Over 400 funds have "fled" within the year, Northbound capital has significantly sold off more than 90 million shares, and a cumulative net loss of over 6 billion yuan in the past three quarters. Faced with the semi-annual report performance of the silicon wafer leader, TCL Zhonghuan (002129.SZ), investors can't help but wonder: has the photovoltaic (PV) industry truly hit rock bottom?

Affected by factors such as a roughly 50% drop in monocrystalline silicon wafer prices within the year, TCL Zhonghuan has delivered its worst semi-annual report since going public. In the late night of August 23, TCL Zhonghuan released its semi-annual report for 2024, showing that the revenue growth rate for the reporting period set the worst level in history (-41.13%), with gross and net profit margins turning negative. The net profit attributable to the parent company was a loss of 3.064 billion yuan, and the year-on-year decline in quarterly performance was the highest since 2009.

Since the beginning of this year, the PV industry has experienced a severe mismatch between supply and demand, with competition intensifying significantly and a decline in both volume and price in several segments of the silicon photovoltaic industry chain. Since the fourth quarter of 2023, TCL Zhonghuan's net profit attributable to the parent company after deducting non-recurring gains and losses has accumulated to a loss of over 6 billion yuan.

Northbound capital continues to reduce its holdings in TCL Zhonghuan, selling off 23.1235 million shares in the second quarter, with a cumulative reduction of over 90 million shares within the year. Fund companies are also significantly exiting, with the number of funds holding TCL Zhonghuan decreasing from 454 at the end of 2023 to 29 as of June 30. As institutional investors successively leave, TCL Zhonghuan has "lost favor" in the secondary market. As of the close on August 23, the company's share price was reported at 7.39 yuan, with a year-to-date decline of 51.18% (the highest in history), reaching the lowest price since February 2019, and giving back all the gains since the current photovoltaic cycle, with a total market value of less than 30 billion yuan.

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The gross profit margin of the wafer business turning negative has dragged down the profitability.

Since 2024, the global PV terminal installation has continued to rise, but the growth rate has slowed. The rapid release of production capacity in various manufacturing segments of the PV industry chain has further worsened the supply-demand ratio, leading to a continuous decline in PV product prices. In the second quarter, prices in each segment of the main industry chain fell rapidly, with prices and costs inverting, and the silicon material and wafer segments successively entering a stage of profit loss, breaking through some manufacturers' cash costs by the end of June.

The financial report shows that TCL Zhonghuan achieved a revenue of 16.213 billion yuan in the first half of the year, a year-on-year decrease of 53.54%, with a net loss of 3.063 billion yuan, a year-on-year decrease of 167.53%, and a net loss of 3.488 billion yuan after deducting non-recurring gains and losses, a year-on-year decrease of 191.6%. Among them, the market share of large-sized wafers (210 series) for external sales was 61%, an increase from 2023; the market share for N-type external sales was 42%, an increase of 6 percentage points from 2023.

Regarding the reasons for the performance loss, TCL analyzed that the industry supply and demand imbalance has intensified, the new energy business has entered an irrational price competition state, the cost reduction speed is not keeping up with the market price decline, and at the same time, the competitiveness of the battery component segment is relatively insufficient, lagging behind leading peers in the industry, further dragging down the performance.

In addition to the main business, the main market for the products of Maxeon, a company in which TCL Zhonghuan holds a stake, is in the European and American regions where PV product prices are rapidly declining, and the PV subsidy policy is being adjusted while maintaining a high-interest-rate environment. The company's operational transformation has been slow, and both performance and share prices have fallen significantly during the reporting period, leading to increased losses. During the reporting period, TCL Zhonghuan's investment income loss was 115 million yuan.

The negative gross profit margin of the wafer business is the main reason for the significant decline in TCL Zhonghuan's profitability. In the first half of the year, TCL Zhonghuan's wafer business achieved a revenue of 10.432 billion yuan, a year-on-year decrease of 61.31%, with a gross profit margin of -9.25%, a year-on-year decrease of 34.13 percentage points, and it is the only main product with a negative gross profit margin.TCL Zhonghuan's four main products include components, with a business income of 2.762 billion yuan, experiencing the largest year-on-year decline (46.95%). The component products are currently maintaining a slight profit, with a gross margin of 0.94%, which is a decrease of 11.3 percentage points year-on-year. The gross margins for other silicon materials and photovoltaic power station businesses have also declined by 7.67% and 3.98% year-on-year, respectively. Notably, the gross margin for photovoltaic power stations reached 42.34%, but the scale of this business accounts for a relatively low proportion of the total revenue and cannot offset the losses from the silicon wafer products.

As TCL Zhonghuan's silicon wafer revenue declines, the revenue structure has also changed. During the reporting period, the silicon wafer income accounted for 64.4% of the company's total revenue. From 2019 to 2023, this figure was 88%, 88%, 77%, 76%, and 74%, respectively. The decline in the proportion of silicon wafer business from 2021 to 2023 is due to the increased shipment of photovoltaic components.

