Focus Analysis | The market value fell by four-fifths, and behind the giant is the worry of a photovoltaic empire

Author | Yuan Silai

Edit | Su Jianxun

Because of the huge loss, on February 7, GCL Integration, a component listed company under GCL Group, received a letter of concern from the Shenzhen Stock Exchange.

In 2021, GCL Integration's non-net loss attributable to the mother is 1.3-2.1 billion, but compared with the non-net profit loss of 2.4 billion yuan in 2020, they are still a little better in 2021.

Last year was a big year for photovoltaics, companies that have disclosed performance forecasts, 70% of the performance has increased by more than 40%, and GCL Integration is not among these lucky ones. Even within GCL Group, their performance has eclipsed. After GCL Poly GCL, which makes silicon materials in the GCL department, ate the price increase dividend, it announced on the evening of February 9 that it would return to A shares as soon as possible and list "A + H" in both places.

The explanation given by GCL Integration is that the gross profit caused by the increase in the price of materials, but the increase in terminal prices is not as good as the increase. During the epidemic, the cost of international shipping has risen, and GCL Integration, which accounts for 70% of overseas business, has been hit.

The peak of GCL integration, which was once worth hundreds of billions of yuan, has now fallen to only 20 billion, and can only rely on selling power stations to recover blood. The tight capital chain, lack of technology accumulation and excessive dependence on a single business make it difficult for the company to see the opportunity to turn around in the short term. GCL integration is an important one in the intertwined jungle of GCL, and behind its huge losses, GCL Group has also shown a downward trend.

GCL Empire

Combing the photovoltaic industry chain, can not avoid the GCL system.

In 2005, Zhu Gongshan, a Yancheng native who had successfully operated a thermal power plant at that time, undertook the government's polysilicon project, entered the silicon industry, and established GCL-Poly. They are also the first manufacturer in China to mass-produce polysilicon. After experiencing a surge in polysilicon in 2008, in 2009, GCL-Poly has entered the top three positions of global polysilicon materials and become a veritable giant.

In the photovoltaic industry, silicon material is in the upstream, whether it is a monocrystalline silicon rod or a polycrystalline silicon ingot, the traceability is made of polycrystalline silicon material. For a long time, polysilicon materials need to be imported from overseas. After the rise of local enterprises such as GCL-Poly, Tongwei and Daqo Energy, they gradually got rid of the dilemma of raw materials being subject to people, and Zhu Gongshan even had a high-profile name of "World Silicon King", ranking among the Forbes rich list with assets of 10.8 billion yuan in 2013.

After GCL-Poly went public in Hong Kong, they started polycrystalline wafers in 2010, which is also the raw material for cells, and they acquired a wafer supplier, Gao Jia Solar, and became the world's largest polycrystalline wafer producer in 11 months.

Zhu Gongshan was obviously not satisfied with just making silicon materials. The industry extends downward from the silicon material, including silicon wafers, cells, components, and the terminal is the power station. The further downstream, the lower the technical barriers, the more complex the upstream manufacturers involved, the gross profit gradually declined, Zhu Gongshan still did not want to let go, he wanted to build a photovoltaic empire, not a silicon manufacturer.

In 2014, GCL New Energy, which is mainly engaged in power plants, was listed in Hong Kong, and GCL only lacked the component links of the midstream. The components are also solar panels, which look like "sandwich biscuits", back panels, tempered glass and EVA material sandwich cells. If the extreme point is said, only the manufacturers of the component business do is to process the incoming material, package the cells in series or parallel, and then install auxiliary materials such as aluminum frames.

The profitability of component manufacturers is largely dependent on upstream materials and downstream power plants. However, GCL-Poly stretches downward from the top of the chain, with some cost advantages for upstream materials.

They targeted the module manufacturer Chaori Solar, which went bankrupt 42 months after listing, and after becoming the controlling shareholder, they renamed it GCL Integration in 2014 to start a module business.

