The leading silicon wafer developer TCL Zhonghuan (002129.SZ) disclosed its first loss in recent years in the evening of the 24th of August, with a net loss of over 3 billion yuan. Although the loss was expected by the outside world, as a typical "outstanding performer" in the previous photovoltaic boom, the risks of sticking to high capacity utilization and following integrated expansion in times of low prices have been validated.

Just this month, Shen Haoping, who has been known as the 'soul figure' of TCL Zhonghuan and held the position of CEO for 17 years, resigned from the position. Shortly afterwards, TCL Zhonghuan, which had long maintained a high capacity utilization rate, began to adjust it downwards. Industry analysis believes that the reduction of the load by first-line companies will boost confidence in the industry, and after a short-term phase of selling pain, the market supply and demand will continue to improve in the medium to long term, and prices are expected to gradually stabilize.

The first half of the year saw a loss of over 3 billion yuan.

The latest disclosed financial report shows that the company achieved an operating income of 16.213 billion yuan in the first half of the year, a year-on-year decrease of 53.54%; the net profit attributable to the listed company's shareholders was -3.064 billion yuan. Looking at the quarters, the company incurred a loss of 0.88 billion yuan in Q1, 2.184 billion yuan in Q2, with the loss worsening. In Q4 of the previous year, the company incurred a loss of 2.772 billion yuan.

Among the reasons affecting the performance, the company openly mentioned that "the new energy battery component sector has relatively inadequate competitiveness, and the overall performance lags behind leading companies in the same industry. In a down cycle of industry market prices, it further drags down the operating performance." In the previous two years, TCL Zhonghuan joined the photovoltaic integrated wave and laid out downstream battery and component businesses, but it also led to a situation of difficulty in turning the large ship, and the downstream capacity instead dragged down the performance.

Since the beginning of this year, the entire industrial chain of photovoltaic monocrystalline silicon has experienced a supply-demand imbalance, and the prices have seen "irrational" declines, manifested in the silicon wafer sector, that is, "selling more leads to more losses." However, contrary to this, TCL Zhonghuan maintained a high capacity utilization rate in the first half of the year. According to disclosures by the silicon industry association over the past few weeks, the capacity utilization rates of two first-line companies were 50% and above 80%. It has been confirmed by industry insiders that the enterprise with high capacity utilization rate is TCL Zhonghuan.

The high capacity utilization rate has resulted in strong production and sales for the company in the first half of the year. According to the interim report, the company increased its monocrystalline silicon photovoltaic capacity to 190GW, with approximately 62GW of photovoltaic material products shipped, an 18.3% year-on-year increase, and a comprehensive market share of 23.5% for silicon wafers, ranking first in the industry.

However, the cost of increasing production against the market has already become apparent. Among the reasons affecting performance mentioned by the company, although it still maintains a leading position in the industry in terms of cost per watt, the cost reduction is not as fast as the market price decline. In the first half of the year, the company shipped 62GW of material products, resulting in increased losses.

The impairment of inventories is also an important reason for the loss of TCL Zhonghuan Renewable Energy. According to the announcement of provision for asset impairment disclosed during the same period, the provision for inventory price decline reached 1.366 billion RMB. From January to June this year, the loss from inventory impairment affected the total profit by -1.109 billion RMB, and the impairment loss of contract assets affected the total profit by -4.7068 million RMB.

Another important factor causing performance loss is the company's shareholding company, Maxeon. In 2019, Zhonghuan became the second largest shareholder of Maxeon through investment and further increased its shareholding to become the largest shareholder last year. In May this year, Zhonghuan planned to increase its shareholding from 22.39% to at least 50.1% with a total capital contribution of up to 197.5 million USD, in order to include Maxeon in the company's consolidated financial statements and make it a subsidiary of TCL Zhonghuan.

On one hand, Maxeon can serve as an important strategic support for TCL Zhonghuan's deep involvement in the international energy transition. It has patents for IBC battery-module series, Topcon battery process series, and tile module series. TCL Zhonghuan believes that this restructuring investment is in line with the company's strategic development direction and operational needs.

However, the acquisition of Maxeon came at a high cost in terms of performance. In 2023 alone, due to a significant decline in Maxeon's performance and stock price, the company recognized a significant impairment of long-term equity investments and financial assets related to it, resulting in a negative impact of a total of 1.69 billion RMB on the company's 2023 performance.

In the first half of this year, Maxeon's business transformation has been slow, and its performance and stock price have both declined significantly, leading to exacerbated losses for the company.

The first major action after the executive change: lowering the production rate.

It is worth noting that TCL Zhonghuan has just undergone a personnel change. On August 2nd of this year, TCL Zhonghuan announced that Mr. Shen Haoping applied to resign from the position of CEO due to work needs and personal energy considerations. After his resignation, Mr. Shen Haoping continues to serve as a director, vice chairman, and member of the board's special committees. At the same time, the company will be temporarily led by Chairman Li Dongsheng, who will complete the appointment process for the new CEO in accordance with relevant regulations.

Public information shows that Shen Haoping has been working at TCL Zhonghuan for more than 40 years and has been the CEO for 17 years, making him known as the 'soul figure' of TCL Zhonghuan in the industry. There are many speculations within the industry about the reasons for Shen Haoping's resignation as CEO, but the more common view is that the previous operational strategy of Zhonghuan is no longer suitable for the current industry cycle, and internal adjustments are urgently needed.

After Shen Haoping's resignation, the first major move by TCL Zhonghuan was to reduce the silicon wafer operating rate. In the weekly review of monocrystalline silicon wafers released by the silicon industry branch this week, the operating rates of the two leading silicon wafer manufacturers were not disclosed. Market analysts believe that this may be related to the significant reduction in Zhonghuan's operating rate. The previous week (August 15th), the operating rates of the two leading companies were maintained at 55% and 95% respectively.

In response, a reporter from Cailian News contacted TCL Zhonghuan for verification, but company officials did not disclose the actual operating rate. However, they indicated that the factory is still in normal production and maintains a relatively high operating rate within the industry.

A market source informed the Cailian News reporter that the current operating rate of TCL Zhonghuan is approximately around 75%. Previously, the production of the M10L model was more, but with limited end demand, the reduction in operating rate is considered a relatively normal behavior, and is expected to be around 70%.

The source believes that the reduction in operating rate and the possibility of opportunistic price increases via inventory reduction is also possible. The silicon industry branch also believes that the leading companies' initiative to reduce production is still a positive bullish factor for stabilizing the various links of the industry chain in the medium and long term. Currently, more than half of the inventory in the silicon wafer industry is concentrated in one or two companies, and in the short term, the production plans of these companies will be the market's key focus. In the medium to long term, with the rapid clearance of production capacities in various links of the industry chain, market prices are also expected to return to a reasonable level.