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Cailianshe News, August 24 (Reporter Liu Mengran)Silicon wafer leader TCL Zhonghuan (002129.SZ) disclosed its first loss-making half-year report in recent years yesterday evening. Although the net profit loss of more than 3 billion yuan was beyond expectations, as a typical "blue chip student" in the photovoltaic rising cycle, the risks of insisting on high operating rates and following integrated expansion when prices were low were verified.

Just this month, the "soul figure" of TCL Central, who has served as CEO for 17 years,Shen Haoping, who had been in charge of the company for a long time, resigned from the position. Shortly afterwards, TCL Zhonghuan, which had previously maintained a high operating rate for a long time, began to reduce its operating rate. Industry analysts believe that the load reduction of first-tier companies has built confidence in the industry. After experiencing a short-term selling pain period, the market supply and demand will continue to improve in the medium and long term, and prices are expected to gradually stop falling.

Losses in the first half of the year exceeded 3 billion yuan

The latest financial report showsIn the first half of the year, the company achieved operating income of 16.213 billion yuan, a year-on-year decrease of 53.54%; the net profit attributable to shareholders of the listed company was -3.064 billion yuan. In terms of quarters, the company lost 880 million yuan in Q1 and 2.184 billion yuan in Q2, and the losses intensified.The company lost 2.772 billion yuan in Q4 last year.

Among the reasons affecting performance, the company frankly mentioned that "the new energy battery component business segment is relatively lacking in competitiveness, and its overall performance lags behind leading companies in the industry. In the downward cycle of industry market prices, this further drags down operating performance." Two years ago, TCL Zhonghuan joined the wave of photovoltaic integration and laid out downstream battery and component businesses, but this also led to a situation where "it's difficult to turn a big ship around", and downstream production capacity instead dragged down performance.

Since the beginning of this year, an imbalance in supply and demand has occurred in the entire photovoltaic crystalline silicon industry chain, and prices have experienced an "irrational" decline, which is reflected in the silicon wafer segment, where "the more you sell, the more you lose."However, contrary to this, TCL Zhonghuan has maintained a high operating rate in the first half of the year. According to the Silicon Industry Branch’s disclosures for several weeks, the operating rates of two first-tier companies are above 50% and 80%. Industry insiders have confirmed that the company with the high operating rate is TCL Zhonghuan.

The high operating rate has resulted in a situation where the company achieved both strong production and sales in the first half of the year. The interim report disclosed that during the reporting period, the company's photovoltaic monocrystalline production capacity increased to 190GW, and the shipment of photovoltaic material products was about 62GW, an increase of 18.3% year-on-year. The comprehensive market share of silicon wafers was 23.5%, ranking first in the industry.

However, the cost of increasing production against the market trend has also emerged. Among the reasons affecting performance, the company mentioned that although it still maintained the industry-leading per-watt cost, the cost reduction was not as fast as the market price decline. In the first half of the year, the material product shipments were 62GW, and the total loss increased.

Inventory impairment is also an important reason for TCL Zhonghuan's losses. The announcement of asset impairment provision disclosed in the same period shows that the inventory impairment provision during the reporting period was 1.366 billion yuan. From January to June this year, the company's inventory impairment loss affected the total profit by -1.109 billion yuan, and the contract asset impairment loss affected the total profit by -4.7068 million yuan.

Another important factor that caused the loss in performance was the company's equity-holding company Maxeon. In 2019, Zhonghuan invested to become Maxeon's second largest shareholder, and further increased its holdings to become its largest shareholder last year. In May this year, Zhonghuan planned to increase its shareholding ratio from 22.39% to at least 50.1% with a total investment of up to US$197.5 million, thereby incorporating Maxeon into the company's consolidated financial statements and making it a subsidiary of TCL Zhonghuan Holdings.

On the one hand, Maxeon can serve as an important strategic fulcrum for TCL Zhonghuan to deeply participate in the international energy transformation. It owns IBC battery-module series patents, Topcon battery process series patents, and shingled module series patents. TCL Zhonghuan believes that this restructuring investment is in line with the company's strategic development direction and business development needs.

However, judging from the performance, the cost of acquiring Maxeon is high. In 2023 alone, Maxeon's performance and stock price fell sharply, and the company recognized a large amount of impairment on its related long-term equity investments and financial assets, which had a total negative impact of 1.69 billion yuan on the company's 2023 performance.

In the first half of this year, Maxeon's business transformation was slow, and its performance and stock price fell sharply during the reporting period, resulting in increased losses for the company.

The first major move after the executive change: lowering the operating rate

It is worth noting that TCL Zhonghuan has just experienced personnel changes. On August 2 this year, TCL Zhonghuan announced that Mr. Shen Haoping applied to resign from the position of CEO of the company due to work needs and personal energy considerations. After resigning, Shen Haoping will continue to serve as the company's director, vice chairman and various related positions of the board of directors' special committee. At the same time, the company will have Chairman Li Dongsheng temporarily take over the CEO duties and will complete the relevant procedures for the appointment of the new CEO in accordance with relevant regulations.

Public information shows that Shen Haoping has worked at TCL Central for more than 40 years and has served as CEO for 17 years. The industry calls him the "soul figure" of TCL Central. There are many speculations in the industry about the reason why Shen Haoping resigned as CEO, but the more common view is that Central's past business strategy is no longer suitable for the changes in the current industry cycle and internal adjustments are urgently needed.

After Shen Haoping resigned, TCL Zhonghuan’s first “big move” was to lower the silicon wafer operating rate.In the weekly review of monocrystalline silicon wafers released by the Silicon Industry Association this week, the operating rates of the two leading silicon wafer manufacturers were not disclosed. Some market analysts believe that this may be related to the sharp reduction in the operating rate of Zhonghuan. In the previous week (August 15), the operating rates of the two first-tier companies remained at 55% and 95% respectively.

In this regard, a reporter from Cailianshe sought confirmation from TCL Zhonghuan. Company officials did not disclose the actual operating rate, but said that the factory is still in normal production and has a relatively high operating rate in the industry.

A market insider told Cailianshe reporter that TCL Zhonghuan’s current operation rate is around 75%.Previously, the M10L model was put into production at a relatively high rate, and terminal demand was limited. It is normal to lower the operating rate, which is expected to be around 70%.

The source believes that it is also possible to lower the operating rate and wait for an opportunity to raise prices by reducing inventory. The Silicon Industry Branch also believes that the leading enterprises taking the lead in reducing production is still positive for stabilizing all links of the industrial chain in the medium and long term. At present, more than half of the inventory in the silicon wafer industry is concentrated in one or two companies. In the short term, the production plans of these companies will become the focus of market attention. In the medium and long term, as the production capacity of each link in the industrial chain is cleared faster, the market price is also expected to return to a reasonable level.