Hanwha Solutions: PV Sector and Industry Conditions Look Optimistic

The author is a KB Securities analyst. He can be contacted at [email protected] – Ed.

Maintain BUY, target price of KRW57,000

We maintain BUY and TP of KRW57,000 on Hanwha Solutions. Our investment points are (1) the improvement in photovoltaic results supported by the drop in wafer prices in 2022 and (2) PVC / caustic soda margins reinforced by carbon neutrality.

4Q21 preview: slight decline in QoQ expected

We forecast 4Q21 revenue at KRW2.72tn (+ 6.3% YoY, + 5.5% QoQ) and a PO at KRW162.3bn (+ 148.2% YoY, -9.0% QoQ). Photovoltaics should post a turnover of KRW926.6 billion (+ 12.0% QoQ) and an operating loss of KRW64.9 billion (loss to narrow QoQ). The segment benefited from an increase in turnover thanks to the increase in QoQ of deliveries of photovoltaic modules and ASP. Chemicals should generate a turnover of 1.35 tn KRW (+ 2.7% QoT) and a PO of KRW215.4bn (-1.3% QoQ). LDPE / PVC prices and spreads appear to have improved in QoQ. Caustic soda prices averaged $ 626 / tonne (+ 64.7% QoQ) for the quarter after a surge in November caused by the electricity crisis in China.

Company that deserves the most attention in 2022

We forecast 2022 revenues at KRW11.38tn (+ 8.5% yoy) and a PO at KRW1.14tn (+ 40.1% yoy); the results should be stimulated by the improvement of photovoltaics. We see PV PO turn black to KRW 108.1 billion (2.7% OPM), supported by (1) profit margin improvements driven by lower wafer prices and (2) product the sale of the electricity production activity. We expect the United States to pass the America’s Manufacturing Solar Power Act in 1H22. The law is expected to provide an increase of KRW 142.8 billion in pre-tax profit per year for Hanwha Solutions’ only US module plant (capacity of 1.7 GWh). If REC Silicon’s polysilicon plant (capacity 18,000 tonnes; acquired end of 2021) is converted to a photovoltaic module plant, SEMA’s annual tax benefits are expected to be around KRW 1.5 billion. We believe that a monumental shift is imminent for the company’s photovoltaic business in the United States, making Hanwha Solutions the most worthy of attention in 2022.

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