The photovoltaic industry is fighting the cold winter, and Tongwei shares are stable and go through the cycle

On the evening of April 29, Tongwei Co., Ltd. (600438. SH) disclosed its 2023 annual report and 2024 first quarter report. According to the data, in 2023, Tongwei Co., Ltd. will achieve operating income of 139.104 billion yuan, a year-on-year decrease of 2.33%, and a net profit attributable to shareholders of listed companies of 13.574 billion yuan, and a net profit of 13.613 billion yuan after deducting non-recurring gains and losses, a year-on-year decrease of 48.73%.

In a single quarter, Tongwei's net profit attributable to the parent company in Q4 was negative, mainly due to the impairment of related assets mainly related to PERC batteries based on the principle of prudence. In the fourth quarter of last year, the downward price and overcapacity of the industrial chain further exacerbated the operating pressure of photovoltaic enterprises, but Tongwei actively promoted the technological transformation of the photovoltaic industry, conformed to the market development trend, and although there was an impairment provision, it also ensured that the company's financial management and business operations were more stable, and achieved positive operating profits under the fierce competition of industry cycle fluctuations.

The photovoltaic industry has entered a downward cycle, and the profit margins of players in the industry have narrowed

Since 2023, the domestic photovoltaic industry has been expanding vigorously while the dark tide is surging, and while developing rapidly, many challenges such as overcapacity, price reduction war of the whole industry chain, and pressure on corporate profits have also followed. As prices continue to fall, polysilicon prices in the upstream sector have borne the brunt, with polysilicon prices falling by more than 80% from last year's high. In the fourth quarter of 2023, the performance of most photovoltaic companies showed a quarter-on-quarter downward trend, and players in the industry gradually entered the "strongest involution moment in history".

Under the influence of the new round of capacity reshuffle cycle, involution, surplus, and price reduction are the three key words that photovoltaic companies cannot avoid in 2023. The imbalance between supply and demand and low prices have caused the profitability of many enterprises to decline sharply, and many leading photovoltaic companies have seen a decline in revenue and net profit in their annual reports 688303. SH) achieved operating income of 16.329 billion yuan last year, a year-on-year decrease of 47.22%, and net profit attributable to shareholders of listed companies of 5.763 billion yuan, a year-on-year decrease of 69.86%. LONGi Green Energy (601012. SH) achieved revenue of 129.498 billion yuan and net profit attributable to shareholders of listed companies of 10.751 billion yuan, down 27.41% from the same period last year. TCL Zhonghuan (002129.SZ) achieved revenue of 59.146 billion yuan, down 11.74% year-on-year, and net profit attributable to the parent company of 3.416 billion yuan, down 49.9% year-on-year... It can be seen from the annual report cards disclosed by listed companies in the photovoltaic sector that the industry is collectively facing the rhythm of performance stalling.

From the perspective of the first quarter of 2024, there is no obvious marginal improvement in the fundamentals of the industry, coupled with the off-season of photovoltaic demand in the first quarter, the production schedule of each link from January to February is weak, but the price of the industrial chain continues to bottom out, and the impact on the operation of listed companies has gradually surfaced with the performance disclosure, and many leading photovoltaic companies have even suffered losses, TCL Zhonghuan has achieved a net loss of 880 million yuan attributable to the parent company, Aiko shares (600732.SH) have achieved a non-net loss of 759 million yuan attributable to the parent company, and LONGi Green Energy ( 601012.SH) Realized a non-net loss of 2.419 billion yuan attributable to the parent company... Judging from the past photovoltaic cycle, when there are many leading enterprises in the industry losing money at the same time, it also indicates the arrival of the bottom of the cycle. Although there are pains in the process of clearing this round of production capacity, and the profit pattern of the industrial chain may also change, after experiencing the trough period of profitability in the photovoltaic industry, companies with cost, technology and capital advantages are expected to usher in valuation repricing.

The pressure on development is more of a test of "internal strength" How leading enterprises can go through the cycle

The photovoltaic industry is a typical cyclical industry, and its essence is a mismatch between supply and demand. There are differences in the existing and planned production capacity of polysilicon, wafers, cells, and modules, and the related price changes are not converging.

Even after the price turmoil, the market size is still concentrated in a small number of high-quality companies, which makes all players in the industry have to think about how to ride through the cycle steadily. At the end of the day, the survival of leading enterprises in the cycle rotation stage benefits from their strong strength in cost control, technological innovation and capital management, which is also an important confidence to determine whether enterprises can compete in a new round of competition.

When the chill spreads throughout the industry, the company of "Guangji Grain" has more initiative for the current dormant and future expansion layout. Stable financial support is one of the core elements for leading enterprises to survive crises and continue to grow and develop.

The price enters the cost range of the industry, and the high-cost production capacity is more likely to face the risk of loss, and the second- and third-tier enterprises with poor financial strength are also under greater pressure. Leading polysilicon companies such as Tongwei, Daqo Energy, and TBEA have not only gradually established cost and resource advantages, but also accumulated sufficient cash and low interest-bearing liabilities, so that they can quickly enter the next round of expansion after the transition of the industry cycle trough.

At the bottom of the previous industry cycles, there have been stage characteristics such as "module price war", "overcapacity", "uncertain overseas trade policies", and "tightening industry financing", and under the intensification, technological waves have appeared frequently, whether it is the bottom of the industry in 2011, 2018 or 2023, there have been technological changes.

