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On November 28, the Finance Associated Press (Reporter: Liu Mengran) reported that after experiencing rapid growth around 2021, the photovoltaic film is currently facing intense price competition and production capacity adjustment period. This evening, Hangzhou First Applied Material (605566.SH) announced its intention to suspend production in its holding subsidiary, Hangzhou First Applied Material New Energy Co., Ltd.

Hangzhou First Applied Material New Energy is mainly engaged in the solar cell encapsulation film business. In the interim report, the company stated that it will continue to actively develop high-quality customers in the photovoltaic field, strive to expand sales scale, and improve customer structure. However, from the financial data perspective, the subsidiary has been continuously losing money, leading to the decision to suspend production in the fourth quarter. In the first three quarters of this year, Hangzhou First Applied Material New Energy achieved operating income of 28.0988 million yuan, with a net loss of -14.5726 million yuan; in 2023, it achieved operating income of 70.0889 million yuan, with a net loss of -52.7641 million yuan.

In the latest announcement, Hangzhou First Applied Material New Energy is currently in a loss-making state and is difficult to turn around in the short term. Suspending production at Hangzhou First Applied Material New Energy will reduce the operating losses of the company, diminish its negative impact on the company's performance, avoid further production losses and capital investment, help reduce operating costs, and align with the company's strategic development direction.

Furthermore, the company stated that it will decide whether Hangzhou First Applied Material New Energy will resume production operations based on market conditions. It will actively seek external cooperation opportunities, fully utilize the remaining value of assets, and minimize the impact of suspending production at Hangzhou First Applied Material New Energy as much as possible.

Hangzhou First Applied Material's main business is dye manufacturing. Affected by the continuous downturn in the dye industry demand, the company expanded into the photovoltaic field in January 2022. By the end of the first half of this year, the company owned 10 production lines, with a film production capacity of approximately 4 million square meters per month. In addition, its holding subsidiary, Hangzhou First Applied Material (Jiaxing) New Materials, plans to build 7 production lines. Currently, 3 production lines have been completed, with a future capacity of approximately 5 million square meters per month upon completion.

Photovoltaic film is an important auxiliary material for photovoltaic modules, accounting for about 4%-7% of the costs, with a significant impact on the service life and power generation efficiency of the modules. In 2023, with the sudden increase in capacity, EVA film started to experience a decrease in capacity utilization rate and intensified low-price competition.

Since the beginning of this year, the sales price of eva film continues to decrease due to the slowdown in the growth of the photovoltaic industry and the impact of the decreasing purchase price of photovoltaic resin. According to data from PVinfolink, the total production of photovoltaic modules from June to September this year was 147.6GW, a decrease of 10.8% from the previous period, leading to the average price of EVA film dropping from 6.6 yuan/square meter in Q2 to 5.6 yuan/square meter in Q3, a decrease of 15%.

According to the disclosure of the peer company Haiyou New Materials (688680.SH), the market price of EVA particles, the main raw material for photovoltaic film, has been generally declining since the second half of 2022. The selling price and unit cost of the company's film products have decreased significantly. However, due to factors such as intensified price competition in the sub-industry and the inventory cycle of raw materials, the decrease in the selling price of film products is greater than the decrease in unit cost, leading to a further decline in the gross margin of film products.

It is worth mentioning that the market for photovoltaic film is highly concentrated, with the industry leader Foster (603806.SH) occupying around 50% of the market share. In 2021, Foster's gross margin once reached as high as 25%, but by the first three quarters of this year, the company's gross margin has been maintained at around 15%.