Hanwha Solutions
The author is an analyst for NH Investment & Securities. He can be reached at yk.choi@nhqv.com -- Ed.
We lower our TP on Hanwha Solutions by 14% to W65,000. While there are short-term concerns over slowing solar demand in the US and falling solar product prices, the impact should be smaller than feared. A US-centered growth strategy remains effective for the mid/long term.
Reflecting weakening sentiment, TP lowered to W65,000
We maintain a Buy rating on Hanwha Solutions, but lower our TP by 14% from W76,000 to W65,000, as we cut our target EV/EBITDA applied to the renewable energy division from 10.0x to 8.2x, in reflection of declining solar company valuations.
After US solar firms announced their 1Q23 results in April, the share prices of most of peer companies fell. This is attributable to concerns over a slowdown in demand following the introduction of NEM 3.0, the lifting of the suspension of tariffs on Chinese modules, and a downward price trend across the solar power value chain. However, as a mid/long-term growth strategy centered on the US solar power market remains valid, recent share price corrections due to short-term concerns are seen as a buying opportunity.
Short-term concerns exist, but impact will not exceed expectations
NEM 3.0, which took effect in April in California, is a system that cuts the export rate of electricity for residential solar users by 78% from US$0.23~0.32/kWh to US$0.05~0.08/kWh. This change reduces the incentive to install residential solar power. That said, Hanwha Solutions did not detect a surge in installations to benefit from NEM 2.0 in 1Q23, nor has it observed a sharp drop in demand after the introduction of NEM 3.0. Of note, in 2017, even when a net metering reduction system was introduced in California, total US residential solar installations continued to grow.
A bill to repeal the June 2024 tariff moratorium on Chinese modules has passed the US House and Senate, raising concerns over a decline in US solar installations, but it is likely to be vetoed by President Biden. Even if ultimately passed, it could lead to a spike in module prices similar to that seen in 2022.
Although there are concerns over module price declines due to price drops across the solar power value chain, US module prices remain relatively strong. The expansion in the portion of Hanwha Solutions’ US sales (40~50% in 2022 → 70% in 2025E) remains a valid mid/long-term strategy to defend against the decline in ASP. Module margins should stay solid as price drops are centered on upstream products.