Based on the industry-wide expectation of losses, the market is focusing on how some leading companies are still profitable.

Will there be any leading companies falling in this downcycle?

In the first half of 2024, the newly installed photovoltaic (PV) capacity in China reached 102.5GW, a year-on-year increase of 30.7%; the export scale of PV modules reached 130GW, a year-on-year increase of 25.2%.

However, influenced by supply and demand conditions, the price reduction trend in the photovoltaic industry since mid-2023 has not stopped.

According to statistics from professional organizations such as the Photovoltaic Association, from January to June 2024, the production of China's polysilicon, wafers, cells, and modules increased by approximately 60.6%, 58.9%, 37.8%, and 32.2% year-on-year, respectively, but the prices fell by 40%, 48%, 36%, and 15%, respectively.

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Prices at all stages have reached historical lows, breaking through the cost line of enterprises, and the industry has fallen into a general loss.

Based on the industry-wide loss expectation, after the release of the semi-annual report, the market mainly focuses on three aspects of the performance of photovoltaic leaders: We selected eight A-share companies with revenue over ten billion yuan in the first half of 2024 in the main photovoltaic industry chain for comparative analysis, trying to answer the above questions.

Where does the gross profit come from?

Going abroad and business diversification.

In the first half of 2024, among the leading companies in the comparison range, only Array Technologies, Jinko Energy, and Trina Solar achieved net profits of approximately 1.216 billion yuan, 1.2 billion yuan, and 566 million yuan, respectively, and the rest of the companies were in loss.

The once most profitable wafer and module leader, Longi Green Energy, had a net loss of about 5.257 billion yuan, and the silicon material and cell leader, Tongwei Shares, had a net loss of about 3.64 billion yuan.

Looking at the gross margin, except for Array Technologies, the rest of the companies have declined compared to the same period last year, in line with the industry trend.

After breaking down the gross profit structure, it can be seen that the main sources of earnings for photovoltaic leaders in the first half of the year are two points: business diversification and going abroad, with the latter being more critical.

In the first half of the year, only Array Technologies and Trina Solar's gross margins remained above 10%.

In addition to the main business of photovoltaics, other fields also made a positive contribution to the performance of the two companies.

Array Technologies' energy storage business has exploded this year, with a gross margin of 23%, achieving a gross profit of 952 million yuan.

As for photovoltaic modules, Array Technologies emphasized in the report that the company balances between price and shipment volume, actively reducing shipment volume, and prioritizing profit.

Its photovoltaic module business has a gross margin of 16%, achieving a gross profit of 2.551 billion yuan.

Trina Solar's module business has a gross margin of 11.13%.

In addition to the 3.346 billion yuan gross profit brought by photovoltaic modules, the tracking bracket and distributed system, power station development business, and power generation and operation business have contributed gross profits of 1.528 billion yuan, 471 million yuan, and 415 million yuan, with gross margins of approximately 18.36%, 18.65%, and 55.17%, respectively.

However, Trina Solar's energy storage business, which has been a focus in recent years, did not achieve profitability in the first half of the year like Array Technologies, but had a loss of about 60 million yuan.

The reason why the two companies have a significant difference in profits in the energy storage business is that Array Technologies' shipments in the first half of the year were mainly overseas, while Trina Solar's were mainly in the domestic market.

Not only energy storage, but also photovoltaic business is profitable overseas, and the domestic market is thin profit or even loss.

Product exportation has become the key for photovoltaic companies to escape the internal competition and obtain profits.

From the table above, it can be seen that most of the gross profits of the leading companies in the first half of the year came from abroad.

Jinko Energy and JA Solar's revenue structure is relatively concentrated in photovoltaic modules, and the gross profit structure of the two companies more clearly reflects this feature.

In terms of photovoltaic modules, Jinko made the most profit in the first half of the year.

One important reason is that Jinko has strong global sales capabilities.

In the first half of the year, Jinko's overseas market shipment accounted for about 65%, and revenue accounted for about 71%.

According to the management of Jinko, the company performed well in the Middle East, Southeast Asia, and other emerging markets, and is expected to have a shipment ratio of 5%-10% in the U.S. market for the whole year.

According to Jinko Energy's annual shipment expectation of 100GW-110GW, its annual shipment in the U.S. market is about 5GW-11GW.

In the overseas market, the U.S. market has the most attractive prices.

The management of Array Technologies also mentioned that the company's photovoltaic modules performed outstandingly in the profitable North American market in the first half of the year, with a shipment ratio of more than 25%.

In addition, because Jinko has led the mainstream TOPCon route in this round of N-type technology iteration, while leading in shipment, according to the management, Jinko is about half a year ahead of its peers in the TOPCon route, driving costs to continue to decline.

