As solar construction in China cools, Hainan Drinda looks for relief overseas

The A-share listed solar company has applied to tap global investors with a second listing in Hong Kong, aiming to use the proceeds to set up factories overseas

Key Takeaways:

• Hainan Drinda has filed to list in Hong Kong, reporting its revenue rose 58.7% last year while its profit grew by a slower 16% 
• The company says it accounted for 10.8% of the global solar cell market last year, ranking fifth worldwide, while it was top-ranked in N-type TOPCon cells with 57.4% of the market

By Li Shih Ta

The defining term for China’s solar sector last year was overcapacity, as intensifying competition caused a meltdown in prices for both solar modules and raw materials. At the same time, many companies that once feasted on a Chinese market that built new solar power plants at a breakneck pace in the recent years are now looking to step up their overseas operations as the domestic buildup starts to slow down.

That heated competition at home and desire to go global is catalyzing Hainan Drinda New Energy Technology Co., Ltd. (002865.SZ) to seek a Hong Kong IPO, adding its name to a crowded list of major Chinese players that are doing more manufacturing overseas.

Founded in 2003, the company, which is already listed in China’s domestic A-share market, started out as a maker of plastic auto parts. But faced with growing losses for that business, it ventured into the solar sector in 2020 with its purchase of 51% of Shangrao Jietai New Energy Technology, a major maker of solar cells.

Drinda divested its auto parts business in 2022 as its main car-making customers fell on hard times. At the same time, it focused its energy on its solar business by buying out the remaining 49% of Jietai. It added the words “new energy” to its name, and voila, a new company was created with solar cells at its core.

Growing demand for cutting-edge N-type TOPCon cells developed by Jietai helped Drinda not only grow rapidly, but also return to the black with a 720 million yuan ($100 million) profit in 2022, its best performance since its Shenzhen IPO in 2017. Its share price also reached a historical high the same year.

P-type cells used to dominate the solar power market. But as they approached their theoretical efficiency limit, the market for newer and better-performing N-type cells took off.

Significant demand for N-type solar cells first emerged in 2022, with N-type TOPCon cells that are Drinda’s focus taking nearly 20% of the market, according to a report by SolarBe Global. Meantime, demand for older P-type PERC cells began to trend downward. The report expects TOPCon and PERC cells to reverse positions this year, with TOPCon coming out on top.

According to its listing application filed late last month, Drinda is the world’s first specialized solar cell manufacturer to mass produce N-type TOPCon cells. The company controlled about 10.8%, of the global solar cell market in the first half of last year, ranking it fifth worldwide, according to third-party market data cited in its application. Its share of the TOPCon cell market was far higher at 57.4%, making it the world’s largest producer.

The company’s rapid growth last year reflects growing traction for its N-type TOPCon cells. Its revenue for all 2023 shot up 58.7% to 18.4 billion yuan, while its 830 million yuan profit for the year was up by a smaller 16%. The company attributed the strong growth to gains for its TOPCon cell shipments as it boosted capacity.

During the first three quarters of 2023, revenue from the company’s N-type TOPCon cell business totaled 9.75 billion yuan, up more than 19 times year-on-year, boosting its share of total revenue to 68% from just 7.2% a year earlier. 

Domestic overcapacity

As demand for its new breadwinner grows, Drinda is expanding its capacity. As of last December, its annual capacity for solar cells reached about 50 GW, with N-type TOPCon cells, which only began mass production in August 2022, taking up about 40 GW.

But Drinda isn’t the only one adding capacity, and similar increases across the industry have led to a domestic supply glut that is pressuring everyone. At the annual meeting of the China Photovoltaic Industry Association last year, honorary chairman Wang Bohua said that manufacturers globally added as much as 345 GW to 390 GW of solar production capacity last year, with 160 GW to 180 GW of that in China. That lifted China’s effective solar capacity last year to more than 700 GW.

At the same time, other solar companies are rushing to take advantage of growing popularity for TOPCon cells, squeezing Drinda’s share of that market from 75% in 2022 to 57.4% in the first half of last year. The company may still be at the top of its niche, but its share is likely to get further squeezed as others pile into the space.

The combination of overcapacity, falling prices and intensifying competition may explain the big declines for Drinda’s Shenzhen stock despite its strong recent growth. Since peaking in November 2022 at 190.3 yuan, its shares have lost about 60% of their value.

Venturing abroad

The overheated domestic market is driving Drinda to look overseas, joining most of its major Chinese peers that have been selling abroad for years and have recently begun doing more manufacturing overseas as well. The company said a Hong Kong listing would be part of that move, noting it would use funds from the listing primarily to build overseas solar cell production bases.

In terms of sales, the company has barely scratched the potential of the overseas market. Its overseas sales accounted for just 4.66% of its total in the first three quarters of last year, up from nil a year earlier. It said it aims to grow its international sales to more than 10% of its total by 2024.

Expanding their manufacturing capacity overseas has become a recent trend among Chinese solar companies, partly in response to anti-dumping tariffs against their goods made in China. Last year, Jinko Solar (688223.SH; JKS.US), Trina Solar (688599.SH), JA Solar (002459.SZ), Canadian Solar (688472.SH; CSIQ.US), and others announced or planned capacity expansions in the U.S., Southeast Asia, the Middle East and other regions. So, if and when Drinda sets up shop outside China, it will find plenty of competition waiting from its domestic peers.

The company scored some early success with its quick and decisive move from auto parts to solar cells, benefitting from the rapid takeoff of TOPCon cells. But as the sector enters a period of intense competition, problems such as overcapacity, falling prices and the entry of more companies to TOPCon cell production will weigh on its business, even if it successfully lists in Hong Kong and uses to proceeds to set up new facilities overseas. 

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