[This Week's Industry Insight] US SolarHub Set to Launch in April Next Year... Q4 Turnaround Expected

Hanwha Solutions' Stock Price Halved Since Last November's Record High
Solar Division Slumps Amid Global Oversupply
3.2 Trillion Won Investment in SolarHub, Georgia, USA
Expected to Drive Stable Mid- to Long-Term Growth

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Attention is focused on the recovery timing of Hanwha Solutions, whose stock price hit a 52-week low due to poor performance in the third quarter this year. Securities firms have consecutively lowered Hanwha Solutions' target price due to weak performance and industry conditions, but they expect a turnaround starting from the fourth quarter. Accordingly, the stock price has rebounded after hitting the low. Currently, the solar integrated production complex 'Solar Hub' under construction in the U.S. is expected to begin module production from April next year, further raising expectations for securing a foothold in the U.S. market.

According to the Korea Exchange on the 8th, Hanwha Solutions' stock price has fallen 38% this year. Compared to the 52-week high recorded in November last year (67,869 KRW), it has halved.

Despite the petrochemical industry's downturn last year, the solar division grew and recorded record-high performance, receiving strong market expectations and showing a bullish stock trend. However, this year, even the solar division showed weakness due to price declines caused by global oversupply, worsening performance. Hanwha Solutions posted consolidated sales of 2.9258 trillion KRW and operating profit of 98.3 billion KRW in the third quarter this year. Sales decreased by 9.7% year-on-year, and operating profit dropped by 70.8%. Operating profit in the renewable energy division, which led last year's record performance, fell by 82.4%, and the chemical division also decreased by 56.3%. Lee Jin-ho, a researcher at Mirae Asset Securities, said, "Hanwha Solutions' third-quarter operating profit fell short of market consensus by 19.3%, mainly due to a larger-than-expected deterioration in the profitability of the renewable energy division," adding, "Third-quarter solar module shipments are estimated to have fallen about 11% quarter-on-quarter, and prices dropped about 17%."

Performance is expected to improve in the fourth quarter, but achieving an annual operating profit of 1 trillion KRW seems difficult again this year. Hanwha Solutions narrowly missed joining the 1 trillion KRW club last year, recording operating profit of 966.2 billion KRW during its record-high performance. According to financial information provider FnGuide, Hanwha Solutions' annual operating profit consensus for this year is 754.7 billion KRW.

High interest rates have acted as a negative factor for renewable energy. Renewable energy projects require large initial capital and thus have high debt dependency. Yoon Yong-sik, a researcher at Hanwha Investment & Securities, explained, "Most renewable energy projects require wide land and large-scale facilities, so initial costs are high, while profits are slowly generated through electricity sales. Regardless of project size, most rely on debt. When interest rates fall, the burden of project execution decreases, so the sharp increase in renewable energy installations after the pandemic was positively influenced by near-zero interest rates. However, with the base rate rising to 5.5% now, increased interest expenses reduce project profitability, inevitably causing demand slowdown."

Demand decline has also affected solar module prices. The U.S. solar module prices, which had relatively smaller declines compared to other regions, recently showed a steeper drop than China or Europe. Researcher Yoon said, "The recent decline in solar component prices cannot be entirely separated from demand reduction caused by high interest rates."

Due to ongoing product price declines caused by oversupply across the solar value chain, short-term industry improvement is difficult to guarantee. Yoon Jae-sung, a researcher at Hana Securities, said, "With European prices plunging, global players including Hanwha Solutions are executing strategies to increase the U.S. share, where prices are more than twice as high. Accordingly, U.S. module prices have entered a full-fledged decline phase. The company's selling prices will remain firm compared to the market, but the weak U.S. market prices remain a concern."

Financial burden is also a concern. As of the end of June this year, Hanwha Solutions' borrowings stood at 8.2074 trillion KRW, about 1 trillion KRW higher than at the end of last year. Researcher Yoon said, "Due to increased funding costs, financial expenses rose from 130 billion KRW in 2021 to 170 billion KRW last year and are estimated at 300 billion KRW this year," adding, "The sharp increase in financial expenses is also a point to be cautious about."

Expansion of production capacity in the U.S. is considered a positive factor for medium- to long-term growth. In January this year, Hanwha Solutions announced a 3.2 trillion KRW investment to build the solar integrated production complex 'Solar Hub' in Georgia, U.S., targeting the North American solar market. This is the largest scale in the history of the U.S. solar energy industry, and Hanwha Solutions is the first single company to have production lines for all key solar value chain stages in North America.

In Cartersville, Georgia, a total of 3 trillion KRW will be invested to build integrated production complexes for ingots, wafers, cells, and modules, each with a capacity of 3.3 GW. Among the five key solar value chain stages?polysilicon, ingot, wafer, cell, and module?four products except the raw material polysilicon will be produced in one location. Hanwha Solutions plans to start bringing in major process equipment beginning with the module line by the end of this year, start module operations in April next year, and sequentially begin mass production at the ingot, wafer, and cell factories. Additionally, the Dalton plant, which started module mass production in 2019, will expand its annual production capacity from the current 1.7 GW to 5.1 GW by the end of this year.

When Hanwha Solutions completes new expansions at the Dalton and Cartersville plants by the end of next year, local module production capacity will increase to a total of 8.4 GW. This 8.4 GW is the largest production capacity for solar companies making silicon-based modules in North America, enough to supply power for about 1.3 million U.S. households for one year. According to energy market research firm Wood Mackenzie, U.S. solar installation demand is expected to increase from 19 GW in 2022 to 28 GW in 2023, 33 GW in 2024, 39 GW in 2025, and 44 GW in 2026. Hanwha Solutions held the No. 1 market share for 17 consecutive quarters in the U.S. residential solar module market and 12 consecutive quarters in the commercial solar module market until the third quarter last year.

Jung Kyung-hee, a researcher at Kiwoom Securities, said, "Various U.S. government policies to foster domestic solar power open new growth opportunities for Hanwha Solutions, which has been preparing at the gateway to the U.S. solar market for over 10 years," adding, "Securing a position within the economic moat of U.S. solar and a portfolio diversification strategy are expected to drive stable medium- to long-term growth."

Building the value chain in the U.S. is also expected to influence stock price revaluation. Lee Jin-myung, a researcher at Shinhan Investment Corp., explained, "Although the stock price fell to the lowest level in three years due to performance slowdown from solar price declines and demand concerns from high interest rates, revaluation is possible as competitiveness as a renewable energy company is strengthened through building a value chain in the U.S. with price premiums and technological competitiveness."

This content was produced with the assistance of AI translation services.