The PV industry in 2023 is a year full of contradictions.
On the one hand, the global installed capacity of photovoltaics has grown rapidly, with about 390GW of new installed capacity, a year-on-year increase of 70%, and the mainland market has hit a record high. But on the other hand, the problem of overcapacity is becoming increasingly prominent, the price of products in the industrial chain has fallen sharply, and the market competition is particularly fierce.
From upstream to downstream, the prices of silicon materials, silicon wafers, cells, modules and other products are all declining.
As of 2023, 601012 the company has achieved operating income of 129.498 billion yuan, a slight increase of 0.39% year-on-year, and a net profit attributable to the parent company of 10.751 billion yuan, a year-on-year decrease of 27.41%.
This year, photovoltaic equipment companies have been unable to bear it, Jinko Solar, JA Solar, Tongwei Co., Ltd., TCL Zhonghuan, and LONGi Green Energy have reported net profits in the first quarter, and losses have become commonplace.
The reason for the decline in performance or loss is nothing more than the sharp decline in product prices, the pressure on revenue growth, and the need to provide for asset impairment losses, and the larger the enterprise, the more losses need to be accrued in the face of market cycles.
For LONGi, after the asset impairment loss of 7 billion yuan in 2023, the company made another provision of 2.8 billion yuan in the first quarter of 2024, of which the inventory impairment loss reached 2.649 billion yuan, resulting in the impact of net profit.
So in this context, we have to consider where the photovoltaic industry will go from here? And can LONGi Green Energy, which has the largest asset impairment loss, travel lightly?
First of all, the price of the industrial chain has bottomed out and stabilized, and the supply and demand of the industry are expected to improve.
At the beginning of the article, we said that the prices of photovoltaic products have fallen significantly since 2023, and this year they have actually returned to the level of 4 years ago, even lower than before.
In this regard, the relevant departments of the mainland said at the beginning of this year that they would pay more attention to improving the efficiency of capital use, restricting the financing supply of overcapacity industries, and injecting a shot of strength into the oversupplied photovoltaic industry.
In addition, the installed photovoltaic capacity is in line with the global goal of low-carbon development of new energy, and the general trend of demand growth has not changed.
According to the agency's forecast data, the global photovoltaic installed capacity is expected to maintain a growth rate of 15%-25% in 2024, reaching 425.5-462.5GW, and China's new photovoltaic installed capacity will reach 260-280GW, maintaining a growth rate of 20%-30%.
Therefore, from the perspective of the industry, with the improvement of product supply and demand, product prices are expected to rise, and the operating conditions of industry companies are also expected to gradually improve, which is actually a cyclical problem.
However, it needs to be clear that the stage of savage growth of the photovoltaic industry is gone, and the industry has entered a mature period of steady growth, which tests the company's ability to open up a secondary growth curve.
LONGi Green Energy, which is just at the bottom of the cycle, has attracted our attention, as of the close of trading on April 30, 2024, the company's market capitalization has shrunk by 74.57% from its original peak, and the static price-earnings ratio has reached 12.83 times.
What's more, the company travels lightly and creates a new technical route, which is expected to lead the development of the industry again.
Next, let's take a detailed look at the 4 highlights of LONGi Green Energy.
1. The bottom of the cycle highlights the financial advantage
In 2023, the company will pay dividends of 1.288 billion yuan, and has paid a total of 9.272 billion yuan since its listing in 2012, highlighting its high earning ability.
In 2023, when LONGi simultaneously carried out capital expenditure of 9.2 billion yuan, the company's cash and cash equivalents at the end of the period still reached 54.422 billion yuan, ranking first in the industry, significantly exceeding Daqo Energy, which is the second in the industry, and even the sum of many companies such as Risen Energy, JA Solar, Zhonghuan, Tongwei, and Sungrow.
On the one hand, the reason for this is related to the company's past operating accumulation, since its listing in 2012, LONGi has accumulated net cash flow from operating activities of 67.7 billion yuan.
On the other hand, it is related to the company's steady expansion strategy, LONGi's capital expenditure of more than 9 billion yuan in 2023 is actually not much, and the actual capital expenditure of Tongwei, which has expanded the most production capacity, has reached 36.4 billion yuan, and the sales scale of some enterprises is not as good as that of LONGi, but the capital expenditure is higher.
As of 2023, LONGi's fixed asset turnover ratio is almost the highest in the industry, and other companies are basically below 3.
The lower the index, the lower the utilization rate of fixed assets compared with the scale of sales revenue.
At a time when many PV companies are rapidly expanding production and piling up N-type cell TOPCon production capacity, they do not know that the hidden concern of overcapacity is also increasing, just like P-type cell PERC is being phased out.
