Last Friday, the National Development and Reform Commission, the Ministry of Finance, and the National Energy Administration jointly issued the "Notice on Matters Concerning Photovoltaic Power Generation in 2018" (hereinafter referred to as the "Notice"): In terms of scale, only 10 million kilowatts (10 gigawatts) will be allocated for distributed photovoltaic projects this year. And from the date of publication, the benchmark on-grid electricity price of newly put into operation photovoltaic power stations will be uniformly reduced by 0.05 yuan per kWh, and the benchmark on-grid electricity price of class I, class II and class III resource areas will be adjusted to 0.5 yuan, 0.6 yuan and 0.7 yuan per kilowatt-hour respectively. Yuan (including tax).
On the other hand, starting from May 31, for distributed projects that are newly put into operation and adopt the model of "spontaneous self-use and surplus electricity connected to the grid", the subsidy standard for full electricity kWh will be reduced by 0.05 yuan to 0.32 yuan per kWh (tax included) )Wait.
The government has a firm attitude and quick action. The date of issuance of the document is the date of implementation of the new policy. The strength and speed of the policy far exceed market expectations, which means that the photovoltaic industry will officially bid farewell to the era of subsidies and profits. Enterprises in the industry that lack core competitiveness will was eliminated.
Suddenly, the photovoltaic industry as a whole turned to "winter", and the photovoltaic sector in the Hong Kong and China markets was hit hard, and many investors may turn off the lights and eat noodles.
Image source: Internet
Among them, Follett Glass (6865.HK) was the most injured, with a cumulative plunge of nearly 30% in two days. I can't help but ask, is the company going to collapse?
1. The past and present life of Flat Glass
Need to know why the market reacted so strongly? We must first figure out the company's product structure.
In November 2015, Flat Glass landed on the main board of the Hong Kong Stock Exchange. Its business includes photovoltaic glass (accounting for about 70% of the overall revenue), float glass , engineering glass and furniture glass research and development, production and sales, As well as the mining and sales of quartz sand for glass, and the construction of EPC photovoltaic power station projects, a vertically integrated business operation model of "upstream mines - midstream photovoltaic glass and other glass product manufacturing - downstream photovoltaic power plant operations" has been formed. In terms of the ownership structure of
, 75% are domestic shares and 25% are H shares. As of the end of 2017, the company's single shareholder and actual controller are Ruan Hongliang and his concerted actors, with a total shareholding ratio of 62.15%, all of which are domestic shares.
Currently, the company's total production capacity is about 4,490 tons/day, including 3,290 tons/day for photovoltaic glass and 1,200 tons/day for float glass. In terms of photovoltaic glass production capacity, Flat Glass ranks second in the world, second only to Xinyi Solar (0968.HK) at 6,800 tons per day. Together, the two companies account for nearly 50% of China's photovoltaic glass production capacity.
Due to the relatively high barriers to entry in the photovoltaic glass industry in terms of capital requirements, technology and cost control. To be precise, the industry is essentially a capital-intensive and technology-intensive industry. As a result, the siphon effect of the first-tier enterprises in the industry has become more and more obvious as time goes by, as can be seen from the gross profit margin of the company and Xinyi Solar.
Although in the industry, the two companies can enjoy a higher gross profit rate than their peers, , but in fact, if you look at the midstream position of the photovoltaic glass industry in the overall industrial chain, this role does not have any advantages. Suppliers in the industry and downstream photovoltaic module manufacturers and other customers are quite strong. When the price of any party changes, photovoltaic glass cannot convert the siphon effect of the industry into bargaining power over upstream and downstream manufacturers.
Image source: Shenwan Hongyuan, company business structure
For example, in 2017, due to the decline in the average selling price of photovoltaic glass products and the sharp increase of several major raw materials during the period, the gross profit margin of the two major players in the industry has declined significantly.
