At present, the price of the whole domestic photovoltaic industry chain is hovering at the bottom of the cycle, all kinds of materials are in a state of overcapacity and high homogeneity, and the imbalance between supply and demand in the industry is further aggravated. Under the continued pressure of the market, even the industry giants of the past could not escape this catastrophe.
Recently, TCL Zhonghuan New Energy Technology Co., Ltd. (SZ: 002129, hereinafter referred to as "TCL Zhonghuan") released a financial report showing that the company's performance indicators in the first half of 2024 have shown negative growth, mainly due to the impact of irrational price competition in the industry and the financial pressure caused by its full production.
Under the cold winter of the low-level shock industry, the game of survival of the fittest in the industry will be further intensified, and the endogenous growth momentum of the enterprise itself has become particularly important. "Veteran" Shen Haoping retreated to the second line, and where will the TCL Central giant ship under the helm of the "new handsome" Li Dongsheng sail?
First, the industry is weak and the performance is difficult to revive
In the first half of 2024, TCL Zhonghuan's revenue will be 16.213 billion yuan, down 53.54% from 34.898 billion yuan in the same period in 2023; Among them, the revenue of the core business of the new energy photovoltaic industry will decrease from 32.432 billion yuan in 2023 to 13.366 billion yuan, a year-on-year decrease of 58.79%, and the proportion will decrease from 92.93% to 82.44%.
TCL Zhonghuan's net profit attributable to the parent company also decreased by 167.53% to -3.064 billion yuan from 4.536 billion yuan in the first half of 2023, and the net profit after deducting non-profits also decreased from 3.808 billion yuan to -3.489 billion yuan, a year-on-year decrease of 191.60%. From achieving a profit of 3 billion yuan to a loss of 3 billion yuan, it can be seen that its performance has declined seriously.
This is undoubtedly a heavy blow to TCL Central, which was originally full of momentum. You must know that the company's revenue and profit compound growth rates from 2020 to 2022 will reach 87.52% and 150.23% respectively. Even in 2023, when the general environment is not good, its revenue will still reach 50 billion yuan.
TCL Zhonghuan explained in the semi-annual report that affected by the market environment, the company's new energy materials business segment entered a state of irrational price competition, although it still maintained the industry-leading cost per watt, but the cost reduction was not as fast as the market price decline, and the material products shipped 62GW in the first half of the year, which eventually led to an increase in the total loss.
According to the statistics of the China Photovoltaic Industry Association, in the first half of the year, the output of crystalline silicon, silicon wafers, cells and modules increased by about 60.6%, 58.9%, 37.8% and 32.2% year-on-year respectively, but the prices fell by 40%, 48%, 36% and 15% respectively.
In other words, TCL Zhonghuan is in a fierce industry "price war", and has to adopt a low-price strategy to find a living space in the photovoltaic industry with supply and demand imbalance, product assimilation, and price involution. Falling below the cost and bleeding operation seems to have become an inevitable dilemma for photovoltaic companies such as TCL Zhonghuan.
The most intuitive thing is that TCL Zhonghuan's photovoltaic silicon wafer products achieved a revenue of 10.432 billion yuan in the first half of the year, and the operating cost reached 11.397 billion yuan, so the gross profit margin fell by 34.13% to -9.25% year-on-year. In the first half of the year, photovoltaic module products achieved a small profit of 0.94%, but the gross profit margin also declined by 11.30%.
In addition, TCL Zhonghuan's new energy battery module business segment is relatively uncompetitive, and its overall performance lags behind that of leading companies in the same industry; Factors such as the rapid decline in the price of photovoltaic products in Europe and the United States, where the main markets of its shareholding company Maxeon products are located, have also further dragged down its overall performance.
Second, the expansion of production against the trend, funds are urgent
According to common sense, in the face of weak market demand and obvious mismatch between supply and demand, enterprises usually choose to shrink production and accumulate strength to pass through the cycle in the stock competition. However, TCL Zhonghuan has chosen to expand its production capacity, and the operating rate is much higher than the industry average.
Following TCL Zhonghuan's announcement in April 2023 that it would invest 10.6 billion yuan to build a 25GW solar cell Industry 4.0 smart factory project in the Guangzhou Development Zone, the company increased its shareholding in Maxeon from 22.39% to 50.1% at a price of no more than US$197.5 million (about 1.43 billion yuan).