Entering 2024, with the large-scale production capacity of TOPCon, it is expected that the iterative dividend of TOPCon will also show a contraction trend compared with PERC, and the overall capacity planning of the industry has been significantly reduced.
Therefore, while paying attention to the expansion of TOPCon production capacity of leading companies such as Jinko, Tongwei, JA Solar, Trina, and Canadian Solar, it is also necessary to continue to track future sales and competition.
2. In 2023, the ROE will drop to 16.2%, but the management ability is outstanding
As of 2023, the company's asset-liability ratio will reach 56.87%, and the asset turnover ratio will be a certain plus, which will enable the company to maintain a high ROE.
In 2023, even in the face of an unfavorable background in the industry, LONGi's ROE will be 16.2%, surpassing Hengrui Pharmaceutical, which is also challenged in the pharmaceutical industry.
And if it weren't for the impairment problem, the company's net profit loss in the first quarter of 2024 would have been relatively stable for LONGi.
In addition, although it is driven by the debt ratio, the company's debt ratio is not said to be higher, the better, in contrast, LONGi's assets and liabilities are healthier, significantly smaller than Jinko, Trina, Canadian Solar, Sungrow, etc., coupled with a large amount of cash on the books, LONGi actually maintains a relatively stable financial position.
If we add the comparison of the fixed asset turnover rate of the previous industry companies, we can find that the higher management ability hidden behind LONGi's finance, especially for a huge enterprise, the management ability directly determines the company's operation.
There is also the problem of asset impairment, which not only reflects the impact of the industry's new and old production capacity changes and the downward trend of the industry, but also represents the prudent attitude of the management, because companies such as Tongwei, Aixu, JA Solar, Jinko, etc. have a lot of PERC cell production capacity, but due to the decline in the proportion of PERC cells and other industries, LONGi has made the most asset impairment losses.
As a result, LONGi's management capabilities have shaped its high competitiveness, especially in terms of cost and technology.
As of 2023, LONGi's gross profit margin is 18.26%, which is obviously at a high level in the cell module industry, higher than JA Solar, Aiko and Trina.
In the 2023 annual report, the company still said that cost leadership is a must-win battle this year.
3. The technical advantages are presented in the R&D investment of 7.721 billion yuan
As the No. 1 leader in silicon wafers and second only to JinkoSolar in terms of module scale, LONGi has always maintained a high R&D investment, with R&D investment of RMB 7.721 billion as of 2023, ranking first among the 65 companies in the A-share photovoltaic equipment industry.
In the past five years, the company has invested a total of 23.5 billion yuan in R&D, and it has been continuously increasing.
At the same time, the company's R&D personnel reached 5,157 people, which is also obviously at a high level in the same industry.
As of 2023, LONGi Green Energy's silicon wafers and modules have achieved sales of 53.79GW and 66.44GW respectively, and despite the decline in product prices, the sales growth of the two major products is still good, with a year-on-year increase of 26.5% and 44.17% respectively.
Wafer sales grew relatively steadily, with a compound annual growth rate of 20.7% from 2019 to 2023, and module sales grew even faster, with a compound annual growth rate of 73.16%.
In the field of silicon wafers, LONGi once led the industry to complete the substitution of monocrystalline silicon for polysilicon, and thus retained a high market position, with a market share of about 29% in 2023, slightly higher than Zhonghuan, showing a double-strong situation.
In addition, due to the asset-heavy nature of silicon wafers, monocrystalline technology has become the absolute mainstream, and the market pattern is expected to remain stable for a long time, and the concentration is still expected to increase under the Matthew effect.
In the field of battery modules, LONGi was once a pioneer in integration, until the scale of modules reached the forefront of the industry, which is actually a reflection of the company's technological advantages.
Compared with silicon wafers, the technical barriers in the field of cells are higher, so they have become the core link of the upgrading of the photovoltaic industry.
However, in the process of technology iteration, LONGi has not significantly lagged behind because it has maintained its investment in these technology layouts, and although the "controversy" faced by the company is that TOPCon is not actively expanding production capacity, objectively speaking, this is not because LONGi does not have it, but because the company has maintained the business philosophy of "not leading, not expanding", because of the problem of battery technology iteration, once the non-ultimate form of technology is expanded in large quantities, it will put the company in a disadvantageous situation.
Therefore, LONGi did not focus on short-term benefits, but deployed more long-term BC (HPBC) cell technology, and the TOPCon production capacity has now reached 30GW.
The modules are packaged in series and parallel to form modules, so the technical requirements for modules are not high, but because they are closer to downstream power generation, it tests the ability of enterprises to create value for customers.
