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01Trina Solar's decision to terminate the planned spin-off of its holding subsidiary, Trina Fujia, was a strategic decision based on the development trend of the industry and its own advantages.

In the first three quarters of 022024, Trina Solar's revenue was 63.147 billion yuan, down 22.16% year-on-year, and the net profit attributable to the parent company was -847 million yuan, down 116.67% year-on-year.

03Trina Solar's profitability declined significantly in the third quarter of 2024 due to the continued decline in module prices.

04 At the same time, photovoltaic core enterprises have entered a loss mode, and surviving has become the biggest goal of many enterprises this year.

05Due to overcapacity in the PV industry, Trina Solar will not be eligible for the listing of spin-off subsidiaries if it loses money in 2024.

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Trina Solar, which was originally profitable in the first half of 2024, took a sharp turn for the worse in the third quarter

Xi Yu, researcher at Punctuation Finance and Investment Time.com

In response to the cold winter, one of the ways for companies to survive is to shrink.

Affected by overcapacity and industry losses, the photovoltaic industry as a whole has been in a downward state since 2024. Compared with the listing wave in previous years, the IPO process of photovoltaic companies in 2024 will be relatively slow. According to public data, there are only 3 companies in the photovoltaic industry chain that have been successfully listed this year, less than half of the number in 2023, and more than 15 IPO companies have terminated the review.

Trina Solar (688599. SH) also announced a few days ago that it decided to terminate the planned spin-off of its holding subsidiary Tianhe Fujia for listing. In this regard, the listed company said that the termination of the planned spin-off of Tianhe Fujia's listing is a strategic decision made in combination with the development trend of the industry and its own advantages.

What is the situation that makes Trina Solar so intended?

The third quarter reported a loss for the first time

In 2024, a number of PV companies will suffer their first losses, and Trina Solar, which was originally profitable in the first half of 2024, has also seen a sharp decline in performance after entering the third quarter.

According to the announcement, in the first three quarters of 2024, the company achieved revenue of 63.147 billion yuan, down 22.16% year-on-year, net profit attributable to the parent company was -847 million yuan, down 116.67% year-on-year, and net profit deducted from non-attributable to the parent company was -1.070 billion yuan, down 120.90% in the same period.

Researchers from Punctuation Finance and Investment Time noted that Trina Solar's profitability in the third quarter of 2024 declined significantly due to the continuous decline in module prices. During the period, the company's gross profit margin was 9.48%, down 3.64 percentage points from the previous quarter, and the net profit margin was -6.55%, down 6.81% from the previous quarter. At the same time, the company's asset impairment loss was 622 million yuan and the credit impairment loss was 120 million yuan, which further dragged down the company's performance.

Trina Solar may have anticipated such a trend and taken measures to slow down the contraction.

On July 3, 2024, Trina Solar announced its decision to terminate its RMB 10.9 billion private placement plan. It is reported that the plan has been in the works for a year. In terms of the purpose of fundraising, 7.64 billion yuan will be used to invest in the construction of Huai'an 10GW high-efficiency solar cell project, Trina Solar (Dongtai) 10GW high-efficiency solar cell project, Trina Solar (Dongtai) 10GW photovoltaic module project, and the remaining funds will be used to supplement working capital and repay bank loans.

In this regard, Trina Solar explained that a series of decisions were made by the company taking into account the actual situation and changes in the capital market and related policies. From the perspective of industry insiders, in view of the current low price of the photovoltaic industry chain, the willingness of enterprises to continue to expand production may no longer be so urgent. Photovoltaic core enterprises have entered the loss mode, and surviving in the cold winter has become the biggest goal of many enterprises this year.    

Trina Solar's third quarterly report from 2019 to 2024

Data source: Oriental Fortune Network

The valuation of the subsidiary was as high as 20 billion yuan

Similar to the 10.9 billion yuan fixed increase plan, the spin-off of Trina Rich is also a long-term preparation for Trina Solar.

In April 2023, Tianhe Fortune announced its spin-off and listing plan for the first time, aiming to obtain a more convenient financing environment and necessary funds to promote its own business development through the spin-off and listing, promote the improvement of operating capabilities, and further optimize and improve corporate governance.

