TCL Zhonghuan: Turned Loss-Making As Solar Wafer Prices Fell

TCL Zhonghuan’s preliminary 2023 result is disappointing. The CNY 4.2 billion to CNY 4.8 billion net income guidance for the full year translates into a CNY 1.4 billion to CNY 2.0 billion loss in the fourth quarter. Zhonghuan attributed the disappointing result to margin contraction and one-off losses. As such, we lower our 2023 earnings estimate to CNY 4.5 billion from CNY 7.9 billion. We also cut our unit gross profit estimates for solar wafers by 6%-38% from 2024 to 2027 due to lower price assumptions. As a result, we reduce our net income estimates by 16% to 54% from 2024 to 2027, leading to a 23% cut in our fair value estimate to CNY 19.50. Zhonghuan’s shares are trading at a 30% discount to our fair value estimate, but we think investors may stay sidelined until there are signs solar wafer prices are likely to strengthen, which we think is more likely toward mid-2024.