Those who have experienced the student era, my fellow financial friends, all know that every morning when the class representative collects homework, the most enthusiastic ones are definitely those who have written the most seriously. Although it cannot be said that those who hand in their work late must have done a poor job, those who write in a messy and disorganized manner will definitely delay as much as they can. To some extent, announcements are like the homework of listed companies.

Even top students find it difficult to achieve perfection in every assignment. The photovoltaic industry, which used to make money hand over fist, is a case in point, with even the two giants delaying their submissions!

The two giants, both delaying together

After the market closed on August 29, the two leading companies in the photovoltaic sector—Tongwei Co., Ltd. and Longi Green Energy—did not announce their semi-annual financial reports as expected. Instead, the market received almost synchronized announcements of delays in the disclosure of their interim reports. Both companies chose to submit their reports on the last trading day, August 30, at the very last minute.

Specifically, Longi Green Energy achieved a revenue of 38.529 billion yuan in the first half of the year, a year-on-year decrease of 40.41%; the net profit attributable to the shareholders of the listed company was -5.243 billion yuan. In the same period last year, the company's net profit was 9.178 billion yuan.

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Tongwei Co., Ltd. achieved a business income of 43.797 billion yuan in the first half of the year, a year-on-year decrease of 40.87%; the net profit attributable to the shareholders of the listed company was -3.129 billion yuan. In the same period last year, its net profit was 13.27 billion yuan. Longi Green Energy and Tongwei Co., Ltd. both recorded their first losses since 2012 and since listing, respectively, in the first half of the year after deducting non-recurring gains and losses attributable to the parent company's net profit.

What is more serious is that the floodgate of losses in the second quarter is opening wider and wider: In the first quarter of this year, Longi Green Energy lost 2.35 billion yuan, and the loss expanded to 2.893 billion yuan in the second quarter. Tongwei Co., Ltd.'s loss in the second quarter was almost three times that of the first quarter: a loss of 787 million yuan in the first quarter, expanding to 2.343 billion yuan in the second quarter.

The "big brother and second brother" who used to make money together are now also brothers in difficulty in terms of losses, which is actually normal. In the industry's downcycle, the larger the scale, the greater the loss! So far this year, the stock prices of Longi Green Energy and Tongwei Co., Ltd. have fallen by 38.96% and 20.75%, respectively.

Although such results fully meet market expectations, facing the continuously falling stock prices, the "barrier lake" of the emotions of the majority of market investors always needs to find an outlet, and the comment sections of various investment forums undoubtedly act as a vent for investors. Taking Longi Green Energy as an example, the comment section of the East Finance website is full of killing sounds, and there are also voices of bottom fishing. Some conspiracy theorists even believe that the reason they were not allowed to announce their financial reports on time was to avoid "blocking" the festive atmosphere of the market last Friday!This statement is, of course, not credible, because the photovoltaic (PV) winter in the first half of the year has long been a market consensus, and even giants cannot escape it! Compared to many enterprises struggling on the brink of life and death, the mere fact that they have suffered huge losses already indicates that these enterprises are well-capitalized and can resist the cold by hibernating!

In Canada, there is a legend that every February, the coldest month, if a groundhog emerges from the icy snow, it means that winter will last another six weeks. Faced with the rare cold wave in the photovoltaic industry, everyone is mainly concerned about how cold the winter will be and how long it will last. Will the two semi-annual reports of Longi Green Energy and Tongwei Co., Ltd. be the "groundhogs" that herald the arrival of spring? Let's explore the clues.

How cold is the photovoltaic winter?

Regarding the reasons for the significant decline in performance, both companies spoke with one voice: the price reduction is really fierce, and the more you sell, the more you lose!

Specifically, Tongwei Co., Ltd. analyzed in its semi-annual report that the rapid development of the new energy industry in recent years has attracted a large amount of new social investment. The relevant capacity has gradually been released, and the rapid concentration of supply has led to intensified market competition. The prices of major photovoltaic products began to decline significantly year-on-year in the second half of 2023. Although the company's photovoltaic business scale has expanded, it is not enough to cover the significant decline in product prices, leading to a decline in revenue and temporary pressure on profits.

Longi Green Energy stated in its semi-annual report that the supply-side capacity of the global photovoltaic main industry chain has increased significantly, presenting a situation of increased volume, falling prices, and declining profits. The domestic situation of stage-by-stage supply and demand mismatch continues to worsen, and the main industry chain prices have further declined and broken through the cost of enterprises. Enterprises in the industry have already faced operational difficulties. Faced with the violent fluctuations during the deep adjustment period of the industry, although the company has actively adjusted the production and sales rhythm, the performance has still fluctuated significantly due to the continuous significant decline in industry chain prices and the provision for inventory impairment.

