Analysts hold positive outlook for Hanwha Solutions despite weak stock price

[Photo provided by Hanwha Solutions

Hanwha Solutions Corp., South Korea’s leading solar energy company, has been grappling with a sluggish stock performance this year, but analysts remain bullish on the company’s prospects with a sustainable profit growth trajectory.

The key driver behind the optimistic outlook is the significant projected improvement in the profitability of the company’s renewable energy business, which accounts for over 90 percent of its entire operating profit.

Shares of Hanwha Solutions fell 1.15 percent on Tuesday to close at 47,200 won ($37.01). The stock lost 12.02 percent this year while the broader Kospi index surged by 18 percent.

Its stock price has continued its downward trajectory even after the spin-off of its subsidiary, Hanwha Galleria, in March.

Hanwha Solutions’ stock had a stellar run in 2020, skyrocketing by 154 percent as it rode the wave of the renewable energy investment boom. Even during the market downturn last year globally, the company’s stock managed to climb by an impressive 21 percent.

However, the current underperformance of the stock price is primarily driven by ongoing concerns surrounding the challenging solar energy market, which is the company’s core business.

The price of polysilicon, a vital component of solar panels, has experienced a significant decline of 19 percent, dropping to $10.96 per kilogram at the beginning of this month, compared to the end of May.

After reaching its peak price of $28.76 in February, the market has seen a downward trend due to the oversupply resulting from the expansion of Chinese solar firms, coupled with a contraction in global solar demand.

Policy uncertainties have also emerged earlier this year.

In April, the introduction of California’s new electricity tariff system, NEM 3.0, triggered a substantial reduction in the selling price of residential solar-generated electricity from 32 cents per kilowatt-hour to a mere 8 cents.

This reduction has diminished the appeal of solar installations for consumers, as institutions now purchase excess residential electricity at lower rates.

Nevertheless, market analysts assert that price declines driven by uncertainty can often present lucrative opportunities. Hanwha Solutions is a key player in solar module manufacturing.

The solar value chain encompasses polysilicon, ingots, wafers, cells, and modules. The decline in polysilicon prices can bolster Hanwha Solutions’ cost competitiveness and improve its overall profitability.

Chun Woo-je, an analyst at KB Securities Co., emphasized that while the short-term impact of declining polysilicon prices on performance might be negative, the long-term outlook is positive.

The analyst highlighted previous market cycles, such as 2015-2016 and 2019-2020, where falling polysilicon prices coincided with remarkable turnarounds in solar sector performance.

FnGuide Inc. projects that Hanwha Solutions will continue its growth trajectory this year with an estimated revenue and operating profit for 2023 at 13 trillion won and 1.06 trillion won, respectively. Operating profit is expected to surpass the 1 trillion won mark, surpassing last year’s 966.2 billion won.

Notably, the operating profit of the company’s core renewable energy sector is projected to record a 188 percent jump from 350 billion won in 2022 to some 1 trillion won this year.

Addressing concerns related to NEM 3.0, Hanwha Solutions said during a recent conference call that it does not anticipate a contraction in the residential market for the U.S. solar industry to achieve the industry’s growth target of 20 GWh this year and 30 GWh next year.

Solar energy accounted for a mere 4.7 percent of the U.S. energy market last year.

Hanwha Solutions also stands to benefit significantly from the U.S. Inflation Reduction Act (IRA) and the Advanced Manufacturing Production Credit (AMPC).

NH Investment & Securities Co. forecast that the AMPC benefits for Hanwha Solutions will increase to 232 billion won in 2024, 680 billion won in 2025, and 1.05 trillion won in 2026, from 160 billion won this year.