Hanwha Q CELLS in cash preservation mode as profits and margins crash

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Total revenue-recognized module shipments in 2016 were a record 4,583MW, an increase of 55.0% from 2,956MW in 2015. Image: Hanwha Q CELLS

‘Silicon Module Super League’ (SMSL) member Hanwha Q CELLS may have reported record PV module shipments and revenue for 2016 but the underlying strategy for 2017 is cash preservation after its gross profit and margins collapsed in the fourth quarter of 2016. 

Hanwha Q CELLS slashed capital expenditures to around US$50 million for 2017, down from US$137.7 million in 2016, with no new in-house capacity expansions planned for the year

Total revenue-recognized module shipments in 2016 were a record 4,583MW, an increase of 55.0% from 2,956MW in 2015. However, Hanwha Q CELLS guided total module shipments to be in the range of 5,500MW to 5,700MW in 2017, indicating growth was expected to be much lower than last year at around 16%. 

Total revenue-recognized module shipments in 2016 were a record 4,583MW, an increase of 55.0% from 2,956MW in 2015.

Closest SMSL member rival JA Solar had module shipments of 4,606MW in 2016, equating to a 25% growth rate. JA Solar expects total product shipments in 2017 to be in the range of 6GW to 6.5GW. PV Tech estimates that total module shipments should be in the range of 5.4GW to 5.9GW with growth rates of 18 to 29%. 

JA Solar reported gross margin of 14.6%, compared to 17.0% in fiscal year 2016. Fourth quarter gross margin was 12.9%, down slightly from 13.8% in the previous quarter. 

JA Solar also guided first quarter of 2017 total cell and module shipments to be in the range of 1,200MW to 1,300MW, essentially all being external shipments. PV Tech estimates module shipments would be in the range of 1050MW to 1,150MW, up from 919MW in the first quarter of 2016.

In contrast, Hanwha Q CELLS guided only revenue for the first quarter as it has stopped guiding shipments and shipments on a regional basis last year. The company said it expects net revenue to be in the range of US$410 to US$430 million. JA Solar does not guide quarterly revenue. 

However, Hanwha Q CELLS reported first quarter 2016 revenue of US$514.9 million on module shipments of 912MW. With the company experiencing more than a 20% decline in ASP’s in 2016, PV Tech estimates lower module shipments for Hanwha Q CELLS in the first quarter of 2017. This indicates, based on full-year shipment guidance that quarterly shipment run rates would need to be in the range of 1,375MW and so shipments would seem to be heavily loaded to the second half of the year.

With respect to JA Solar, quarterly module run rates need to be 1,350MW to meet PV Tech’s annual shipment estimates, indicating shipments are loaded slightly less to the second half of 2017.

Profitability issues

A key development in Hanwha Q CELLS reporting fourth quarter results was plummeting profits and margins. The company reported a gross margin of 9.5%, compared with 19.9% in the third quarter of 2016 and 19.1% in the fourth quarter of 2015. Gross profit was US$54.0 million, down from US$140.5 million in the third quarter of 2016 and US$134.2 million in the fourth quarter of 2015. Net loss was US$25.5 million. Total net revenues were US$565.9 million, down 20.0% from US$707.8 million in the third quarter of 2016 and down 19.4% from US$702.1 million in the fourth quarter of 2015. 

A key development in Hanwha Q CELLS reporting fourth quarter results was plummeting profits and margins.

In comparison, JA Solar reported gross margin of 12.9%, compared to 13.8% in the third quarter and 17.1% in the fourth quarter of 2015. Gross profit was US$74.2 million, compared to US$86.1 million in the third quarter of 2016 and US$121 million in the fourth quarter of 2015.

Clearly, both companies are being impacted by declining module ASP’s but Hanwha Q CELLS impact seem far greater on these profitability metrics and the company posting a loss in the quarter. 

Hanwha Q CELLS has benefited from higher ASP’s than rivals such as JA Solar, primarily due to its larger capacity of P-type multi-PERC production and to a smaller degree in the second half of 2016 its capacity of P-type mono-PERC. 

However, several other SMSL’s, including JA Solar and JinkoSolar are also adding more P-type multi-PERC and P-type mono-PERC production in 2017. 

Concern remains that that ASP erosion in 2017 would impact Hanwha Q CELLS ability to remain profitable. According to an investor report from ROTH Capital analyst, Philip Shen, the company had a blended module ASP of US$0.44/W in the fourth quarter of 2016, while its manufacturing cost structure was estimated to be US$0.40/W.

Full year financials

Hanwha Q CELLS reported net revenue of US$2,426.6 million in 2016, an increase of 34.8% from US$1,800.8 million for the full year 2015. 

Gross margin rate was 18.7% for the full year 2016, compared with 18.5% for the full year 2015.  Operating income was US$207.5 million in the full year 2016, compared with US$77.9 million in the full year 2015. Net income was $120.5 million, compared with us$43.8 million IN 2015. 

Mr. Seong-woo Nam, Chairman and CEO of Hanwha Q CELLS, remarked “We achieved record high total module shipment and revenue in the full year 2016 while establishing solid market positioning in key strategic markets in both mature and emerging countries. In 2016, we have also successfully ramped up a world leading PERC cell in-house production capability, now having produced over 3 GW1 of both mono and multi PERC cells since 2015, positioning Hanwha Q CELLS as a global leader in production of advanced cells.”

Hanwha Q CELLS had cash and cash equivalents of US$390.9 million at the end of 2016, compared with US$254.8 million as of September 30, 2016. The restricted cash as of December 31, 2016 was US$108.1 million, compared with US$147.2 million as of September 30, 2016.

11 October 2022
PV CellTech Extra will be held as a series of live webinars and on-demand sessions on 11-13 October 2022. We'll be taking a slightly further forward-looking view at the technologies and roadmaps for new cell architectures set to dominate mass production during 2023-2025 with special emphasis on the potential timelines for technologies beyond the single-junction cell design, including perovskite and hybrid concepts.

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