After facing a massive boom in the solar industry for the past decade, many solar manufacturers went into trouble when the solar industry expanded too rapidly and ended up with huge overcapacity issue. Even when industry giants like Suntech Power Holdings faced bankruptcy earlier this year, there is one company that seems to be bucking the trend and seeing its profit improving. Xinyi Solar Holdings Ltd (968:HK) recorded a 150% growth in its interim net profit in 2014 compared to last year. The company recorded a net profit to its shareholders of HK$200.3 million for the first six month of 2014.
The company manufactures ultra-clear photovoltaic raw glass and ultra-clear photovoltaic processed glass. Interestingly, unlike most of its competitor which export their products, Xinyi Solar focused in the Chinese domestic market, with sales in the PRC contributing about 80% of its overall revenue. According to the company’s interim report, it is seeing an improvement in the demand of its products in Japan, North America and other emerging markets in Asia.
Huge growth ahead?
The company seems to be very optimistic about the future of the solar industry, planning to invest more than HK$5.5 billion in the future to develop solar farms in China. The plan might transform the company from being a solar component manufacturer to an electricity generator in the country.
What are the risks?
However, the company might have to increase its debt level significantly in the near future if it wants to pursue its solar farm projects. The company is currently at a near 0% net debt to equity ratio. Yet the HK$5.5 billion capital expenditure is close to 200% of its current equity of the company.
Value In Action
It is still too early to know for sure if the solar industry is indeed coming back. The industry has long been running on subsidy and government incentives to sustain its business. Nonetheless, in order for the industry to be operating successfully for the long term, it need to find a solution to be profitable in the free market.
According to Xinyi Solar Holdings, it seems the future is bright.Join us on Facebook for more exciting updates and discussion about value investing. Submit your email address for important market updates and FREE case studies!We will only provide you with information relevant to value investing. You can unsubscribe at any time. Your contact details will be safeguarded. The information provided is for general information purposes only and is not intended to be any investment or financial advice. All views and opinions articulated in the article were expressed in Stanley Lim’s personal capacity and does not in any way represent those of his employer and other related entities. Stanley Lim does not own any shares in the companies mentioned above.