However, Xinyi Solar, the industry leader, added three new ultra-clear photovoltaic raw glass production lines at the end of 2016 and the first quarter of 2017, with a new daily production capacity of 2,900 tons. In addition, due to the relatively dispersed revenue structure, the EPC service revenue surged 239% year-on-year during the period, effectively offsetting the sharp decline in photovoltaic glass profits, and the overall profit for the year was still able to record a year-on-year growth rate of 17.4%.
On the contrary, Follett glass has not been able to do soFortunately, due to the large proportion of the glass business revenue, and its photovoltaic glass production base in Anhui was only ignited in December 2017, the newly added 1,000 tons of production capacity did not bring sales in time for 2017, resulting in a year-round Net profit plummeted 29%, perfectly missing the bull market in Hong Kong stocks.
And the new production capacity also laid the groundwork for the sharp drop in stock prices after the introduction of the new policy, which will be discussed later.
Data source: company
2. What is the reason for the surge at the beginning of the year?
Entering 2018, Flat Glass reversed last year's decline and soared wildly. From the beginning of the year to mid-March, the increase was as high as 100%, completely leaving the Hang Seng Index behind.
In my opinion, the logic of the market is mainly based on the following two reasons:
1. Industry Supply-side reform
With the acceleration of the supply-side reform process, this whirlwind swept the glass sector at the end of 2017. The city of glass - Hebei in Shahe City, Province, suffered heavy losses, and many local production lines were in a predicament of suspending production.
In November 2017, 9 float glass production lines in the Shahe area were shut down due to incomplete sewage discharge permit procedures, with a total melting capacity of about 5,800 tons/day;
In December 2017, 3 float glass production lines were The production line and 10 Gefa glass production lines were shut down, with a total melting capacity of about 2,050 tons per day. In addition to the nine production lines that were shut down in November, the Shahe area has shut down a total of 7,850 tons per day, accounting for 27.4% of the local production capacity and about the national total. Capacity 5.2%.
This round of suspension of production caused the price of photovoltaic glass to rise sharply at the end of 2017. However, this is only the beginning of the supply-side reform of the glass industry.
According to the research report of CICC, as of mid-January, about 40% of the glass enterprises in the country have not yet obtained the pollutant discharge permit, including Rainbow New Energy and Hebei Jinxin. Shutdown risk.
Moreover, the photovoltaic glass industry has high barriers, and production requires long-term experience accumulation and one-stop production process, and requires a large initial investment. The photovoltaic glass kiln with a capacity of 900 tons/day requires an initial investment of 9 100 million yuan, 550 tons of furnace investment needs about 300-400 million yuan, and large kilns have lower manufacturing costs than ordinary kilns (energy consumption is 20% lower).
According to the data, it takes 1-1.5 years for a complete production line of photovoltaic glass from investment to output, and once the kiln is ignited and put into production, it needs to run continuously. If the fire extinguishing is suspended, it will take about 6 months to resume normal production.
In terms of downstream customers, photovoltaic module companies have high requirements for the quality stability, timeliness of supply and after-sales service of photovoltaic glass. time of year.
In addition, photovoltaic glass modules equipped with photovoltaic cells also need to obtain certification from the exporting country’s authoritative organization. The process is also time-consuming and expensive. These factors have formed customer stickiness, which is beneficial to photovoltaic glass manufacturers that entered the market earlier and have been cooperating with them stably. .
2. Anticipation of A-share IPO
Flat Glass tried to land in the A-share market in 2012 before going public in Hong Kong, but the photovoltaic industry as a whole fell into a slump, which made the company’s financial data extremely ugly. The annual profit was only RMB 60 million. In the end, he was rejected by the great SFC.
However, the company's management is still persistent and determined to land in the A-share market. It submitted another listing application to the China Securities Regulatory Commission in July last year, and it is now in the feedback stage. According to the disclosure in the prospectus,
plans to issue 200 million shares and raise funds of up to 1.82 billion yuan, which means that the issue price is expected to be as high as 9.1 yuan per share. At the same time, if the company can successfully enter the A-share market, due to the A+H-share structure, it will automatically become a Hong Kong Stock Connect target and enjoy the liquidity premium brought by the southbound funds.
