industrial chain.

Recently, the quotation of silicon wafers and cells has once again entered the upward channel. As early as the first half of this year, silicon wafer companies have obtained huge profits.

During the reporting period, Zhonghuan Achieved operating income of 17.644 billion yuan, an increase of 104.12% year-on-year, and net profit attributable to shareholders of listed companies was 1.480 billion yuan, an increase of 174.92% year-on-year. Behind the doubling of net profit growth, silicon wafers are indispensable. "In the first half of the year, Zhonghuan's G12 large silicon wafers had strong profitability and increased the proportion of revenue." The aforementioned analysts analyzed the 21st Century Business Herald reporter that the price of silicon wafers increased in the first half of the year, coupled with the company's significant cost reduction and efficiency increase, and the gross profit margin of the product improved.

Indeed, the signs of lucrative silicon wafers are also traced from the financial report of LONGi shares.

After hours on August 30, the company announced its first-half results: achieved operating income of 35.098 billion yuan, an increase of 74.26% year-on-year; and realized net profit attributable to shareholders of listed companies of 4.993 billion yuan, an increase of 21.30% year-on-year.

According to the operating data of the main holding companies released by the company, the 21st Century Business Herald reporter calculated that four companies, mainly Yinchuan Longji, Baoshan Longji, Chuxiong Longji and Yinchuan Photovoltaic, which mainly produce and sell silicon rods and silicon wafers, have achieved a cumulative net profit of 3.414 billion yuan.

<h4>Middle and lower: passive "alliances"</h4>

The high net profit increase in the upstream is indeed eye-catching. However, this inevitably requires some enterprises in other links to face the risk of damage to profits or even "blood loss".

At a "symposium on hot and difficult issues in the photovoltaic industry" organized by the industry association in June, Aixu Shares (600732. SH) is still fresh in the memory of the "complaint" of the upstream price increase. The photovoltaic cell head enterprise that adheres to the professional production route was plagued by the price increase of raw materials in the first half of the year, and finally handed over a semi-annual report of loss.

According to the financial report, Aixu achieved operating income of about 6.868 billion yuan during the reporting period, an increase of 85.88% year-on-year; the net profit loss attributable to shareholders of listed companies was about 23.76 million yuan, compared with a profit of 137 million yuan in the same period last year.

On the battery side, one of aixu's competitors is Tongwei shares. In fact, even under the layout of the whole industry chain, the gross profit margin of its cell business has not been spared the price increase of silicon materials and silicon wafers. Although during the reporting period, the company's full production and full sales, cell and module sales of 14.93GW, an increase of 92.68% year-on-year, but the gross profit margin of mono cells fell to 11.65%, a decrease of nearly 3 percentage points from the end of 2020.

Of course, the biggest headache is the component side. In the first half of this year, the imbalance between the upstream and downstream supply and demand patterns of the industrial chain and the sharp rise in the prices of upstream raw materials have greatly challenged the profitability of component companies.

In the first half of this year, JA Technology (002459. SZ) and Trina Solar (688699.SH) both ushered in the highlight moment after privatization back to A, with market capitalization exceeding 100 billion. As of the close of trading on August 30, the total market capitalization of the two companies was 120.5 billion yuan and 127.4 billion yuan, respectively.

JA Technology, which specializes in solar modules, increased its revenue by 48.77% year-on-year in the first half of this year, but its net profit increased only slightly by 1.78% to 713 million yuan. If the net profit after deducting non-deductions is taken as a reference, the profitability of JA Technology's main business during the reporting period is actually declining.

Another leading component company in China, Oriental Risheng (300118. SZ), which suffered its first medium-term loss in five years.

"This is mainly due to the increase in shipments, the expansion of sales scale, and the increase in raw material prices." JA Technology said in explaining the lackluster growth in net profit in the first half of the year.

The 21st Century Business Herald reporter noted that even if the performance of the first half of the year exceeded expectations, Trina Solar also admitted in its semi-annual report that the photovoltaic industry is facing multiple operational challenges such as a sharp rise in silicon prices, an increase in the price of bulk materials, and an increase in logistics freight.

For component companies, when the price of upstream raw materials rises, they can also continue to transmit cost pressure by raising prices. But the road is not easy to navigate. "After successive price increases last year to this year, the terminal's affordability is limited, and it may be difficult to adjust the order price to stabilize the water level of more than 1.8 yuan per watt for the single-sided component." Industry agency PVInfoLink analysis believes.

It is undeniable that after the fierce competition in the past decade, the domestic component link has formed a pattern of survival of the best and the leftovers as kings, and the profitability of enterprises has improved. "Before the current round of price increases, the focus of component companies turned more to sales, channels and brands." The analyst told the 21st Century Business Herald reporter, but under the tide of price increases, the attention to cost has once again increased to priority.

In fact, since last year, the news of component companies "forming alliances" has appeared frequently.

In November 2020, Trina Solar and Tongwei signed a 15 billion yuan project cooperation, and the two sides stood together in the silicon material, silicon rod, battery and slice link.

JA Technology and JinkoSolar also extend the tentacles upstream. On June 18, the two companies announced that they signed a capital increase and share expansion agreement with Xinte Energy to increase the capital and share of Inner Mongolia Xinte Silicon Material Co., Ltd., a wholly-owned subsidiary of Xinte Energy, to provide insurance for the supply of future polysilicon materials through equity investment.

Behind this, the trend of vertical integration of component companies is unstoppable.

However, if the current round of industrial chain did not set off a wave of price increases, such a trend may not appear so early.

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