Hanwha Solutions: Seeing the Clear Start of Mid to Long-Term Earnings Growth Momentum

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The author is an analyst at NH Securities and Investment. He can be reached at [email protected] — Ed.

Consistent with the United States’ policy of supporting its solar industry, we expect: 1) robust module pricing; 2) securing integrated value chain facilities; and 3) a lighter expense burden, including wafer and logistics costs. Going forward, Hanwha Solutions’ EV is expected to continue to progress both through its promising medium to long-term growth potential and its continued evolution from a simple chemical company to a solar player.

See a clear start to mid/long-term earnings growth momentum

Adhering to a buy rating, we are increasing our TP on Hanwha Solutions by 22% from 58,000W to 71,000W, reflecting both a 25% increase in our 12-month EBITDA guidance for the company’s renewable energy business and the elimination of a 10% discount that had been applied to its renewable energy business, which was previously limited to photovoltaic cells and modules.

Compared to our previous projections, we are increasing the annual OP projections by 10% for 2022 and 12% for 2023. It should be noted that the Solar Energy Industry Association and Wood Mackenzie have increased their forecasts for solar installation in the States United States by 40% from their estimate, which was made before the recent passage of the Inflation Reduction Act (IRA). As a result, we expect module prices to remain robust going forward. Meanwhile, expense items such as wafer costs and logistics costs are expected to decrease in the near future, which will further strengthen Hanwha Solutions’ medium to long-term profit growth potential.

3Q22 preview: the sun is starting to shine again

In 3Q22, Hanwha Solutions is expected to post sales of W3.45tn (+1.8% qq) and an OP exceeding consensus of W296.9bn (+6.9% qq; OPM of 8.6%).

For the company’s renewable energy business, we forecast an OP of 125.3 billion W (+256% qq; OPM of 8.3%), estimating that the price of the PV module will continue to increase in 3Q22 . According to the Korea International Trade Association (KITA), the export unit price of photovoltaic modules (USD/kg) increased by 36% mm in June, 8% mm in July and 3% mm in August. With the magnitude of the module price increase outpacing that of the wafer price, we expect the distribution of Hanwha Solutions’ renewable energy business to widen by more than 3 cents per watt this quarter.

Given the inevitable effects of both the weakening of PE and PVC spreads and the deterioration in the price of caustic soda, the OP of 3Q22 in the chemical business of the company will probably slip a few to 158.2 billion of W (-31% qq; OPM of 11.5%). That said, the price of ethylene vinyl acetate (EVA), which is used in solar module sheets, remains high amid strong demand. And, with the price of vinyl acetate monomer (VAM; raw material for EVA) falling, the company stands to benefit from better margins on EVA products. For reference, although Hanwha Solutions has withdrawn its capacity expansion plans for dinitrotoluene (DNT), it has announced new capacity expansion plans for PV-related products such as EVA resins and EVA sheets. We view this development favourably, believing that it reflects the evolution of Hanwha Solutions’ identity from a simple chemical company to a player in the solar industry.

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