However, GCL has never been at the forefront of the industry. According to Global Data, in the 2016 PV module ranking, GCL integrated shipments were 4.6-5GW, ranking sixth.

They quickly started the system integration service package, that is, the finished product that has been packaged, such as the BOSS (Balance System) integration package, which includes auxiliary components other than the inverter, charger, energy optimizer and so on. This part of the business already accounts for 64% of GCL Integration's revenue, and the gross profit is 5% higher than that of components.

Of course, the integration package is not a technology-intensive link, under the gross profit of 10.59%, the money earned is still hard money. If GCL Integration only relies on selling components and finished system packages, it will naturally not be able to talk about long-term development.

Component crisis

In 2021, the power of the cycle is so evident.

Because of the arrival of the policy dividend period, downstream component manufacturers have expanded, silicon wafer manufacturers have also resumed work one after another, coupled with new energy vehicles and other new industries that need to use silicon materials have also begun to grab production capacity, and demand has exploded. However, the upstream silicon material expansion cycle is longer, and there is a clear imbalance between supply and demand. The price of silicon materials soared from 80,000 yuan / ton in January 2021 to 240,000 yuan / ton in February this year.

The most constrained are naturally the more downstream battery and module manufacturers. In addition to the direct use of silicon wafer cells, the rest of the components such as photovoltaic glass with sandwich cells also have different degrees of price increases.

Among the companies that have announced their performance forecasts, silicon material and wafer manufacturers have unlimited scenery. The net profit attributable to the mother of Daqo Energy exceeded 5 billion, Tongwei shares exceeded 4 billion yuan, and the net profit attributable to the mother of Hesheng Silicon Industry reached 8.5 billion, an increase of 5 times year-on-year. GCL Poly, which is also a GCL department and does silicon materials, announced that the profit of the photovoltaic materials business segment will reach 5.4 billion yuan in 2021.

Downstream manufacturers' lives are in the midst of a large number of civil engineering, but they are not very good. GCL Integration is not the only company operating dismally. In addition to the industry leaders JinkoSolar and Trina Solar, oriental risheng, Yijing optoelectronics, iKang technology and other component manufacturers have experienced different degrees of losses. Even giants such as LONGi do not dare to expand production because of the surge in silicon materials, and even shrink some production capacity.

Such component manufacturers will continue to extend downward to contract power stations, such as EGing Optoelectronics and LONGi will have EPC business. The so-called EPC (General Contracting of Projects) is actually a kind of power station development method. The customer will outsource the design, procurement and construction of the power station to GCL Integration, and after the project acceptance is qualified, the contractor will sell it to the customer.

In 2017, GCL Integration spent HK$1 billion to acquire a 10% stake in GCL New Energy, mainly to invest in downstream power plants.

This means that general contractors such as GCL Integration need to advance a large amount of money in advance. Power plant projects usually deal with local governments because of the long construction cycle and the easy change of policy during the period. That year, they deducted a net loss of 800 million yuan, and the reason given was that the power station project was not connected to the grid.

For a company with strong financial strength and relatively stable like LONGi, there is nothing wrong with going from silicon wafer to power station. However, GCL's subsidiaries are all highly leveraged and highly indebted, and GCL Poly is temporarily bailed out because of the sharp rise in silicon materials, but the debt ratio of GCL New Energy, which does power stations, will reach 81% in 2020, and the asset-liability ratio of GCL integrated will be 68.73%.

This is also a common problem involving downstream power plant enterprises, and JinkoSolar's debt ratio has been above 70% in recent years. However, for the behemoths from the upstream layout to the downstream, doing components and power stations is more testing the ability of enterprises to operate, and even more caution is needed, such as LONGi as of the third quarter of 2021, the debt ratio is 55.5%. GCL's style is sharp overall, accustomed to high debt operations, once the price of silicon material fluctuates greatly, it will encounter a greater storm.

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