Tong Weilong, difficult brothers

As August is coming to an end, the A-share interim report season is also entering its final stage. However, after the close of trading on August 29th, the two leading companies in the photovoltaic sector - Tongwei Co., Ltd (600438.SH) and LONGi Green Energy Technology (601012.SH) - did not release their semi-annual financial reports as scheduled. Instead, the market was greeted with almost simultaneous announcements of the postponement of interim report disclosures, with both companies choosing to submit their reports on the last trading day of August. Although the two leading companies emphasized that this was simply a timing adjustment and that their operations were normal, their performance was within the previously announced range, and there were no other major issues affecting them, especially no undisclosed matters as required by the rules of the Shanghai Stock Exchange. However, the significant net loss forecasts and the continuous decline in stock prices earlier had still sparked some dissatisfaction among investors, with some messages in forums being quite harsh. On the evening of August 30th, Tongwei Co., Ltd and LONGi Green Energy Technology officially released their semi-annual reports, which also revealed that these two shining star companies in the global photovoltaic industry are not currently doing well. The fallen revenue leader and the newly emerged loss maker From mid-2019 to the end of 2023, whether in quarterly, interim, or annual reports, Tongwei Co., Ltd and LONGi Green Energy Technology have always been the "revenue leaders" in the photovoltaic manufacturing sector. Despite differences in market conditions, such as fluctuations in silicon prices, the two companies have taken turns leading each other. For example, in 2020 and 2021, LONGi Green Energy Technology surpassed Tongwei Co., Ltd, but in 2022 and 2023 Tongwei Co., Ltd was ahead again. However, the top two positions in revenue have always been held by them. However, this year has seen a change in the long-standing pattern. In the first quarter of this year, the top 5 revenue earners in the photovoltaic manufacturing sector were ranked in ascending order as Jinko Solar (688223.SH), Tongwei Co., Ltd, Trina Solar Co., Ltd. (688599.SH), LONGi Green Energy Technology, and JA Solar Technology (002459.SZ), with the former champions falling to second and fourth place, respectively. Tongwei Co., Ltd's revenue fell by 41.13% year-on-year, and LONGi Green Energy Technology's revenue fell by 37.59%. According to the latest semi-annual reports, Tongwei Co., Ltd's revenue was 43.797 billion yuan, down by 40.87% year-on-year, ranking second in the photovoltaic manufacturing sector as it did in the first quarter. LONGi Green Energy Technology's revenue in the first half of the year was 38.529 billion yuan, down by 40.41% year-on-year, ranking fourth in the photovoltaic sector. Even more worrisome is their profit situation. According to the semi-annual reports, Tongwei Co., Ltd had a net loss of 3.129 billion yuan in the first half of the year, a 123.58% year-on-year decrease and a 197.78% quarter-on-quarter decrease. LONGi Green Energy Technology had a net loss of 3.129 billion yuan and 5.234 billion yuan in the first half of the year, a 157.13% year-on-year decrease and a 23.1% quarter-on-quarter decrease. These two giants are also the two companies with the highest losses in the photovoltaic sector in the first half of this year. Comparing the mid-year situation this year with that of 2019, when Tongwei Co., Ltd and LONGi Green Energy Technology were at their peak and began their 4-year dominance, reveals a significant change. In mid-2019, Tongwei Co., Ltd had revenue of 16.12 billion yuan, a 29.39% year-on-year growth, and a net profit of 1.451 billion yuan, a 58.01% year-on-year growth, and a 95.68% quarter-on-quarter growth. LONGi Green Energy Technology had revenue of 14.11 billion yuan, a 41.09% year-on-year growth, and a net profit of 2.01 billion yuan, a 53.76% year-on-year growth, and a 128.75% quarter-on-quarter growth. In these five years, both companies saw significant growth in revenue, but their growth rates have now turned negative, and they have even become loss makers. Tongwei Co., Ltd attributed the significant decline in performance in the half-year report to the rapid development of the new energy industry in recent years, which has attracted a large amount of new investment from society. The gradual release of related production capacity and the rapid growth of supply have intensified market competition, leading to a sharp decline in the prices of key products in the photovoltaic industry since the second half of 2023. The company's expansion of its photovoltaic operating scale was not enough to cover the sharp decline in product prices, resulting in a decline in revenue and pressure on profitability. On the other hand, LONGi Green Energy Technology stated in its semi-annual report that the massive increase in global production capacity on the supply side of the primary photovoltaic industry chain has led to a situation of increasing supply and falling prices, causing overall profitability to decline. The continued aggravation of a temporary mismatch between supply and