1H24 net profit down 117-125% YoY

JA Solar Technology preannounced its 1H24 results: Attributable net profit fell 117-125% YoY to minus Rmb800mn-1.2bn, with median profit dropping 121% YoY to minus Rmb1bn. In 2Q24, attributable net profit dropped 114-132% YoY to minus Rmb320-720mn. Median net profit in 2Q24 was minus Rmb520mn, down 123% YoY.

Trends to watch

Module shipments grew rapidly in 2Q24; costs of non-silicon businesses fell by Rmb0.02-0.03/W. We estimate the firm's module shipments grew 63% YoY and 29% QoQ to about 20GW in 2Q24. Based on the median of the preannounced profit, we estimate the firm suffered a loss of about Rmb0.026/W in 2Q24. Considering possible inventory impairment, we think the firm could control its loss per watt to within Rmb0.02 in 2Q24, implying a QoQ decline of Rmb0.02-0.03/W.

We estimate tax-exclusive ASP of the firm's photovoltaic (PV) modules at about Rmb0.96/W in 1Q24, and the firm guided a decline of around 10% or Rmb0.096/W from the 1Q24 level in 2Q24. Given a QoQ decline of Rmb0.04-0.05/W QoQ in silicon material prices, we estimate that the firm's average cost of non-silicon products fell more than Rmb0.02- 0.03/W QoQ in 2Q24. We attribute the cost improvement to the commencement of a project with 60GW of designed TOPCon capacity at end-2023 and rising yield rate.

The firm has healthier financial conditions than most peers; its funding capability remained strong in 2Q24. As of 1Q24, the firm had Rmb15bn in monetary funds and Rmb4.2bn in short-term debt and debt repayment due within one year. Its liability-to-asset ratio was 65.8% in 1Q24, with gearing ratio relatively low among leading module companies. We expect the firm's capex in 2024 to concentrate to the 10GW PERC cell renovation project and 2GW module project in the US. We think its capex in 2024 will be controllable.

In our view, leading integrated module solution providers will show brand value against the backdrop of industry-wide fluctuations, and some leading module manufacturers will likely continue to record positive cash flow. In 1Q24, JA Solar Technology received cash of Rmb8.37bn via new borrowings. In 2Q24, it added new debts of Rmb16.1bn, indicating a healthy funding capability.

The firm's P/B ratio is around 1x, and its valuation is attractive at present. As of July 5, 2024, the firm's P/B (based on shareholders’ equity in the most recent quarter) was 1.01x. Vertically, its valuation was 1.74- 6.38x in 2020 after its return to the A-share market. Horizontally, P/B valuations of leading integrated module solution providers range from 1x to 2.1x, while P/B valuations for leading cell and silicon wafer manufacturers are 1.8x and 0.8-1.5x. Valuations of leading A-share silicon material companies are 0.9-1.4x at present.

Financials and valuation

Given the firm’s earnings performance and a latency related to module delivery, we think its module ASP will likely continue to drop in 3Q24. Therefore, we lower our 2024 and 2025 earnings forecasts 148% and 35% to minus Rmb1.51bn and Rmb2.67bn. Given the industry cycle, we switch the valuation to 2025. We maintain an OUTPERFORM rating and cut our TP 32% to Rmb13, implying 16x 2025e P/E with 24% upside. The stock is trading at 13x 2025e P/E.

Risks

Risks related to US trade policies.