As of 2023, LONGi has been recognized by many customers at home and abroad, with business in more than 150 countries and regions around the world, mono-Si wafer shipments have ranked first in the world for nine consecutive years, and mono-Si module shipments have ranked among the top in the world for many years.
In 2023, LONGi will actively enter customers in the global market with price competition as the main line; In 2024, the company will be "customer-centric, improve quality and efficiency".
4. BC technology leadership will gain competitive advantages for the company, and the future can be expected
BC back-contact crystalline silicon cell technology has become the most different thing for LONGi compared with most other photovoltaic companies, and it is also a technology that is expected to become a "future technology", so it is expected to bring LONGi a competitive advantage.
First of all, from the perspective of technical route, BC technology has comparative advantages, it has higher photoelectric conversion efficiency, better low-light power generation and lower attenuation, and is also more beautiful because there is no grid on the front;
At the same time, because of the need for multiple masking and lithography, the process flow is complex, the production cost is high, and the technical barriers are also higher.
Secondly, from the perspective of commercialization, based on the BC technology platform and combined with the self-developed and innovative composite passivation technology, LONGi has created the HPBC composite passivation back-contact crystalline silicon heterojunction cell, and created a new generation of Hi-MO series modules, becoming the first company in the industry to usher in mass production.
In 2022, LONGi launched the first-generation HPBC product, which has outstanding advantages and the attenuation is only 1/5 of the industry standard, so it has been highly recognized by the market.
On May 7, 2024, LONGi released the second-generation ultra-high-efficiency BC product and the new generation of ultra-high-value module Hi-MO 9, with a self-developed HPBC cell conversion efficiency of 27.30%, following the world record of 27.09% cell conversion efficiency set last year, and once again refreshing the world record for monocrystalline silicon photovoltaic cells, which is significantly higher than the current mainstream TOPCon cells, becoming the most mass-produced product in the world.
Prior to this, LONGi has broken the world record for cell efficiency 16 times, and has become the "double champion" of the two world records of efficiency in the two major cell tracks: HBC cell and crystalline silicon-perovskite tandem cell.
At the same time, the Hi-MO 9 battery module based on HPBC 2.0 technology is also a disruptive innovation in the global photovoltaic market, which has higher power generation capacity, lower BOS system installation cost and higher reliability, with a maximum power of 660W and a conversion efficiency of up to 24.43%, becoming a new industry benchmark and is expected to bring users an ultra-high-quality experience.
Therefore, LONGi has made an assertion that BC batteries will become mainstream in the next five years, and we therefore believe that they will bring strong growth momentum to LONGi.
At present, the company is actively promoting the mass production of HPBC second-generation cells and Hi-MO 9 modules, referring to LONGi's plans for this year's shipments and capacity construction in the next three years, including the layout of BC cell production capacity, which will reach 100GW within three years, accounting for 125% of the company's current cell production capacity, and monocrystalline module production capacity will reach 150GW, and cells and modules based on BC technology are expected to become LONGi's second growth curve.
In addition, it is expected that in 2024, LONGi's wafer shipments will increase by 7.64% year-on-year, among which "TereScientific" is also a newly developed monocrystalline silicon wafer developed by the company, breaking the dilemma of no performance breakthrough in the industry in the past ten years, using the new TRCz crystal pulling process, which greatly improves the resistivity uniformity of silicon wafers, and is expected to start mass production in the second quarter of 2024, and the 80% production capacity in the next three years has fully demonstrated the company's confidence in it.
Cell + module shipments are expected to increase by 33.29%-48.1% year-on-year, and the company's monocrystalline module sales are expected to continue to grow in addition to BC technology.
On the whole, in the future, while the shipment volume will provide a guarantee for performance growth, the increase in efficient production capacity in each link will also improve the company's profitability.
In summary, we can conclude that the most difficult time for LONGi seems to have passed quickly, and 2024 will be a turning point for the company, the company is committed to improving organizational efficiency, and will also launch a new generation of BC battery technology, and accelerate the layout of global business, and even clean energy such as hydrogen energy and green alcohol have begun to usher in commercial breakthroughs.
LONGi's development is still full of many certainties, and its core competitive advantages are still improving, so it has attracted 636 institutional holdings (as of the end of 2023), as well as institutions such as China Asset Management in the first quarter of this year.
Therefore, in the context of the continuous development of the photovoltaic and new energy industries and the globalization of the photovoltaic industry chain, the company is expected to go through the cycle, and the future development is worth looking forward to. Of course, the PV industry cycle, LONGi's production capacity and technology R&D implementation need to be continuously tracked.
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Source: Flying Whale Investment Research