Chinese PV Companies Shift Focus to Power Stations for Profits
| 06 May 2013
Posted in News - SPVI news
New growth region found amid ailing market for PV module makers
Chinese PV module makers are turning investments away from module manufacturing into building solar power stations, amid bleak market prospects for PV-related products due to low market prices coupled with oversupply, and the upcoming EU sanctions on Chinese export of PV products, set to take place in June.
In the 2013 Q1 and 2012 annual reports, recent developments in two Chinese PV module manufacturers: Zhongli Science And Tech. Group Co., Ltd, Talesun (SHE: 002309) and Hareon Solar Technology Co., Ltd (SHA: 600401) are strong indicators of this trend. Although both companies posted substantial losses in Q1 of 2013, such losses are largely attributed to initial investments in overseas and domestic power station development projects, which are not expected to begin generating profits until Q3 or Q4 of this year. In particular, Zhongli is very optimistic that 2013 will end with profit gains for shareholders as turnover from power station ownership transfer deals starts kicking in later this year. Meanwhile, share prices for Hareon remain relatively high in the short term, as the company continues to receive a multitude of government subsidies and cash from its controlling shareholder Jiangsu Sunshine Co., Ltd (SHA:600220).
Zhongli Talesun
Zhongli Science and Tech, which has full ownership of Zhongli Talesun Solar, posted Q1 revenues of 1.596 billion RMB, a year-on-year growth of 15.27%, while year-on-year profits dropped 265.51% to -7.122 million RMB.
The company’s financial expenses in the first three months totaled 99 million RMB, a 140.39% increase from the same period last year.
The Q1 profit loss is largely attributed to significantly increased operating, administrative and financial expenses in the period as a result of the company’s strategic move away from solar module manufacture toward power station development projects.
As Wang Boxing, Zhongli Talesun’s chairman, explains, Zhongli Talesun is shifting its core business toward solar PV power station development and ownership transfer deals, with plans of installing power stations with total capacity of 400 MW in China and 200 MW in the overseas market in 2013. As the company is in the beginning stage of its strategic expansion into power station development, a substantial amount of initial investment is being made in construction, management and marketing, causing the current spike in expenses.
The losses are, however, expected to be only temporary. While Q2 is predicted to post yet another profit loss with ongoing power station development projects, Q3 and Q4 are expected to see welcoming profit gains as a large-scale power station ownership transfer and sales deals commence and account settlement begins on multiple large-scale projects. If all goes according to projection, 2013 will prove to be another profitable year for Zhongli.
“I am very optimistic about meeting this year’s profit target (of 366 million RMB),” says Wang Boxing.
Zhongli Science and Tech’s 2012 performance in the solar PV sector is particularly impressive in comparison with huge losses reported by a slew of major Chinese PV manufacturers such as Suntech Power Holdings Co., Ltd. (ADR) (NYSE:STP), Shanghai Chaori Solar Energy Science (SHE:002506), and LDK Solar Co., Ltd (ADR)(NYSE:LDK). In 2012, in the solar PV sector the company posted total sales revenues of 2.581 billion RMB, a year-on-year growth of 241.22%, and a net profit of 206 million RMB, a stunning 616.14% increase from 2011. In 2012, the company sold PV modules with a total capacity of 326 MW and successfully transferred ownership of its solar power stations in Jiayu Pass and Gonghe.
In 2013, Zhongli plans to maintain focus on its power station projects provinces including Xinjiang, Qinghai, and Gansu, which enjoy abundant light resources, while Japan, the US and Mid-America are becoming the company’s pivotal overseas markets. “(In Japan) we have collaborated with two companies to start building a hundred-MW power station this year, and in the next three years we still have plans for projects with a total capacity of 200 MW there,” Wang Boxing says.
Hareon
Hareon’s Q1 report for 2013 posted total revenues of 860.3 million RMB, a 19.09% drop from the same period last year, and a total net profit loss of 143 million RMB - a 0.1383 loss per share, more than double the amount of loss in Q1 2011, which stood at 68.75 million RMB.
The losses are attributed to continued low profit margins for PV products and also to the company’s recent spike in operating, administrative, and financial expenses, particularly in financial expenses, which doubled to 117 million RMB compared with last year.
The company’s 2012 annual report posts net profit at 2.0759 million RMB, half of 2011’s amount. It is worth noting that the profit gain has taken into account government subsidies totaling 500 million RMB in 2012, without which Hareon could have suffered a gross loss of 400 million RMB that year instead.
Similar to Zhongli, domestic and overseas power station development projects have become a significant contributor to Hareon’s future growth. The company’s recent moves signal a major pivot into power station development. The company already owns five overseas power stations with a total capacity of 103.76 MW in Italy and Bulgaria, all of which have received FIT approval from the local governments. Sales of the power stations in Bulgaria are expected to be finalized by Q2 or Q3 this year.
Hareon also announced the signing of an EPC contract agreement between GV7, a company controlled by Hareon’s Hefei subsidiary, and GD Solar, a subsidiary of Guodian Technology&Environment Grup Corp (HKG:1296) on April 11, contracting Hareon’s power station project in Romania to GD Solar. The contract is valued at 26,574,180 Euros, or 214,135,213 RMB at the current exchange rate.
In the meantime, there is good news for shareholders. Hareon still does well in the stock market. This is largely, if not exclusively, thanks to continued government subsidies, totaling 500 million RMB in 2012, and Jiangsu Sunshine’s promise to make up for the difference in expected profits (510 million RMB in 2012 and 529 million RMB in 2013) in cash to Hareon’s shareholders. In keeping with this promise, according to plans finalized at the company’s general meeting of shareholders, Jiangsu Sunshine is to pay out dividends of 7.4 RMB per 10 shares, with a total worth of 767 million RMB to shareholders by June. Given Hareon’s current performance, Sunshine’s compensation this year is expected to be even larger.
