[Click eStock] Hanwha Solutions Faces Stock Pressure Due to Cell and Module Profitability Decline

[Asia Economy Reporter Minji Lee] Meritz Securities on the 1st forecasted that despite the high investment attractiveness of the solar power industry, Hanwha Solutions' ongoing deficit trend due to deteriorating profitability in the existing cell and module segments will weigh on its stock price.

According to Meritz Securities, the estimated operating profit for the third quarter is 168.4 billion KRW. By segment, it is analyzed as 181.6 billion KRW for Chemicals, -40.6 billion KRW for Q CELLS, 7.6 billion KRW for Advanced Materials, and 3.0 billion KRW for Galleria. The market consensus estimate is 203.0 billion KRW, but further downward revisions to the consensus are expected. While the Chemicals segment shows strong performance, the Q CELLS segment is expected to burden the stock price due to cost pressures.

Looking at the trends by business segment over the past two months, Q CELLS is estimated to have faced unexpected variables due to increased costs from soaring maritime freight charges and a shift to stronger prices for raw materials such as polysilicon and wafers. The Chemicals segment highlighted the advantage of product mix diversification, and the Advanced Materials segment maintained a profit trend due to increased shipments of solar and electronic materials. The Galleria segment also saw an increase in sales of high-margin products. The chemical subsidiaries experienced deteriorated profitability due to the use of expensive raw materials, while hotels and resorts turned to losses due to COVID-19 social distancing measures.

The investment attractiveness of the solar power industry is analyzed as high. Ahead of the UN Climate Change Convention scheduled for November this year, investment attractiveness in the renewable energy industry remains high, and a strategy to increase weighting is suggested for the solar power industry, which is confirming a trend of profit improvement. Researcher Noh Woo-ho of Meritz Securities said, “In the first half of the year, major companies in the solar value chain experienced a continuous period of uncertainty due to the designation of Chinese solar materials on the blacklist and differing price trends among materials,” adding, “Unlike other renewable energy industries, major companies are recording better-than-expected strong earnings and demonstrating a trend of profit improvement.”

Accordingly, ahead of the peak season for solar power installation demand in the second half of the year, profitability differentiation among companies is expected to become more distinct. Researcher Noh explained, “Polysilicon, which turned strong due to supply disruptions in August this year, will lead to upward revisions in profit estimates for the relevant companies,” and “cell and module companies will continue to face profitability pressure due to slow price increases compared to rising costs.”

Finally, Meritz Securities researcher Noh Woo-ho analyzed, “Ahead of the UN Climate Agreement meeting scheduled for November this year, the investment attractiveness of the solar power industry remains high, and a positive stock price rebound is expected due to policy momentum. However, considering the realistic profit capacity in the second half of this year, Hanwha Solutions’ investment attractiveness is neutral,” adding, “The ongoing deficit trend due to deteriorating profitability in the existing cell and module segments burdens the current stock price.”