The most striking aspect of solar glass manufacturer Xinyi Solar's first-half update is the number of times mention is made of the May 31 decision by the Chinese government to rein in public PV subsidies.
Such is the nature of financial reporting, it has taken three months or so for the impact of the policy decision to filter through into corporate documents but the impact was undoubtedly dramatic, not least through Xinyi's admission that in June the company saw an 18.4% drop in solar glass sales, based on average volumes from the previous five months.
Not surprisingly though, the company is taking an upbeat tone despite echoing widespread predictions that the downturn in the world's biggest solar market will mean fierce competition and consolidation among manufacturers.
Xinyi's claims that falling solar prices – which it says saw the ASP of the anti reflective coating solar glass it produces tumble 20% in the first half, with worse to come in the months ahead – will open up developing market opportunities overseas is to some extent borne out by notification it has already diversified its markets. The figures show the 85.4% of Xinyi's solar glass sold in China in the first half of last year has already fallen to a 71.9% slice one year on, representing – respectively – revenues of HK$2.09 billion (US$266 million) and HK$2.23 billion, in what was then still a bullish market.
Malaysian fabs will still be built
That perhaps explains the company's stated determination to proceed with plans for three new production lines in Malaysia, each with a daily melting capacity of 1,000 tonnes. The first of those fabs is set to be up and running this year although the second and third now come with the caveat they will be operational “in accordance with market conditions”.
However more eagle-eyed shareholders, undistracted by an interim dividend of HK$0.08/share, may note the promising overseas markets already delivering volumes for Xinyi – Malaysia, South Korea, “North America“, India and Thailand – include two nations currently or soon to be assailed by import tariffs.
With the company having brought forward the scheduled closure-for-repairs date of its 500-tonne-per-day production line in Anhui from early next year – while at the same time announcing “the group will continue to add new solar glass production capacity … despite the industrial downturn” –the suspicion is that it has little choice but to forge ahead, given its expansion plans have forced up borrowing costs from HK$82.7 million to HK$115.4 million compared with a year earlier.
It's all about the glass
What is clear from the latest update to the Hong Kong Stock Exchange – signed off by Xinyi chairman Lee Yin Lee at the end of July and posted today – is that the company's triple-pronged approach is being curtailed, to return to the core business of making solar glass.
The EPC arm of Xinyi is in the process of being spun off and listed separately, although its figures will continue to be consolidated into the company accounts. One look at that side of the business shows why, as a lack of poverty alleviation projects in its home market left the Xinyi Energy Holdings Ltd unit with only limited EPC work in Canada to generate revenue. Year-on-year, first half EPC revenue vanished from HK$2.13 billion to just HK$125 million, dragging down overall first half revenue to just a 3.3% annual rise despite glass sales and solar electricity generation figures posting impressive 27% and 28.8% rises, respectively.
The development side of the business continues to reap the benefits of what will rapidly come to be treated as a golden age of Chinese PV installation but the cold reality of the post-May 2018 market means Xinyi's 400 MW annual installation target is being quietly buried.
The update has a bullish tone and the test for Xinyi will be whether it can leverage its Malaysian expansion to help drive overseas shipments. The figures offer cause for optimism but analysts will surely note it will require more than the “proactive and flexible marketing” suggested by the manufacturer as a way forward, to keep those production lines at full capacity.