Q Cells to Turn Around in 2H22 

The author is an analyst of KB Securities. He can be reached at yc.baek@kbfg.com. -- Ed.

 

Maintain BUY       

We maintain BUY on Hanwha Solutions, while cutting TP by 8.0% to KRW46,000 on downward revisions to 2022E/2023E NP (attributable to controlling interests) of 17.6%/0.6% amid deterioration of profit margins for Chemicals. Despite the TP cut, we reiterate BUY and continue to favor the company as our top pick among Korea Chemicals/Refineries as Q Cells earnings are improving and spreads for chemical products are on track for bottoming out in 1H22. We believe it is time to focus on the earnings improvement expected in 2H22.   

Q Cells to turn around in 2H22         

Q Cells is on the verge of bottoming out, in our view. Q Cells posted 1Q22 revenue of KRW920.6bn (-7.0% QoQ) and operating loss of KRW114.2bn (loss narrowed QoQ). Based on export prices, PV module spread rose USD0.063 QoQ to USD0.195/W, but remained below BEP (USD0.25/W). Increasing polysilicon supply should trigger a downturn in polysilicon and wafer prices in June, while growing PV installation demand keeps PV module prices on a steady upward trajectory. As a result, Q Cells should start turning a profit from 4Q22. Although China’s lockdown measures and logistics issues may delay the drop in wafer prices, we believe the profitability of PV modules will eventually improve. 

2Q22 earnings likely to come in above consensus 

We forecast 2Q22 revenue of KRW3.13tn (+12.5% YoY) and OP of KRW151.4bn (-31.5% YoY). We see Q Cells posting revenue of KRW985.0bn (+7.0% QoQ) and operating loss of KRW86.7bn (loss narrowed QoQ). Profitability should improve on the back of increasing PV module ASP and sales volume. Meanwhile, we expect Chemicals to post revenue of KRW1.62tn (+4.7% QoQ) and OP of KRW243.1bn (-5.6% QoQ). LDPE/PVC margins should retreat due to higher naphtha input costs. We expect the decline in OP to be limited, however, thanks to increases in caustic soda and TDI prices. 

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