3. The price of raw materials soared, and the stock price kept falling
However, the good times did not last long, and the company’s stock price began to fall sharply in mid-March. The main reason for was the cost side full of uncertainties.
According to the data in the prospectus of the year, the product cost structure of Flat Glass Company is mainlyDepends on two factors of energy and raw materials.
Data source: company prospectus
Energy : Electricity prices are basically stable, mainly depending on fuel prices. Last year, "coal-to-gas" swept across the northern land, and the "gas shortage" caused the spot price of LNG to soar. However, this was caused by the coincidence of multiple factors. Today, the state is forcing "three barrels of oil" to increase the extraction and import of natural gas, and gas distributors must complete the gas storage capacity of the corresponding indicators. Therefore, LNG prices are expected to gradually fall from a long-term perspective.
Picture source: Wind, LNG prices
Raw materials : The price of quartz sand is relatively stable and will not cause major fluctuations in the company's cost, mainly because the company's production line is located in Fengyang County, Anhui Province, where there are abundant quartz sand resources, plus The company signed a mining right acquisition agreement with the government department of Chuzhou, Anhui, and can use the mining right when necessary, basically stabilizing the cost of quartz sand.
However, soda ash , which accounts for 14.26% of the total cost of photovoltaic glass, ushered in a wave of sharp rise after March.
In May, due to the escalating international geopolitical crisis and the unexpected decrease in US crude oil inventories, international oil prices have repeatedly broken important thresholds. The soaring oil prices have also caused the downstream chemical industry product prices to continue to rise. Unfortunately, soda ash is one of them.
On the other hand, because soda ash manufacturers are concentrated in the short-to-medium term to enter the maintenance period, and secondly, the industry's capacity reduction has led to supply contraction. The coincident outbreak of multiple factors has caused the price of soda ash to increase by more than 25% year-to-date, completely smoothing out the sharp drop caused by the demand side at the end of 2017.
Image source: Wind, soda ash price
Uncertainty on the cost side caused the stock price to pull back from a high level after March, with a correction of 30% in two months. However, this is still not comparable to the 30% drop in the past two days.
fell 30% in four or two days, why?
According to the "China's Clean Energy Industry Annual Development Report" released by China Economic Information Service, a subsidiary of Xinhua News Agency, on March 27, 2018, it is estimated that the scale of newly installed photovoltaic capacity in 2018 will be 40GW to 50GW. Xinyi Solar's management also predicts that China's new installed capacity will reach 50GW this year, the same as last year.
In the first quarter of 2018, China's newly installed photovoltaic capacity increased by 22% year-on-year to 9.65GW, and the cumulative installed capacity nationwide is estimated to reach 140GW. According to EnergyTrend's calculations, China's cumulative installed capacity will reach 250GW by 2020.
However, the new photovoltaic policy has completely "cooled" these good expectations, and the market has to readjust its expectations. According to CICC's forecast, the expected demand for new photovoltaics in the whole year may drop to about 35GW-45GW.
This means that the demand for photovoltaic glass will drop sharply by up to 30%.
As mentioned above, the cost of shutting down and restarting glass manufacturing is very high, so once the production line is put into operation, it must keep running 24 hours a day, which determines the inelastic nature of glass manufacturing supply. In the case of a sharp drop in downstream demand, the industry will suddenly oversupply, and a price war will break out soon.
Therefore, Flat Glass's profit will drop sharply, which is one of the reasons for the sharp drop in stock prices.
On the other hand, the new policy is also very likely to interrupt the company's A-share financing and the road to Shenzhen-Hong Kong Stock Connect, causing the company to fall into the financial trap of too aggressive expansion. .
According to the company's information, the daily production capacity under construction at this stage is as high as 4,000 tons, respectively in Anhui and Vietnam.
Data source: The company
In order to cope with such a fierce expansion plan, the company borrowed heavily last year. The figure below shows that the company’s borrowings in 2017 increased by 219.4% year-on-year, and the asset-liability ratio rose to 83.23% by the end of 2017.