Since the fourth quarter of last year, the prices of the photovoltaic industry chain have continued to decline and have broken through the cost line of many photovoltaic enterprises. Longi Green Energy also began to lose money from the fourth quarter of last year. Tongwei Co., Ltd., three months later, in the first quarter of 2024, also could not escape the loss.

How fierce is the price reduction of photovoltaics? Data from the China Photovoltaic Industry Association shows that as of June 30, 2024, the domestic prices of polysilicon and silicon wafers have slid by more than 40%. The bidding prices of components have fluctuated synchronously, and the prices of battery components have slid by more than 15%, remaining in the range of 0.7 yuan/W to 0.8 yuan/W.

According to statistics from the Photovoltaic Think Tank, so far, the price of silicon material has fallen by nearly 50% compared to the beginning of the year, and the price of silicon wafers has also fallen synchronously, with a price reduction of about 80% compared to the peak period of 2023.Price declines are, in fact, a double blow for companies! On one hand, the devaluation of photovoltaic products erodes the gross profit margins of listed companies. On the other hand, the devaluation of inventory products triggers inventory write-downs, which is the main cause of huge losses in performance.

As expected, Longi Green Energy disclosed in its semi-annual report a proposed impairment provision of up to 5.784 billion yuan, which is nearly twice the loss amount in the first half of the year. In addition to the inventory write-down of 4.87 billion yuan, it also includes impairment provisions for long-term assets such as fixed assets of 859 million yuan, and 55.448.9 million yuan for contract assets. Tongwei Shares, on the other hand, has provided for inventory devaluation of 2.253 billion yuan.

Tongwei Shares' inventory remains at an all-time high, with the company's inventory scale reaching 11.224 billion yuan as of the end of the reporting period, remaining flat quarter-on-quarter and increasing by 3.5 billion yuan compared to the end of 2023.

The inventory scale not decreasing may be related to Tongwei Shares' increased efforts to integrate the entire industrial chain, with the company currently possessing three major product lines: silicon materials, cells, and modules.

Tongwei Shares stated that in the first half of the year, during the low point of the cell market, the company accelerated the transformation process from P-type technology to N-type TOPCon technology. Currently, all 38GW of P-type capacity has been fully transformed. The newly built 16GW TNC cell capacity in Meishan was put into production as scheduled during the reporting period. The 25GW TNC capacity in Shuangliu is expected to be fully operational by the end of the year. It is anticipated that by the end of the year, the company's TNC cell product scale will exceed 100W.

Amidst unclear signals of a cyclical reversal, Longi Green Energy and Tongwei Shares are "borrowing money to stock up on supplies." In the first half of this year, with a significant increase in both short-term and long-term borrowings, the debt-to-asset ratios of Longi Green Energy and Tongwei Shares are 59.16% and 67.19%, respectively, both being the highest values in the past five years.

Specifically, as of June 30, Tongwei Shares' short-term borrowings increased by about 2.3 billion yuan from the end of last year, reaching 2.497 billion yuan; long-term borrowings increased from 28.755 billion yuan to 46.48 billion yuan. In contrast, Longi Green Energy's short-term borrowings at the end of 2023 were zero, but by the end of the second quarter of this year, they had risen to 300 million yuan. Long-term borrowings showed a doubling growth, increasing from 5.274 billion yuan to 10.548 billion yuan, and non-current liabilities due within one year also grew by 100%.

Does borrowing so much money indicate that the companies are short of funds? Looking at the cash on the books of both companies, it is difficult to support this conclusion, especially for Longi Green Energy, which has an abundant amount of cash on hand, even with surplus funds to purchase financial products!

According to the semi-annual report, as of the end of June this year, Longi Green Energy's cash and cash equivalents were 52.14 billion yuan, slightly down from 52.79 billion yuan in the same period of 2023, but still the highest in the industry. Tongwei Shares' cash and cash equivalents were 18.23 billion yuan, a decrease of about 10% from 20.04 billion yuan in the same period last year.

Facing the winter, each company shows its own magic.Although cash is abundant, one cannot simply live off their wealth indefinitely. Faced with the rare winter of the photovoltaic industry, Tongwei and Longi have chosen different paths; the former is increasing production, while the latter is fiercely competing in the direction of BC cells.

Although Tongwei's financial foundation is not as substantial as Longi's, it does not hinder its ambitious expansion. On the evening of August 13th, Tongwei Shares announced its intention to acquire at least 51% of Runyang Shares, with a total transaction amount not exceeding 50 billion yuan. After the transaction is completed, Runyang Shares will become a subsidiary controlled by Tongwei Shares.

