Xinyi sees the positives despite a bruising year for solar glass

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The boardroom analysis of the 2018 full-year figures published by Xinyi Solar yesterday offers a succinct summary of life in the solar industry in the world’s biggest PV market.

The impact of the ‘5/31’ decision by the Chinese government to rein in public solar subsidies was laid bare by solar glass sales returns that “plummeted” – the word appears twice in quick succession – and an engineering, procurement and construction (EPC) services business that all but vanished.

After a turbulent year which saw the solar glass maker and project developer return its focus to utility-scale project wins, the Xinyi directors spoke of the need for the Chinese solar sector to adapt to gradually waning global influence by adopting a qualitative, rather than quantitative approach.

And the board noted, as solar transitions from a policy-directed industry to a more market-led approach the world over, competition will intensify. As PV adapts to the fact it has progressed to become a mainstream energy source in record time, Xinyi Solar’s stock market update warned: “The industry will consolidate, ousting the less efficient players.”

Subsidy turnaround killed EPC business

The bottom line figures are sobering, with the effect of the policy change made by Beijing at the end of May dragging down the company’s returns – and Xinyi makes no bones about the fact. “Since June 2018, downstream market demand has plummeted,” states the report, “causing a substantial drop in product prices across the entire value chain of the photovoltaic industry.”

That includes solar glass, with Xinyi stating the prices seen in the second half of last year bottomed out at 20% lower than their pre-policy turnaround peak and recovered only to 10% lower than their May highs by the end of the year.

That meant Xinyi’s annual revenue fell 19.5% from HK$9.53 billion (US$1.2 billion) at the end of 2017 to HK$7.67 billion last year. Profits saw a similar retreat, from HK$2.5 billion to HK$2 billion and when the company’s three main revenue streams are separated out, the figures for Xinyi’s EPC business were even more stark.

Having generated revenue of HK$2.3 billion and profits of HK$567 million in 2017, the EPC business collapsed to figures of HK$135 million and HK$63.6 million, respectively. Solar glass sales retreated, year on year, from HK$5.75 billion to HK$5.56 billion for a gross profit fall from HK$1.74 billion to HK$1.46 billion.

Let’s farm

Xinyi’s solar farm development and operation unit at least provided cheer with revenue rising 30.3% from HK$1.47 billion in 2017 to HK$1.92 billion last year, as profit rose from HK$1.1 billion to HK$1.44 billion. The company put that down to its nimble reaction to the sudden halt in public subsidies for distributed generation projects in China, a change of course which saw it take advantage of turmoil in the market by acquiring 64 MW of utility-scale PV projects to take its portfolio to 2,282 MW at the end of the year, up from 1,754 MW in 2017.

The impressive success of the solar farm business had prompted the board to consider cashing in by separating the unit as a listed company and then selling it the parent company’s project assets to raise around RMB2.7 billion (US$403 million). However, that plan was ditched late in the year with “the stock market persistently volatile”.

Despite a bruising year, however, Xinyi is forging ahead with expansion plans based on anticipated rising demand from booming solar markets worldwide in 2019. As the company expands output of thinner back glass and more expensive products for glass-to-glass modules at the expense of raw solar glass, it intends to open two new 1,000 ton/day production lines in China next year, at Beihai in Guangxi. With those fabs due to expand Xinyi’s production capacity in the first and second quarters, the company has also started trial runs on a 1,000-ton facility in Malaysia and restarted output at its 500-ton factory in Tianjin which closed for repairs in March.

Expanding client base

Its presence in Malaysia enabled Xinyi to diversify its sales markets too, with HK$1.39 billion of its HK$5.56 billion solar glass sales shipped to markets in Malaysia, North America, South Korea, India and Singapore. The 2018 figures did reveal, however, a continuing reliance on a single large client, with the unidentified ‘Customer B’ having provided HK$1.22 billion of the income for Xinyi’s flying solar farm business last year, after stumping up HK$945 million in 2017. It is tempting to wonder whether any of those dollars come out of Chinese public funds.

Xinyi Solar insisted its balance sheet is sound as it goes for growth and announced a dividend of HK$0.042 – down from HK$0.07 in 2017 – although shareholders may be concerned to see R&D spending fell last year to HK$170 million, from HK$204 million the previous year.

And maybe the board might consider shopping around for a new auditor. Not that anything appears amiss with the latest set of accounts, but a HK$500,000 increase in the bill must have come as a kick in the teeth after such a demanding 12 months.