Profit reality: inventory impairment and non-deductible net profit.

From gross profit to net profit, in addition to various expenses needed for normal operations, the continuous price reduction of photovoltaic main industry chain products in the first half of the year has made the provision for inventory impairment one of the important factors affecting the operating performance of photovoltaic companies in the first half of the year.

Especially the company with the most losses, Longi Green Energy, from the profit statement, the reason why Longi had a net loss of about 5.257 billion yuan in the first half of the year was mainly due to the provision of 4.87 billion yuan of inventory impairment.

Since inventory impairment can be reversed, it may inflate future profits.

Some listed companies have beautified the financial statements of future years by providing a large amount of inventory impairment in the early stage and reversing it later, so Longi's high provision for impairment has raised some doubts.

Longi stated to "Finance" that the company provides inventory monthly, adopts strict impairment provision rules, so the provision amount is high, but the provision rules all comply with accounting standards.

The provision for inventory impairment is to fairly reflect the current true value of inventory.

Precise truth is an ideal state, and actual operations often require roughly fair.

Market conditions will fluctuate, each company's business scope is different, and the degree of conservatism in financial report disclosure is also different.

In addition to providing 4.87 billion yuan of inventory impairment in the first half of 2024, Longi also reversed 4.375 billion yuan of inventory impairment.

The so-called reversal is the write-off of inventory depreciation provision, simply put, as the depreciated inventory is sold, the corresponding impairment provision is written off, and the gross profit during the inventory sales period will increase compared to before the impairment.

If the reversal of 4.375 billion yuan is excluded, then the company's gross profit in the first half of the year is -1.403 billion yuan (2.972-4.375=-1.403).

In other words, due to Longi's relatively strict provision rules, on the one hand, it leads to a huge loss of more than 5 billion yuan in the first half of the year, on the other hand, the gross profit in the current financial statements is better than the gross profit calculated according to the original book cost before the provision.

The comparison of other companies is as follows: Longi's exported photovoltaic products are mainly wafers and modules, as well as a small amount of cells.

Among the leading companies, Longi is the only one that firmly bets on the BC battery route.

The shipment volume of modules in the first half of the year is about 31.34GW, of which BC modules have about 10GW.

However, since Longi did not disclose the gross profit of different products separately, coupled with the impact of inventory impairment and other factors, it is difficult for the outside world to speculate on the profitability and cost level of its BC products.

Looking at the proportion of the balance of inventory impairment provision to the book value of inventory, Longi's proportion is relatively high, but it does not significantly deviate from the industry peers.

If there is a reversal in the future period, it can also be seen through the financial report disclosure, and attention should be paid to the rationality of the reversal at that time.

In contrast, the level of inventory impairment provision of Jinko Energy and Trina Solar is relatively low.

It can be known from the comparison and calculation of financial report data that Trina Solar reversed about 600 million yuan of inventory depreciation provision in the first half of the year, and Trina Solar's net profit in the first half of the year is about 566 million yuan, which is equivalent to the reversal amount.

Trina Solar did not disclose the situation and reasons for the reversal of inventory impairment in the financial report.

Trina Solar responded to "Finance" that the reversal is mainly for work in progress (referring to products that have been put into production but have not been completed, also known as unfinished products), not inventory goods.

The reason is that with the decline in supply chain prices, as well as various cost reduction measures, the company's product costs have decreased to a level slightly lower than the net realizable value, so some depreciation provisions have been reversed.

The net profit attributable to the parent company after deducting non-recurring gains and losses best reflects the value created by the company's own normal operations for shareholders.

Looking at the data in the first half of the year, Array Technologies' profit is the most solid.

Jinko Energy's net profit attributable to the parent company decreased from 1.2 billion yuan to 217 million yuan after deducting government subsidies, the impact of the fire at Shanxi's large base, and the income from the disposal of subsidiaries.

Energy storage is the highlight of Array Technologies' performance in the first half of the year.

According to the management, the company's large-scale energy storage business in the second half of the year, especially in the fourth quarter, will see significant growth.

Since most of the orders delivered this year were signed a year ago, with the decline in lithium carbonate prices, there is a larger profit margin.

However, this advantage will gradually weaken next year.

According to the new orders, the gross profit will decrease, but it will still maintain a relatively healthy level.

Financing alleviates the cash flow thirst.

For current photovoltaic companies, cash flow is more important than profit.

From the data, in the first half of the year, most leading photovoltaic companies are experiencing a similar situation: cash flow loss from operating activities, and the planned expansion plans still need to continue to invest, so they choose to borrow from banks.

Except for Array Technologies, the net cash flow from operating activities of the rest of the companies in the first half of the year has decreased significantly compared to last year.