The persistent price inversion between silicon wafer prices and costs continues to consume TCL Zhonghuan's cash flow. In the first half of the year, the net cash generated from operating activities was 128 million yuan, the lowest level for the same period since 2016; the cash and cash equivalents were 7.02 billion yuan, which also decreased by about 840 million yuan compared to the end of the first quarter of this year, and at the end of 2023, it was 10.02 billion yuan, with a cumulative decrease of 3 billion yuan.

The company has suffered losses of over 6 billion yuan in the last three quarters, and it will take time for supply to clear out. Since the beginning of 2024, the prices of both N-type and P-type monocrystalline silicon wafers have fallen from 3 to 4 yuan per piece at the end of the previous year to 1.6 to 1.7 yuan per piece, especially with a rapid decline in wafer prices since the second quarter, which is now below the cash cost of silicon wafer production for the entire industry.

Affected by the decline in product prices, TCL Zhonghuan has reported net losses for three consecutive quarters. From the fourth quarter of 2023 to the end of the second quarter of this year, the total net profit attributable to the parent company was a loss of 5.832 billion yuan, and the net profit attributable to the parent company after deducting non-recurring gains and losses was a loss of 6.221 billion yuan. In 2022, the most prosperous year for the photovoltaic industry, TCL Zhonghuan achieved a net profit attributable to the parent company of 6.818 billion yuan, the highest level in history. Compared with the loss scale in the last three quarters, the severity of the cycle's downturn is evident.

The mid-year report shows that TCL Zhonghuan's inventory level is still not ideal. As of June 30, the company's inventory scale was 8.233 billion yuan, an increase of 752 million yuan compared to the end of the first quarter. As the third quarter has entered its second half, whether the silicon wafer price can bottom out and stabilize within the year is related to the performance of the listed company's annual results. At present, both the silicon wafer and battery segments are in a difficult state of price support, and price stabilization mainly comes from companies reducing their operating rates.

Data shows that last week, the mainstream transaction price for P-type M10 silicon wafers was 1.15 yuan per piece; P-type G12 mainstream transaction price was 1.65 yuan per piece; N-type M10 mainstream transaction price was 1.08 yuan per piece; N-type G12 mainstream transaction price was 1.50 yuan per piece; N-type G12R mainstream transaction price was 1.25 yuan per piece. P-type prices were basically the same as the previous week, while N-type prices fell slightly by about 1-2 percentage points month-on-month.

"From the supply side, inventory digestion is not ideal, and it can even be said to be difficult. Due to the decline in demand growth, leading manufacturers can only reduce production and respond to price changes through production scheduling strategies, trying to minimize cash losses in the situation of price inversion between price and cost," said a person in charge of a photovoltaic enterprise to the reporter. The demand situation of battery pieces, which is the downstream of silicon wafers, can also reflect the price trend of silicon wafers. Currently, battery pieces are in a phase of reorganization and clearing out, and the procurement strength is not optimistic, with the battery production scale of integrated manufacturers significantly reduced.

"The prices and supply and demand of the main industry chain are closely linked. The supply and demand situation of the silicon wafer end itself is temporarily stable, and changes in the trend of upstream silicon material prices may also drive the price trend of silicon wafers. For integrated photovoltaic manufacturers, the decline in battery prices will reduce the profits of the component end, while the component end directly faces customers. Therefore, integrated manufacturers can only choose to reduce battery production to avoid further impact on the gross profit margin of their own component business," said the aforementioned photovoltaic enterprise person.TCL Zhonghu has suffered significant net losses for three consecutive quarters, with Northbound capital firmly selling out throughout the year. As of June 30, Northbound capital held 138 million shares of TCL Zhonghu, reducing its holdings by 23.1234 million shares in the second quarter and 68.6509 million shares in the first quarter, accumulating to a total sale of 91.7743 million shares within the year.

The number of funds holding TCL Zhonghu has also sharply decreased, dropping from 454 at the end of 2023 to 29 at the end of the second quarter. These 29 funds collectively hold 199 million shares of the company, with their shareholding proportion of the circulating capital decreasing by 5.94 percentage points compared to the end of the first quarter. Huatai Parnassus CSI 300 ETF is the public mutual fund with the highest number of shares held, having increased its holdings by 3.393 million shares during the reporting period. Huatai Parnassus China Securities Photovoltaic ETF and Tianhong China Securities Photovoltaic ETF respectively increased their holdings by 747,600 shares and 531,000 shares. If these shares have not been sold yet, they are currently at least 11% underwater. Additionally, the fund managed by fund manager Zhao Yi, Quan Guo Xuyuan Three-Year Hold, has reduced its holdings in TCL Zhonghu by 5.4678 million shares.

"Under the influence of the significant drop in prices along the main photovoltaic industry chain, the construction of new projects has slowed down within the year, and a large number of cross-industry companies have paused investments or terminated projects, which has to some extent curbed the industry's disorderly expansion and blind investment. With the slowdown in demand growth, the digestion and clearance of the backlog of supply chain inventory will affect the annual profit and investment growth," the photovoltaic industry insider added.