demand in the domestic market, further price decreases in the primary industry chain, falling below enterprise costs, and the emergence of operational difficulties in the industry have led to significant fluctuations in performance, despite the company actively adjusting its production and sales rhythms in response to the sharp decline in prices of the industry chain and provisions for inventory impairment. It is worth noting that LONGi Green Energy Technology disclosed in its semi-annual report a proposed provision for impairment amounting to 5.784 billion yuan, including a provision for inventory price declines of 4.8...RMB 700 million, including the provision for impairment of long-term assets such as fixed assets of RMB 8.59 billion, and the provision for impairment of contract assets of RMB 55.4489 million.In the past, the two companies were both powerhouses, but now they have a somewhat "difficult brother" feeling. This is also reflected in the market value of the two companies. After the photovoltaic stock price "big ebb" in 2022, although LONGi Green Energy Technology plummeted, it still maintained the position of "market value leader" for a long time. However, in March of this year, it was surpassed by Sungrow Power Supply (300274.SZ), and in July it even fell below the trillion mark. As of the closing on August 30, the total market value of the company is 104.653 billion yuan, a decrease of 39.7% from the beginning of the year, and a decrease of 80.7% from its peak market value of 542.378 billion yuan in November 2021; Tongwei Co., Ltd was also one of the few photovoltaic companies with a market value of over one trillion at the beginning of this year, but it fell below one trillion in late April. As of the closing on August 30, the total market value is 85.583 billion yuan, a decrease of 24.1% from the beginning of the year. It's really getting harder to go abroad to raise money. If we compare, in the first half of this year, the photovoltaic companies that performed relatively well or exceeded expectations in terms of revenue and net profit, such as Jinko Solar, Trina Solar Co., Ltd., CSI Solar Co., Ltd. (688472.SH), Sungrow Power Supply, etc., the main contributions and highlights were in energy storage, N-type, and overseas business, not considering inverters and downstream power generation business belonging to another track. According to industry insiders, Tongwei Co., Ltd and LONGi Green Energy Technology are less involved in energy storage businesses directly, and have cooperation with other companies, but it is not their main business. From the strategic planning of both companies, this business of combining with downstream power generation projects is also not a strategic focus. In terms of N-type, both companies have their own layouts, but the production volume and performance contribution came later than other leading companies like Jinko Solar, Trina Solar Co., Ltd. Looking at the overseas business, to a certain extent, it has also become an important win or lose for the profitability of photovoltaic companies this year, but both companies have encountered some difficulties in this area. For LONGi Green Energy Technology, although the company has always been a pioneer and a strong player in the overseas market, it has been hit hard in the past two years. The biggest impact comes from the US market and Southeast Asian production capacity. In the US market, the US customs has been holding back Chinese exports of photovoltaic components since 2021 through Withhold Release Orders (WRO), and in 2022, new obstacles such as the UFLPA related to Xinjiang have been added. LONGi Green Energy Technology has had a large number of products detained when clearing customs in the US, which is bigger than most of its peers, leading to greater pressure on inventory price declines and higher provisions for impairment in its financial reports. Although the US market is still a profit center for photovoltaic giants, for LONGi Green Energy Technology, seeking profits in this market requires increasing additional costs and facing greater risks. In this regard, it is worth mentioning that LONGi Green Energy Technology's 5GW photovoltaic component factory in Ohio, USA began production in the first half of this year. However, it is still unclear about the income and subsidies enjoyed by this factory, and detailed data disclosure is needed to know its specific situation. In terms of production capacity in Southeast Asia, on June 6th this year, the US's "anti-circumvention" tariff exemption for photovoltaic products from four Southeast Asian countries (Cambodia, Malaysia, Thailand, Vietnam) has ended, and a new round of "double reverse" investigations and tariffs are looming. Chinese photovoltaic companies with the US as the main export destination have faced a comprehensive impact on their production capacity in Southeast Asia. LONGi Green Energy Technology has a total of 4GW of silicon wafer capacity, 9GW of cell capacity, and 11GW of module capacity in Vietnam and Malaysia. It is one of the photovoltaic companies with the deepest layout in Southeast Asia. The end of the US tariff exemption has greatly affected this batch of production capacity of LONGi Green Energy Technology. There were