Update on the solar glass segment
? We hosted an investors call with Xinyi Solar for an update on solar glass industry trends
and the Company’s operations.
? The Company issued a profit warning last week that 1H22 net profit is expected to drop
33% yoy to 43% yoy. Its industry peers may face even higher pressure on profitability.
? Xinyi Solar expects end demand to remain strong, and it mentioned that the tendering
activities of some major project owners kicked off in Jun despite high module costs.
? However, higher costs remain a swing factor for the profitability of the Company and
the industry.
? Management remains positive on the outlook, and its expansion, including silicon and
solar power generation, remains on track.
Key takeaways from our discussion with Xinyi Solar
We hosted an online investors call with Xinyi Solar to get an update on solar glass industry
trends and the Company’s operations. Solar glass demand growth is faster than the new
industry capacity increase, which resulted in three price hikes (to Rmb28.5/sqm for 3.2mm
products) on a YTD basis. The latest price hike was led by smaller players, which are facing
higher pressure on profitability. Despite the ASP hikes, the industry and Xinyi Solar are
expected to report a yoy decline in net profit, given higher costs (mostly energy and soda
ash). The higher energy costs are due to the escalation of the conflict between Russia and
Ukraine. Xinyi Solar issued a profit warning last week that 1H22 net profit is expected to
drop 33% yoy to 43% yoy. Xinyi Solar highlighted the main reasons: a) a 10–20% yoy
decline in ASP in 1H22, and b) a significant increase in the cost of raw materials and energy
(soda ash and natural gas). During the discussion, management mentioned that the
Company’s gross profit margin improved in 2Q22 vs. 1Q22 due to an ASP hike.
Management mentioned that the Company expects to report better profitability than its
peers, given higher exposure to premium products and continued improvement in its
production process. The smaller industry players are expected to face even higher
pressure on the profitability, as some of them procure raw materials on the spot market.
Construction of the new capacity coming on stream in 2022 and 2023 started in 2020.
However, the current market environment is expected to have an impact on the capacity
expansion of other industry players after 2023, when we may see slower industry capacity
growth. Xinyi Solar’s capacity is expected to increase to 21800t/d by the end of 2022, up
34% yoy, and its capacity will increase 50% yoy in 2023. It is expected to expand its market
share further from 35% in 2021.
Downstream PV installation remains strong
Xinyi Solar shared the view that the US tariff policy on solar panel components from
Cambodia, Malaysia, Thailand and Vietnam is expected to have positive impact on the
overall supply chain. According to Xinyi Solar, geographical diversification is one of the key
step for modules and component suppliers, given the current global macro environment.
The Company will continue to look for capacity expansion opportunities. Xinyi Solar
mentioned that end demand (PV installation) is expected to remain strong (a 30% CAGR
is achievable) in the coming years. For near-term demand, the Company also mentioned
that tender activity by some major project owners kicked off in Jun despite module costs
remaining at a high level. It is possible that in 2022, 100GW (released by the National
Energy Association) of PV installation, up 95.9% yoy, will be met in the China market if
module costs come down. Management highlighted that cost movement remains a swing
factor for the Company’s profitability in 2H22. According to management, energy costs are
unlikely to move down in 2H22, given the current macro environment.
1.6mm solar glass production development
Regarding the discussion on 1.6mm solar glass products development, Xinyi Solar
completed R&D and was capable of producing 1.6mm solar glass products several years
ago. But Xinyi Solar believes that the growth potential of 2.0mm is higher that of 1.6mm,
as the strength of 1.6mm is not enough for module protection. Unless there is a major
change in design by the module maker, 1.6mm solar glass products are unlikely to be
mainstream. Since Xinyi Solar has know-how in producing 1.6mm solar glass products, we
believe the Company will remain a beneficiary.
Management continues to have a positive outlook, and the Company’s expansion,
including silicon and solar power generation, remains on track. There is no change in its
CAPEX plan for 2022. Given concerns about the supply/demand situation, we believe solar
glass names such as Xinyi Solar are off some investors’ radar. However, we maintain the
view that as a leading competitive player, Xinyi Solar remains one of the key beneficiaries
of growing global PV installation. The correction offers a revisit opportunity.