Company Reports

We see little impact on LONGi, Tongwei, and Zhonghuan from the US action to double the tariff rate on China-made solar cells (including those assembled into modules) to 50% from 25% in 2024 under Section 301. Currently, China-made solar cells and modules are already subject to US antidumping and countervailing duties, the Section 201 tariff, and the Section 301 tariff, which could add up to over 100% tariff rate. As a result, China’s direct export of solar cells and modules to the US is minimal, accounting for less than 0.1% of its total solar cells and modules export in 2023.

We cut our fair value estimate for LONGi Green Energy to CNY 25.60 from CNY 29.30 after incorporating lower solar wafer and module prices. While the losses in fourth-quarter 2023 and first-quarter 2024 are disappointing, market reaction was contained as prices appear to be bottoming. LONGi remains undervalued, but we currently prefer TCL Zhonghuan for greater upside potential.

LONGi Green Energy Technology is one of world's largest integrated solar company, growing from its origins as a solar wafer manufacturer. The company is largely self-sufficient, with its solar wafers and cells produced internally. While this has helped it smooth out pricing cycles along the solar supply chain, it does not exempt LONGi when the whole industry is shattered by overcapacity.

As expected, LONGi’s third-quarter revenue and net income fell by 19% and 44%, respectively, as product price declines outweighed shipment growth. With solar wafer and module prices hitting year-lows at the end of October, the fourth quarter is set to remain challenging. After factoring in the recent price decline, we lowered our net income estimate to CNY 15 billion from CNY 16 billion in 2023. Our assumptions for 2024 and beyond are unchanged. We expect the weak pricing outlook to remain a drag next year, but we forecast net income to rebound 30% year on year in 2024 on higher shipments.

LONGi’s share price saw little reaction after it reported second-quarter earnings that grew 45% year on year and were in line with the preliminary figures provided in early August. However, we are disappointed that its solar module and wafer shipments in the first half only reached 31% and 40% of its full-year targets, respectively. While we expect sequentially higher shipments in the second half, we do not think LONGi can meet its full-year shipment target. After reducing our shipment assumptions, we cut our 2023 earnings forecast to CNY 16.0 billion from CNY 18.3 billion. We also lower our five-year earnings CAGR to 16.5% from 17.7% through 2027. Accordingly, we reduce our fair value estimate to CNY 29.30 from CNY 31.40. The shares closed 9% below our fair value estimate, but we would prefer a higher margin of safety.

LONGi Green Energy Technology is the world's largest integrated solar company, growing from its origins as a solar wafer manufacturer. The company is largely self-sufficient, with its solar wafers and cells produced internally. While this has helped it smooth out pricing cycles, LONGi still faces competitive pressures as industry capacity continues to increase.

We initiate coverage on three Chinese solar companies, Zhonghuan Renewable Energy, the world’s largest solar wafer company by external shipments, LONGi Green Energy Technology, the world’s largest integrated solar company, and Tongwei, the world’s largest polysilicon and solar cell producer. We assign a no moat rating to all three due to overcapacity and intense competition in the solar industry. Our fair value estimates are CNY 25.70 for Zhonghuan, CNY 31.40 for LONGi, and CNY 35.90 for Tongwei.

LONGi Green Energy Technology is the world's largest integrated solar company, growing from its origins as a solar wafer manufacturer. The company is largely self-sufficient, with its solar wafers and cells produced internally. While this has helped it smooth out pricing cycles, LONGi still faces competitive pressures as industry capacity continues to increase.