Solar driving Singyes – but EPC is dependent on China market

The first half update published by Hong Kong listed EPC and solar goods manufacturer Singyes Solar this morning is notable for the complete absence of any reference to the decision by the Chinese government to curtail solar subsidies.

The 31 May announcement which has featured prominently in earnings statements across the Chinese PV industry is nowhere to be seen in a 126-page update, the first 18 pages of which, unusually, are tied up with corporate governance. That is probably down to the fact major shareholder and Singyes bank loan guarantor Liu Hongwei combines the role of chairman and chief executive, a practice often frowned upon by investors.

The importance of solar to a business that also makes curtain walls is obvious in the figures, with EPC activity driving the Singyes success story up to the end of June.

The company completed around 320 MW of new PV projects during the reporting period and enjoyed a healthy profit margin of 30.3%, helped in no small part by the continuing fall in the price of modules. Those new projects brought in EPC “public works” revenue of RMB865.7 million ($126m), up from just RMB30m this time last year, although “commercial and industrial” solar projects fell from RMB1.5 billion to RMB934m in the same period.

And although the sale of renewable energy goods, including solar pumps, fell from RMB298m to RMB224m year-on-year, the revenue from the sale of electricity related to PV development rose from RMB122m to RMB146m.

Solar is driving profits

The contribution of solar was significant with Singyes' renewable energy business contributing 81.9% – up from 75.1% – of an overall profit-after-tax figure of RMB231m, up from RMB80.9m this time last year.

Given its reliance on solar, it appears a curious omission to neglect to mention Beijing's decision to rein in solar subsidies, not least because of the fact the anticipated Chinese oversupply that will result will continue to depress EPC costs for developers such as Singyes.

Perhaps the answer lies in the fact Mr Liu's company has become even more dependent on a mainland Chinese market that is set to rapidly retreat in the remainder of the year. The footnotes to Singyes' positive figures reveal the business was 97.3% reliant on the mainland for custom in the first six months of the year – in what was then still a booming solar market. And that's excluding the 0.6% generated from sales in Hong Kong and 0.2% in Macau.

In terms of overseas customers, Singyes generated only 1.9% of external revenue from Oceania and a negligible amount – RMB1.17m – from Malaysia.

The company's cash and cash balances figure also saw a significant fall, from RMB2.58bn to RMB1.4bn, year on year.

With the market in retreat, Singyes' full-year update looks set to be compulsive reading and shareholders could be in for another up and down period.