rumors that LONGi Green Energy Technology's factories in Vietnam were completely shut down, and the Malaysian factories would also be shut down or put on standby, although LONGi Green Energy Technology denied this, it also admitted that the future of these factories is uncertain. During a previous investor exchange, Li Zhengguo, the President of LONGi Green Energy Technology, also stated that the company has incurred losses of hundreds of millions in the past two to three years in the US business and Southeast Asian production capacity. The negative impact of the adjustment of Southeast Asian production capacity this year has not yet been seen, and future overseas business arrangements will be made more cautiously. As for Tongwei Co., Ltd, it started with silicon materials as its main business, which is one of the areas with less overseas business among the four main materials in the photovoltaic industry. After setting up integrated cell and module capacity in recent years, although Tongwei Co.,Ltd had been the worlds largest photovoltaic cell shipper for seven consecutive years until 2023, its domestic and international sales capabilities are strong, but it has always lacked overseas production capacity. This poses a significant limitation for the photovoltaic industry that has transitioned from "Made in China, sold globally" to the new era of "Made and sold globally". In the first half of this year, Tongwei Co., Ltd's strategic choice to increase the utilization rate of cells, combined with changes in the industry landscape, caused it to lose its position as the top shipper of cells for half a year, and the cell factory was "relocated" to Laos, where the overseas channels are more open, and Zhongrun Photovoltaic won the top spot. In the area of cells and modules.Tongwei Co., Ltd., whose ambition is growing, is facing constraints on overseas production capacity. In the recent semi-annual report, the company also emphasized the need to accelerate the exploration of the feasibility of overseas production capacity layout and expand overseas component customer channels.In fact, in August, Tongwei Co., Ltd. has announced its intention to rapidly strengthen its own strength by acquiring Ruoyang shares, which owns production capacity and sales channels overseas, for a price not exceeding 5 billion. The company plans to acquire the top 5 battery suppliers at a price not exceeding 5 billion and expand its own strength quickly. However, it is widely acknowledged that it is difficult to go global at present, and the effectiveness of Tongwei Co., Ltd.'s strategy still needs to be observed. The company has also stated in its previous acquisition announcement that it does not expect the transaction to have a significant impact on the company's operations in 2024. It is said that in a cyclical industry, how can one rise again? For a leading photovoltaic giant with a large family and business, while its performance fluctuates greatly under industry cycles, it seems that its vitality has not been harmed. However, if the situation continues to deteriorate, the bleeding point will become larger, leading to greater damage to the company, which is not an unfounded speculation. In the race of speed in the new energy and photovoltaic industry, if one fails to prepare well before the next cycle, it is likely to lose the initiative and find it difficult to regain the past glory. Regarding how to navigate through the cycle, Tongwei Co., Ltd. stated in its half-year report that the industry is gradually entering a phase of clearance. Faced with a challenging market environment, the company continues to maintain efficient and stable operation of its production lines, accelerate the adjustment of production capacity structure, and promote the rapid release of advanced production capacity. In addition, the company emphasizes that it is one of the most integrated enterprises in the photovoltaic industry and has listed a series of recent counter-cyclical measures in various areas such as expanding production, reformation, and increasing investment in research and development. Although the acquisition of Ruoyang was not mentioned in this half-year report, it is generally believed within the industry that this major acquisition in the history of photovoltaics is also Tongwei Co., Ltd.'s response to the industry's "reshuffle". LONGi Green Energy Technology stated that the current photovoltaic industry is still in a period of deep adjustment, with increasing competition among enterprises. With the gradual improvement of the supply-demand relationship in the industry, the industry concentration is expected to further increase. The company leads with technological innovation, firmly focuses on the BC technology platform, and builds a competitive advantage to navigate through the industry's low cycle with leading product, innovation, and organizational capabilities. The company's HPBC 2.0 product is expected to enter the market on a large scale by the end of 2024, and the company's BC production capacity is expected to reach 70GW by the end of 2025, with plans to transfer all domestic battery bases to BC products by the end of 2026. The counter-cyclical expansion and integration of Tongwei Co., Ltd., as well as LONGi Gree...