So, what is the background of Runyang Shares? It has submitted applications to the Shenzhen Stock Exchange twice in 2020 and 2022, with a valuation once exceeding 400 billion yuan. However, it has not completed its IPO after the expiration of the approval document, making it one of the few top battery slice enterprises that have not entered the capital market. After the merger and acquisition, Tongwei Shares' overall polysilicon production capacity in 2024 is expected to reach 960,000 tons, with a market share estimated to exceed 30%.

But the issue lies in the fact that the current market is not short of production capacity, with many silicon material companies even proactively reducing production to survive. Under these circumstances, how much use Tongwei Shares' large-scale acquisition of production capacity will have in the short term is not easy to conclude.

According to data from the Silicon Industry Association, the domestic polysilicon output in July 2024 was 138,000 tons, a month-on-month decrease of 14.53%; as of this week, there are 19 domestic polysilicon producing companies, with 14 companies in maintenance status, and nearly half of the companies not operating normally. Additionally, according to research data from third-party institutions, the industry-wide operation rate of polysilicon in August this year is only 64%.

In fact, Tongwei's large-scale acquisition of Runyang may be due to its focus on its overseas production capacity, which Tongwei itself lacks. Runyang has production capacity layouts in Thailand, Vietnam, and the United States. According to Tianfeng Securities, Runyang has about 15GW of battery slice and a small amount of component production capacity in Thailand, some silicon slice production capacity in Vietnam, and 1.5GW of component production capacity and some under-construction capacity in the United States.

In particular, Runyang has planned 2GW of component production capacity in the United States. Against the backdrop of the United States' comprehensive containment of Chinese photovoltaic companies, overseas production capacity channels now have a certain scarcity. According to financial magazines, "This 2GW of component production capacity is very precious, and it is now more difficult to invest in new production capacity in the United States."

According to previous articles in Financial Breakfast, the price of photovoltaic products in the United States is much higher than in China. Therefore, entering the US market is an important goal for many companies, and Tongwei想必 wants to enter the US market indirectly through mergers and acquisitions. According to financial magazines, Runyang has become a brand that has successfully entered the top five of US photovoltaic components. The company's 2024 full-year overseas component shipment target is expected to be around 6.5GW.

The path to going overseas is destined to be bumpy, not smooth, and the overseas experience of Longi Green Energy may provide some inspiration for Tongwei Shares.Although Longi Green Energy has always been a pioneer and strong player in the overseas market, it has faced frequent setbacks in the past two years. The most significant impacts have been on the U.S. market and Southeast Asian production capacity. The hardships and twists involved are far too complex to be described in a few words. Whether it's the U.S.'s changing subsidy policies, temporary detention of photovoltaic modules, or the suspension of tariff exemptions in Southeast Asia.

During a previous investor communication, Longi Green Energy's President, Li Zhenguo, also stated that the company has suffered losses of tens of billions in its U.S. business and Southeast Asian production capacity over the past two to three years, and the negative impact of this year's adjustment in Southeast Asian production capacity has yet to begin to manifest.

Longi Green Energy is indeed facing a complex international situation. During the reporting period, the U.S. canceled the two-year tariff exemption for photovoltaic modules imported from Southeast Asia and initiated anti-dumping and countervailing investigations on photovoltaic cells and modules originating from four Southeast Asian countries (Cambodia, Malaysia, Thailand, Vietnam); India's ALMM list took effect; Brazil and South Africa imposed additional tariffs on the import of photovoltaic products.

Longi Green Energy has chosen to firmly bet on BC technology. According to the author's statistics, the term "BC" appeared 31 times in the 247-page semi-annual report. According to the report, the company has achieved a mass production technology breakthrough for HPBC 2.0, with the battery mass production line fully operational and the technical costs fully meeting the standards. Based on the BC technology platform, a product layout covering both centralized and distributed scenarios has been formed.

The financial report further points out that the HPBC 2.0 products will enter the market on a large scale by the end of 2024. It is expected that by the end of 2025, the company's BC production capacity will reach 70GW (with HPBC 2.0 capacity of about 50GW), and by the end of 2026, the domestic battery base is planned to be fully migrated to BC products.

In conclusion, in the cold winter, cash is the fat of a company, determining how long the company can survive. And ample cash reserves also indicate that, at least for Longi and Tongwei, the current stage is still in the loss provision phase, and the loss of cash is still a distant myth. However, to successfully weather the winter, comprehensive efforts are still needed.