Not long ago, TCL Zhonghuan signed an agreement with a subsidiary of Saudi Arabia's Public Investment Fund (PIF) to invest 2.08 billion US dollars (about 15.131 billion yuan) to build the largest crystal chip factory overseas. As of the end of June 2024, the balance of the company's construction in progress reached 13.192 billion yuan.
TCL Zhonghuan adheres to the strategy of full production, and previously refuted rumors of the shutdown of silicon wafer factories in Tianjin and Yixing, and said that its current operating rate is 95%, compared with 103% previously. According to the statistics of the silicon industry branch, the operating rate of integrated enterprises is between 50% and 60%, and the operating rate of other enterprises ranges from 50% to 100%.
With the strategy of expanding production against the trend, TCL Zhonghuan's photovoltaic monocrystalline production capacity increased to 190GW in the first half of the year, and the shipment of photovoltaic material products was about 62GW, a year-on-year increase of 18.3%, and the comprehensive market share of silicon wafers was 23.5%, ranking first in the industry, further consolidating its position in the industry.
However, as far as the current market situation is concerned, higher production means more losses, and the accompanying financial pressure is more severe. The net cash flow generated by TCL Zhonghuan's operating activities in the first half of the year was only 128 million yuan, a significant decrease of 95.52% year-on-year, which can be called a cliff-like decline.
At the same time, TCL Zhonghuan's monetary cash as of the end of June was 7.019 billion yuan, down nearly one-third from 10.020 billion yuan at the end of 2023. At the end of the same period, the company still had 150 million yuan of short-term borrowings, 39.675 billion yuan of long-term loans to be repaid, and another 6.218 billion yuan of accounts receivable, and the financial situation is not optimistic.
To add insult to injury, Maxeon, which TCL Zhonghuan invested in to acquire, fell sharply in the first half of the year due to its slow business transformation. In 2022 and 2023, Maxeon has recorded losses of $267 million and $276 million, and its net assets at the end of 2023 are only $4.6 million, a decrease of 89.15%.
3. Change the CEO and adjust the strategy
In the second half of the year, with the departure of TCL Zhonghuan's core executives, the company may kick off a new round of change. TCL Zhonghuan announced on August 2 that the company's board of directors received Shen Haoping's resignation application, and Shen Haoping applied for resignation as the company's CEO due to work needs and personal energy considerations.
After stepping down from the CEO position, Shen Haoping will continue to serve as the director, vice chairman and special committee of TCL Zhonghuan, while Chairman Li Dongsheng will temporarily assume the responsibilities of CEO and complete the relevant procedures for the appointment of the new CEO in accordance with relevant regulations.
According to public information, Shen Haoping has been committed to the research and development and manufacturing of semiconductor materials since he entered TCL Zhonghuan in June 2007. It is reported that Shen Haoping has served as the CEO of TCL Zhonghuan for 17 years, and has also been selected into the Forbes China Best CEO list, and the industry regards him as the "soul of TCL Zhonghuan".
At the critical juncture of the cycle, the decision of TCL Central to suddenly change the coach is very unusual, and there are many speculations in the industry. Previously, a source familiar with the photovoltaic industry revealed that Shen Haoping misjudged the market against the trend and full production, resulting in billions of silicon wafer inventories and huge price losses, which was very controversial within the company.
Judging from Li Dongsheng's many measures after taking office, the reason for Shen Haoping's resignation that has been circulated in the outside world may not be groundless. At the end of August, TCL Zhonghuan announced an increase in wafer prices, with NG10 prices at RMB 1.15/pc, NG12R at RMB 1.3/pc, and NG12 at RMB 1.5/pc.
TCL Zhonghuan revealed at the 2024 semi-annual results briefing that its current operating rate is around 80%, and it may be appropriately lowered according to the sales situation in the future. In addition, TCL Zhonghuan staff said in an interview with Sina Finance that the company's operating rate has decreased by 5% to 10% compared with before, but it is an operation under normal scheduling adjustment.
It is not difficult to see that TCL Zhonghuan is now making every effort to turn around and change the rudder, work hard to reduce inventory backlog, improve operating returns, and take the first step to escape from the quagmire of low-price disorderly competition. A number of securities institutions are optimistic about the market situation of the photovoltaic industry in the second half of the year, believing that its prices will stop falling and remain stable, and the production capacity will be cleared at an accelerated pace.
TCL Zhonghuan said in the report that it believes that the survival of the fittest in this round of photovoltaic manufacturing industry will help the long-term pattern optimization and profitability repair of the industry. The future development trend of TCL Central will be closely related to Li Dongsheng's strategy of playing chess in response to market fluctuations.