From the perspective of technology iteration, the current changes in the photovoltaic track are mainly concentrated in the battery field, and the market is at the moment of fully shifting from P-type batteries to N-type batteries. For example, the proportion of N-type production capacity of many leading PV module companies, such as JinkoSolar, JA Solar, and Trina Solar, is also increasing rapidly, and all of them are deploying new technology routes and rapidly reducing costs and increasing efficiency, making them advantageous production capacity.

Integrated layout, locking cost advantages, continuous technological innovation, not afraid of market competition

"No matter how the cards are shuffled, they will not shuffle out the leading companies such as Tongwei, LONGi, and Jinko, and this kind of integrated and global head enterprises must be the winners after passing through the cycle. Zhang Peng, a senior observer of the photovoltaic industry, once said. In order for industry insiders to be so firmly optimistic, leading enterprises must have in-depth insight and response capabilities to the industry adjustment cycle.

In the second half of 2022, Tongwei Co., Ltd. further strengthened its module segment and achieved rapid volume expansion, and in 2023, the company's module shipments will reach the top five in the world. Tongwei's integrated layout enables the company to face the end market directly, not be completely constrained by its former module customers during the downward phase of the industry cycle, firmly grasp the strategic initiative, and empower the company to have stronger industrial synergy, operational stability and capacity digestion capacity. At the same time, the perfect industrial chain layout is also expected to help the company further optimize the core consumption indicators and tap the potential of the industrial chain to reduce costs and improve efficiency, and continue to consolidate its core competitiveness.

At present, Tongwei has formed a production capacity of 450,000 tons of high-purity crystalline silicon, 95GW of solar cell production capacity and 75GW of module production capacity. According to the company's capacity plan, it is expected that from 2024 to 2026, the company's high-purity crystalline silicon production capacity will reach 80-1 million tons, solar cell production capacity will reach 130-150GW, and module production capacity will reach 80-100GW. Last year, the company also planned two industrial silicon projects of 300,000 tons and 400,000 tons in Baotou and Guangyuan respectively, to further achieve the purpose of cost reduction and full traceability of the industrial chain through the self-supply of silicon powder. At the end of last year, the company bucked the trend to expand polysilicon production capacity and invested in the construction of green substrate integration projects with an annual output of 28 billion yuan, including an annual output of 500,000 tons of green substrates (industrial silicon), 400,000 tons of high-purity crystalline silicon projects and supporting facilities, and further locked in scale and resource advantages with the help of favorable cycle nodes. In terms of cells, based on its first-mover advantage in TOPCon PECVD technology, the company will gradually complete the transformation of about 38GW of PERC capacity in 2024, and add 16GW and 25GW of TNC cell capacity at Meishan and Shuangliu bases respectively, with an expected TOPCon production capacity of more than 100GW by the end of 2024. It is worth noting that during the reporting period, the average production cost of the company's high-purity crystalline silicon products has dropped to less than 42,000 yuan/ton, and the latest non-silicon cost of TNC cells has also dropped to less than 0.17 yuan/W.

As the only company in the market that has opened up the entire photovoltaic industry chain, Tongwei has the most complete and competitive industrialization layout, and its self-supply capacity of the industrial chain is the strongest guarantee for future delivery capacity.

The perfect technology research and development system and scientific research strength are the cornerstones of Tongwei's long-term leadership and healthy development. As a leader in TOPCon PECVD Poly technology in the industry, the average conversion efficiency of the company's TNC cells has reached 26.26%, and the power of its module products has increased by more than 30W compared with traditional PERC bifacial modules. In terms of HJT, Tongwei has built the first GW-level HJT production line in mainland China, and has the industry's first copper interconnection (THL) pilot line, with a cell efficiency of up to 26.49%. In addition, the power of the company's 210 THC double-glass module has set a new power record for heterojunction modules six times in 2023, with a maximum of more than 755W. According to the latest official news of Tongwei shares, the record has been refreshed again recently and has reached 762.79W.

In order to further enhance the market competitiveness of THC products, Tongwei Co., Ltd. is also accelerating the development of copper interconnection technology, and has made important breakthroughs in the development of equipment, processes and materials, and is promoting GW-level copper interconnection test work in an orderly manner. In addition, in addition to the TOPCon and HJT routes, Tongwei has made positive progress in the research and development of cutting-edge technologies such as full-back contact cells and perovskite/silicon tandem cells, and is expected to occupy a leading position in the next technology iteration.

The decisive layout of technology research and development and expansion is the strategic forward-looking judgment of leading enterprises and the confidence of leading technology, and it is also the company's delivery reserve in the future to cope with the outbreak of the industry.

According to the data of Tongwei's 2023 annual report, the company's asset-liability ratio is 55.08% and the quick ratio is 1.41, both of which are at the upstream level of the industry and have a strong solvency. As of the end of the reporting period, nearly 30 billion yuan of cash on the books also provided sufficient ammunition for the company's business development. In addition, the company has also established a comprehensive financing channel and obtained sufficient capital credit, which can fully meet the needs of capital turnover.

Although the pace of reshuffle of the photovoltaic industry will accelerate in 2023, in the eyes of industry insiders, these are the inevitable "pains" of the photovoltaic industry in the process of rapid development.