Market Value Plummets Over 140 Billion Yuan

Advertisements

In the competitive landscape of the solar energy industry, Trina Solar stands out as a rare beacon of profitability amid widespread lossesAs one of the prominent players in the photovoltaic component market, often referred to as one of the "Big Three," Trina Solar has maintained its profitability during a period when many of its competitors are facing significant financial difficulties.

Recent figures reveal a complex financial situationIn the first half of 2024, Trina Solar generated revenue of approximately 42.97 billion yuan, a decline of nearly 13% year-on-year, alongside a net profit attributable to shareholders of just 526 million yuan, representing a dramatic 85% decrease compared to the previous yearDespite this substantial drop in profit margins, Trina Solar's overall performance remains superior to that of many competitors, which have reported significant losses.

Trina Solar's revenue comes primarily from three segments: photovoltaic products, system products, and power station operationsWithin the first half of 2024, the breakdown showed that the photovoltaic segment generated around 30.06 billion yuan, contributing nearly 70% to its core business revenue. system products added approximately 8.32 billion yuan to the revenue, while power station operations accounted for about 2.53 billion yuan.

The company's photovoltaic products, particularly solar modules, have been facing downward pricing pressures due to an oversupply situation in the industryDespite this marketplace challenge, Trina Solar remained the third largest supplier of photovoltaic modules in China, shipping 34 gigawatts of modules in the first half of the year, just behind rivals JinkoSolar and JA Solar.

While Trina Solar's ability to remain in the black is notable, it is important to recognize the risks associated with holding inventory worth over 30 billion yuanAs prices for photovoltaic components continue to fall, the potential for asset impairment looms large, which could exacerbate Trina Solar's already-tight cash flow situation.

Unlike JinkoSolar and Longi Green Energy, both of which have reported substantial losses in their component businesses, Trina Solar's profitability can largely be attributed to its solid performance in system products, which earned a net profit of approximately 602 million yuan in the first half of the year

Advertisements

The company has strategically adjusted its business model to focus on enhancing the profitability of its system products, particularly through the sales of support structures and distributed systems.

Additionally, the company's gross margin for system products has shown an upward trend, climbing to 18.36% in the first half of 2024 from 13.46% the year prior, which highlights Trina Solar's effective effort to optimize its operational strategies amid challenging market conditions.

Nonetheless, the ongoing challenges facing the solar panel industry, particularly with persistent price declines, put pressure on Trina SolarThe average bidding prices for N-type solar panels in recent procurement hikes have fallen to around 0.6869 yuan per watt, indicating the ongoing downward trend that could result in further financial hardships across the industry, including for Trina Solar.

Current assessments suggest that Trina Solar's solar component business represents about 70% of the company's total revenueThus, if losses in this segment enlarge significantly in the upcoming quarters, it may jeopardize the company's overall performance, even if its system products continue to perform well financially.

Beyond the operational challenges, Trina Solar faces significant cash flow constraints exacerbated by its staggering inventory levelsAs of June 30, 2024, the company's total inventory stood at 30 billion yuan, constituting nearly 35% of its current assetsThis extensive inventory is primarily composed of raw materials and finished goods, with estimates highlighting that the value of the photovoltaic power stations held also contributes notably to this metric.

The company has already begun recognizing inventory impairments, totaling around 1.171 billion yuan in the first half of 2024 aloneWith continued plummeting prices, Trina Solar anticipates further adjustments to the value of its inventory, which could significantly stress its liquidity situation.

As of June 30, 2024, Trina Solar reported liquid assets totaling approximately 23.94 billion yuan

Advertisements

When combining this with recoverable accounts receivable and notes, the figure still falls short of the required payment obligations, with the company having over 40.88 billion yuan in payables due.

To navigate through this challenging financial landscape, Trina Solar has increased its reliance on bank financingIn the first half of 2024 alone, it secured loans worth 18.46 billion yuan, of which a significant portion was directed towards operational costs, while some funds were earmarked for debt repaymentFurthermore, the company is leveraging its strong position within the supply chain to utilize funds from its suppliers more effectively.

The company's financial manoeuvrings come amidst an environment of market uncertaintyFollowing a proposed fundraising effort that was later rescinded in July 2024, Trina Solar's strategic funding initiatives have increasingly shifted towards bank loans, causing its debt levels to riseCurrently, the debt-to-asset ratio has surged to 74.34%, positioning Trina Solar as the top company in the photovoltaic component sector regarding leverage.

The situation has raised alarms within the investment community, leading to a downturn in Trina Solar's stock price, which has plummeted more than 80% since its peak in 2023. As of September 20, 2024, shares were trading at around 16.10 yuan each, translating into a staggering decline that has wiped out over 140 billion yuan in market value.

In response to these financial difficulties, Trina Solar is contemplating the separation and subsequent listing of one of its subsidiariesThe subsidiary's operations, which focus on distributed system solutions, would potentially offer a strategic avenue to lift the financial burden imposed on the parent companyWhile the subsidiary has only posted modest profits, its valuation has skyrocketed, indicating investor interest.

Despite the attempts to fortify its business model through diversification and separation, many obstacles remain for Trina Solar

Advertisements