As we stated in earlier reports, Xinte's near-term investment merit lies in the two potential handsome dividend payouts after 2023 interim and final results. However, slow progress of its A-share IPO forced the board to forgo much-anticipated interim results based on 2022 results. Absent of which, Xinte's investment story will reduce into a one-off dividend payment by mid-2024 that is unattractive with ex-dividend adjustment. We downgrade Xinte Energy to HOLD rating on the lack of near-term catalyst and mediocre operation results. TP cut to HK$13.50, implying 6x 2024E P/E.

Key Factors for Rating

No interim dividend an expected letdown. One of the key reasons that we maintained BUY rating on Xinte earlier was the hope of a deferred dividend at 1H23 results announcement (based on stellar 2022 results) and another decent dividend at full-year 2023 results announcement based on 2023 earnings. To recall, Xinte did not announce dividend payment for 2022 as it cannot distribute profits without delaying its A-share listing.

As we enter August, that hope has effectively diminished as its A-share IPO has no way to be completed before interim results. Therefore, it should not be a surprise that the board did not announce interim dividend for 1H23 as any profit distribution will significantly postpone its already protracted listing process.

Subpar polysilicon operation in 1H23. Xinte's 2Q23 poly output declined by 5% QoQ to 37,000 tonnes, as Baotou plant continues to suffer from maintenances, resulting in high costs and low utilisation rate. Xinte's production cost of poly production was RMB70/kg in 1H23 according to the management, which is c.35% higher than peer Daqo (DQ US, BUY). Although management expects all-in costs would be brought under RMB55/kg by end-2023 after maintenance at Baotou plant completes, we remain skeptical on the guidance given the company's track record - operational incident in 1Q22 shored up production cost in a similar fashion after Ganquanpu plant was commissioned.

NP price gap a key variable to watch. As N-type cell/ module is set to gain momentum in the coming quarters, the demand for higher quality poly will definitely increase. Producers with higher quality and lower cost would fare off better in the industry down cycle, in our view, but unlikely to win them standalone valuations. For Xinte, we prefer waiting for more assuring data points before allowing higher N-type assumptions into our model.

Key Risks for Rating

Higher/lower-than-expected poly supply; successful/unsuccessful A-share IPO.

Valuation

Downgrade to HOLD. We cut Xinte's 2023 earnings forecasts by 49% on lower ASP and higher cost assumptions. We roll over poly business target P/E from 2.5x 2023 NP to 8x 2024NP. Our new SOTP-based TP of HK$13.50 implies 6x 2024 P/E, which we deem reasonable for a downcycle play.