Founded in 2016, Trina Fujia's main business is to provide distributed photovoltaic system solutions and digital energy management business, including residential, industrial and commercial and other scenario-based overall solutions, with digital service capabilities and omni-channel ecological networks as its core competitiveness, and its business covers the whole process of distributed photovoltaic system product research and development, marketing and sales, development and construction, intelligent operation and maintenance.

Researchers from Punctuation Finance and Investment Time noticed that a few days after the disclosure of the spin-off and listing, Trina Solar disclosed the announcement of Trina Fujia's capital increase and share expansion and related party transactions. According to the announcement, 13 companies, including Trina Solar, Shanghai Fuqinhui, Shanghai Fuhui Sheng, Shanghai Fuzhaoxu, Jiaoxin Power, Chunhua Xixiang, Shiyan Jiafu, CDH Wentao, Taibao Changhang, Shanghai Lihe, China Power Investment Ronghe, Changchuang Venture Capital and Fujiasheng, plan to increase their capital to Tianhe Fujia by a total of 1.902 billion yuan in cash.

A month later, Tianhe Fujia attracted a new round of financing - Xingyin Investment, Xinying Wisdom and other parties increased their capital by a total of 721 million yuan. The pricing of this capital increase is consistent with the price of the previous market-based capital increase, and the pre-investment valuation is still 20 billion yuan (excluding the total investment of 1.824 billion yuan in the previous market-based capital increase).

The valuation of photovoltaic enterprises at 20 billion yuan is already at a high level in the industry, and there are only a handful of enterprises that can reach such a scale in recent years. However, just as the market capitalization of stocks is very different in a bull market and a bear market, the same project will also have different directions under the influence of industry cycles. Time flies, and the market and companies have made different judgments on the high valuation of Tianhe Fujia.

The impact of the downward cycle

Since the beginning of the year, the prices of polysilicon, wafers, cells and modules have fallen year-on-year, and industry companies have suffered serious losses. From the perspective of the supply side, in terms of output, in the first 10 months of this year, the output of all links in China's photovoltaic industry chain maintained growth, with the output of polysilicon, silicon wafers, cells and modules reaching 1.58 million tons, 608GW, 510GW and 453GW respectively, with a year-on-year increase of 42%, 33%, 25% and 21% respectively. However, in terms of production capacity, the growth rate of supply-side production capacity has slowed down significantly, and the number of domestic production, construction and planned projects has decreased by 75% compared with the same period last year.

On the demand side, from January to October this year, the domestic new photovoltaic installed capacity was 181.3GW, a year-on-year increase of 27.2%, and the growth rate slowed down from the same period last year.

From the perspective of industrial chain prices, the four main materials fell by about 35%, 45%, 25% and 25% respectively, and the output value of photovoltaic manufacturing (excluding inverters) in the first 10 months of this year fell by 43.17% year-on-year to 781.1 billion yuan.

In general, in the downward stage of this cycle, the price decline of the higher points of each link of the photovoltaic industry is about 60%~80%. This has also led to 39 of the 121 listed PV companies losing money.

Some analysts believe that this round of adjustment is mainly caused by overcapacity. Excess will lead to an imbalance between supply and demand, trigger price fluctuations, and exacerbate the phenomenon of "involution" in the industry.

So, how long will it take for the PV industry to complete this round of reshuffle? Some analysts believe that from a cyclical point of view, it may be necessary to see how long the process of supply and demand adjustment will last, and the turning point may occur in the second half of next year, and another expectation is that it may have to wait until 2026.

Behind the impact of the industry on the cycle, the review policies of the listing regulatory authorities have also continued to tighten. According to the data, the total amount of A-share IPO financing in the first 11 months of 2024 was about 57.9 billion yuan, a decrease of more than 80% from the same period last year.

As far as Trina Solar is concerned, even if Trina Solar does not terminate the spin-off plan, it is likely that it will not pass the regulatory review.

According to the relevant regulations of the China Securities Regulatory Commission, the continuous profit of a listed company in the last three fiscal years is one of the prerequisites for the listing of a spin-off subsidiary of a listed company. Although Trina Solar has been profitable in recent years, in the first three quarters of 2024, the company suffered a significant loss of more than 1 billion yuan. Judging from the current industry development trend, it will be difficult for Trina Solar to turn losses into profits in the fourth quarter of 2024. If the company loses money in 2024, it will not be eligible for the listing of the spin-off subsidiary.

Quarterly sales gross profit margin of each link of the main photovoltaic industry chain

Source: Sinolink Securities

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