With its revenues and share price tanking, Chinese solar manufacturer and lithium-ion battery storage company Comtec has announced it is ready to take the bold gamble of distancing itself from upstream solar in favor of project development and new business opportunities.
The company was caught cold by Beijing’s decision to rein in public solar subsidies last year and now appears ready to outsource manufacturing, citing overcapacity in the market. That overcapacity is occurring because Comtec’s rivals are aggressively ramping up manufacturing output ahead of what they anticipate will be an imminent global solar gold rush and it will be fascinating to see whether Comtec’s decision to swim against the tide proves visionary – or reckless.
“We keep on reducing head counts and disposing of fixed assets which were low in utilization,” said chairman John Yi Zhang in a statement accompanying a first-half update issued by the company. “We also rented out certain idle spaces in our factories and intend to continue doing the same. We would also consider disposing of our factories in Shanghai and Haian if we have received an attractive offer from any potential buyer.”
Virtually all of Comtec’s peers are pursuing the opposite strategy by dramatically increasing manufacturing output. According to the China Photovoltaic Industry Association, Chinese manufacturers produced 30.8% more solar cells in the first six months of the year than in the corresponding period of 2018. The 63 GW of wafers produced was up 26% year-on-year – with most new production lines making mono product – and the 47 GW of modules churned out represented a rise of 11.9%.
In the first half, Comtec reined in net losses to RMB24 million ($3.4 million), a decrease of around 76% from the respective period of 2018. However, the business saw revenues fall around 33%, to RMB66.8 million from RMB 100.2 million by the same comparison.
Comtec explained a renegotiation of costly long-term polysilicon purchase agreements had staunched losses, with the deals having previously led to substantial deficits. “An amount of approximately $5.1 million has been offset with the full amount of our purchase of polysilicon from the supplier throughout the first quarter of 2019,” stated the company in the update.
The manufacturer’s loss per share was RMB0.011, compared to RMB0.048 in its previous first half update. Despite that reduction, however, Comtec’s share price remained on the downward trajectory prompting the board to consolidate stock to maintain its Hong Kong listing. According to a financial report released on Monday, the consolidation became effective on August 28.
In mid June, two Hong Kong-based investors signed up for more than 72.7 million shares each – then a 3.24% slice of the company. Under the terms of the offering, the investors expected to benefit from a 20% discount on the HK$0.068 (US$0.0087) average price of the shares traded in the ten days before the subscription. Only a day later, the company entered another subscription agreement and agreed to allot and issue 270 million shares at HK$0.055 per share. Comtec said the net proceeds would be used for the group’s development and, tellingly, investment in downstream projects.
As it tries to navigate the challenging period after Beijing’s ‘5/31’ policy u-turn on solar subsidies, the Chinese manufacturer says it has shifted focus to downstream solar, in particular commercial and industrial rooftop PV.
In the first half, the company completed grid connection of 15.3 MW of rooftop PV generation capacity and sold another 5 MW of grid-connected rooftop projects. Comtec also started work on another 19.6 MW of downstream projects. While 5 MW of project sales is hardly earth shattering, Comtec said it is exploring selling its remaining completed projects to institutional investors. “This will be one of the major sources of our revenues if the proposed sales come into fruition in future,” the company said, further emphasizing its disenchantment with the manufacturing environment.
Comtec said it is also pursuing new business opportunities and hopes to see its electric vehicle and storage business Kexin fuel growth and profitability in future.
Comtec acquired a 70% holding in Zhenjiang Kexin Power System Design and Research in October 2017 and in November it brought in Singaporean consultancy ISDN as a 10% shareholder in the EV business as part of a joint venture agreement. In June, Comtec offered up 9.9% of the Kexin business for RMB9.8 million worth of shares in Nasdaq-listed online gaming company and blockchain business The9. Today, Comtec Group’s stake in Kexin stands at 53.1%.