Guosen Securities: Downgrades Xinte Energy (01799) to "Hold" rating with a target price of HK$7.5.

Guosheng Securities released a research report stating that it has downgraded XINTE ENERGY (01799) to a "hold" rating with a target price of 7.5 Hong Kong dollars. Considering the current high level of silicon material inventory, the firm cautiously predicts the company's revenue for 2024-2026 to be 19.9/16.5/19.5 billion yuan, with a net loss attributable to the parent company of 4/2.3/0.8 billion yuan. Considering that core competitors with cost advantages are currently valued higher than XINTE ENERGY by 0.6x in 2025 PS, and that the company has a certain cost advantage over smaller companies, the firm gives the company a 0.6x 2025 PS, corresponding to a valuation of 10.8 billion Hong Kong dollars. It is reported that on January 17, 2025, the company issued a profit warning. According to the company's preliminary assessment, the unaudited net loss attributable to the parent company for 2024 ranges between 3.8-4.1 billion yuan, while in the same period in 2023, the net profit attributable to the parent company was 4.345 billion yuan. The main reasons for the performance loss are: 1) Due to the overcapacity in the photovoltaic industry chain, especially in the silicon material industry, the price of silicon material has dropped below the cost of production of polycrystalline silicon production companies since April 2024 and continued to operate at a low level. The average selling price of the company's polycrystalline silicon in 2024 decreased by 60% compared to 2023. According to Wind, the average price of silicon material in 2024 is approximately 5.45 USD/kg, a significant decrease from 14 USD/kg in 2023. In the second half of 2024, the price of silicon material further decreased from 6.44 USD/kg in the first half of 2024 to 4.46 USD/kg. 2) XINTE ENERGY arranged for the reconstruction and shutdown of some production lines, with the actual capacity utilization rate of polycrystalline silicon in 2024 being 66% of the planned 300,000 tons/year, resulting in an actual production of 198,800 tons. The company is not fully utilizing economies of scale. 3) The company plans to dispose of some production lines for polycrystalline silicon and by-products, as well as some replaced production equipment, with a total of 1.474 billion yuan in asset impairment provisions. The company also made asset impairment provisions totaling 675 million yuan for assets related to 4 self-operated photovoltaic power plants. Therefore, the company made total asset impairment provisions of 2.149 billion yuan for the related assets. The firm stated that the price of silicon material has recently shown a slight increase, and with short-term demand driving, prices are expected to increase slightly. According to Wind, as of March 5, 2025, the weekly price of photovoltaic-grade polycrystalline silicon has increased to 4.94 USD/kg. According to Infolink Consulting, as of March 5, 2025, the latest weekly prices were 40 yuan/kg for compact block material and 38 yuan/kg for granular silicon, suggesting a focus on the production and inventory levels of manufacturers in the near term. Risk factors include the risk of a decline in silicon material prices, the risk of photovoltaic installation demand not meeting expectations, the risk of safety incidents at silicon material factories, and the risk of industry consolidation exceeding expectations.