Among them, Longi Green Energy's net cash outflow from operating activities was 6.413 billion yuan, a decrease of 11.61 billion yuan compared to the same period last year.

Although Tongwei Shares achieved a net cash inflow of 961 million yuan from operating activities, it decreased by more than 20 billion yuan compared to the same period last year.

Under the influence of multiple factors such as government and capital support, technological iteration, and integration trend, in 2023, leading photovoltaic companies announced many expansion plans.

Although the scale of new planned expansion this year has been greatly reduced, last year's plans still require a large amount of investment.

The net cash outflow from investment activities of Jinko, Tongwei, and Oriental Sunrise decreased compared to the same period last year, and Zhonghuan was flat, while other companies all increased.Operating hemorrhage, investment burning money, except for Jinko Energy and Canadian Solar, other photovoltaic (PV) companies have increased their fundraising efforts in the first half of 2024.

Among them, Longi Green Energy, JinkoSolar Technology, and Tongwei Co., Ltd. have seen their net cash flow from financing activities increase by approximately 10.4 billion yuan, 20.2 billion yuan, and 30 billion yuan respectively compared to the same period last year.

Given that the photovoltaic industry has entered the bottom of the cycle, with stock prices plummeting, it is difficult for companies to raise funds through issuing stocks, private placements, and other methods.

Since the second half of last year, many photovoltaic companies have canceled their IPO and private placement plans.

In July 2024, Trina Solar and Jinko Energy successively canceled private placement plans worth tens of billions of yuan.

However, banks and other financial institutions are still willing to provide blood transfusions to leading companies.

In the first half of 2024, the net cash flow from financing activities of Tongwei Co., Ltd. and JinkoSolar Technology were both around 20 billion yuan.

The management of JinkoSolar Technology stated during communication with investors that they had made financial reserves to cope with future uncertainties in the first half of the year, with an additional loan of 25 billion yuan, more than 60% of which is long-term loans with a term of 3-5 years.

Banks and financial institutions' risk assessments are quite favorable to the company, and communication is smooth.

At the end of the first half of the year, except for Zhonghuan, Jinko, and Canadian Solar, the proportion of interest-bearing debt to total assets of other companies increased by more than 5 percentage points compared to the beginning of the year, with JinkoSolar Technology and Trina Solar increasing by more than 10 percentage points.

Looking at the overall debt-to-asset ratio, four leading photovoltaic companies have a debt-to-asset ratio exceeding 70%.

Trina Solar's debt-to-asset ratio reached 74.34%, surpassing Jinko Energy.

Tongwei Co., Ltd.'s debt-to-asset ratio reached 67.19%, an increase of 12.11 percentage points compared to the beginning of the year.

The management of Tongwei Co., Ltd. stated that the increase in the company's debt-to-asset ratio is mainly due to the company's increased interest-bearing debt for new project investments and daily liquidity, while also increasing cash reserves, and the expansion of business scale has increased corresponding payables.

Despite significant losses in the first half of the year, Longi Green Energy still maintains a relatively robust financial structure, and its financial foundation remains solid.

Its debt-to-asset ratio is about 59.16%, and the company's cash and cash equivalents and trading financial assets total about 54.5 billion yuan, accounting for 34.29% of total assets, both in quantity and proportion, significantly exceeding other photovoltaic companies, indicating a more conservative financial strategy during the industry downturn.

In 2022, 2023, and the first half of 2024, Longi earned interest differences of about 240 million yuan, 1 billion yuan, and 235 million yuan respectively.

In July 2024, Longi responded to the Shanghai Stock Exchange's information disclosure supervision letter, explaining the issue of having a large scale of cash and continuing to raise funds.

In the response, the company broke down the use of 57 billion yuan in cash and cash equivalents at the end of 2023, including 2.579 billion yuan of restricted funds, 4.776 billion yuan specifically for fundraising projects, a balance of 20.354 billion yuan in notes payable at the end of 2023, 9.5 billion yuan needed to be paid for self-funded construction projects in 2024, an estimated 4 billion yuan for equipment upgrades, 1.545 billion yuan reserved for repaying interest-bearing debt due within one year, and 9 billion yuan for safety reserve funds.

According to this, after deducting the above items, there is still about 5.2 billion yuan left.

Longi stated in the response that the scale of cash and cash equivalents the company holds matches the company's operating scale and daily operating capital needs.

In the industry downturn cycle, whether the financial foundation is solid is the key to getting through.

Overall, in this round of reshuffling in the photovoltaic industry, leading companies should not face major crises with their financial reserves and financing capabilities.

At the same time, marked by Tongwei's proposed acquisition of Runyang, industry restructuring has begun, and the photovoltaic industry is struggling to find the bottom.