Sales of High-efficiency Modules Next Year to Be Turning Point
The author is an analyst of KB Securities. He can be reached at yc.baek@kbfg.com. -- Ed.
Revise down TP to KRW61,000
We maintain BUY on Hanwha Solutions, but trim our TP by 3.7% to KRW61,000 to reflect downward revisions to our earnings forecast. Specifically, we have cut 2021E and 2022E NP (attributable to controlling interests) by 9.7% and 4.3%, respectively, given an anticipated decline in LDPE and PVC margins, as well as Photovoltaics earnings (i.e., rise in feedstock prices). Derived using the P/B-ROE model, our TP implies 2021E P/E of 12.6x and P/B of 1.44x.
2Q21E earnings to be in line with consensus
We expect 2Q21E revenue at KRW2.73tn (+39.6% YoY, +13.6% QoQ) and OP at KRW278.7bn (+116.9% YoY, +9.5% QoQ), up sequentially and in line with consensus (OP of KRW283.3bn; FnGuide, Jul 5). Photovoltaics should generate revenue of KRW981.9bn (+31.9% QoQ) and operating losses of KRW3.5bn (-0.4% OPM). Despite the top-line growth, losses are likely given the continued strength in wafer prices upon higher polysilicon spot prices. Meanwhile, Chemicals OP is estimated at KRW283.7bn (+11.3% QoQ; 21.5% OPM). While LDPE price and spread should erode QoQ, rising PVC and caustic soda prices should bolster OP. Specifically, caustic soda prices averaged USD312/tonne (+33.3% QoQ; Southeast Asian import prices) as recovering economic conditions reinforced demand.
Slowdown in short-term earnings momentum expected; Sales of high-efficiency modules next year to be turning point
Despite better Chemicals earnings, shares in Hanwha Solutions have been flat since mid-April due to eroding Photovoltaics margins. Earnings momentum appears likely to slow down in the near term. We expect 3Q21E OP to deteriorate 11.8% QoQ to KRW245.8bn (9.7% OPM) due to declining LDPE and PVC spreads, as well as a lack of momentum in Photovoltaics earnings. Considering that PV installation demand is outpacing polysilicon capacity, polysilicon and wafer prices should remain robust through 1H22. However, the company plans to begin commercial production of high-efficiency PV modules (e.g., top corn modules), and the technological advances should lower COGS.