LONGi Green Energy Technology Earnings: Falling Product Prices Weigh on Profits

As expected, LONGi’s 601012 third-quarter revenue and net income fell by 19% and 44%, respectively, as product price declines outweighed shipment growth. With solar wafer and module prices hitting year-lows at the end of October, the fourth quarter is set to remain challenging. After factoring in the recent price decline, we lowered our net income estimate to CNY 15 billion from CNY 16 billion in 2023. Our assumptions for 2024 and beyond are unchanged. We expect the weak pricing outlook to remain a drag next year, but we forecast net income to rebound 30% year on year in 2024 on higher shipments.

We maintain our fair value estimate at CNY 29.30. The shares closed 18% below our fair value estimate on Oct. 31, but we think investors with lower risk appetites may prefer to wait for reduced uncertainty surrounding LONGi’s cell strategy.

Unlike most peers that choose TOPCon as the next-generation solar cell technology, LONGi opted for BC technology. While BC cells are more efficient than TOPCon cells in a single-sided use case such as rooftops, it is uncertain for a dual-sided use case such as utility-scale solar farms. Also, while LONGi is confident in its proprietary technology, there might be potential patent disputes with BC technology leader Maxeon. More importantly, LONGi must prove that it can reduce the high production costs associated with BC cells. LONGi said that the current cost of its HPBC cells, developed based on BC technology, is close to that of TOPCon cells. We give management the benefit of the doubt, but we believe LONGi needs to provide more data to fully convince investors.

We like the share purchase plan by LONGi’s chairperson Mr Zhong. Zhong intends to spend CNY 100 million to CNY 150 million purchasing LONGi shares over the next 12 months. The amount ranges from 0.05% to 0.08% of LONGi’s market capitalization as of Oct. 31. Zhong currently holds a 1.3% equity stake in LONGi.