Hanwha Solutions Corp

KRX:009830

Earnings Call Transcript

[Operator]

Good afternoon. Thank you for joining the conference call for the earnings result of Hanwha Solutions. The conference will start with a presentation from the company followed by a Q&A. [Operator Instructions]

And now we will begin the presentation of Hanwha Solutions' first quarter of 2025.

[An Yoon, executive]

Good afternoon. I am Yoon An Sik, CFO of Hanwha Solutions. I would like to thank everyone for joining the call today. I will brief you on the business performance, financials, and outlook by segment for first quarter of 2025.

First, the company's performance during the first quarter of '25.

Please turn to Page 8 of the presentation. In the first quarter of 2024, the consolidated revenue declined by about 33% Q-on-Q to record KRW 3,094.5 billion due to the sales of the power generation assets and declining EPC sales and module shipment.

Despite the improving performance of the Renewable division, the consolidated operating profit declined by 72% Q-o-Q to record KRW 30.3 billion due to the maintenance cost of the Chemical division. Pretax profit was negative KRW 68.1 billion and the net profit was negative KRW 30.2 billion.

For detailed performance by segment, please refer to the bottom of Page 8 of the presentation.

Next, on financials.

Please turn to Page 9. As of the end of first quarter '25, the total assets increased by KRW 444.7 billion from the end of last year to KRW 30,481 billion, and the cash and cash equivalents decreased by KRW 215 billion to KRW 2,095 billion.

Total liabilities increased by KRW 612 billion from the end of last year to KRW 20,042 billion. And the borrowing increased by KRW 1,067 billion to KRW 13,789 billion. And the net borrowings increased by KRW 1,283 billion to KRW 11,694 billion. As of the end of the first quarter '25, the debt-to-equity ratio increased by 9 percentage points from the end of last year to 192% and the net debt ratio rose by 14 percentage points to 112%.

Next, I will brief you on the performance by segment for the first quarter of '25. First, Renewable Energy. In the first quarter, while the revenue from the sales of the power generation asset and the EPC segment declined, the operating profit increased by 125% Q-o-Q to record KRW 136.2 billion due to the base effect of the onetime expense of the previous quarter and the improving performance of the residential energy business.

As the module ASP and the shipment are expected to increase in the second quarter, we predict that the operating profit will continue to increase. The revenue guidance for the second quarter of the power generation asset sales and EPC business is around KRW 400 billion to KRW 500 billion.

Next, on Chemicals segment. In first quarter, the operating loss grew to KRW 91.2 billion due to the large-scale regular maintenance carried over from the previous quarter. The profitability is expected to improve in the second quarter due to the base effect from -- of the turnaround and the solid performance of key products.

Next, Advanced Materials. In Q1, the operating loss slightly narrowed due to the high utilization of the new solar plant, offsetting the pressure from the higher raw material costs for lightweight complex material. The operating profit for Q2 is expected to improve, driven by higher sales to major clients.

Next, on equity method income. In Q1, the equity method income turned to profit due to improved market conditions for major chemical products and the rise in Hanwha Ocean's stock price. Despite continued improvements in some chemical products markets, the equity method income is expected to decline due to the reduced impact from Hanwha Ocean's stock price fluctuation.

This concludes the presentation. Thank you very much for listening.

[Operator]

[Interpreted] [Operator Instructions] The first question will be provided by Jin Ho Lee from Mirae Asset Securities.

[Jin Ho Lee, analyst]

[Interpreted] I have 3 questions for you, and they are mostly about the renewable energy. First, about the renewable energy, it seems that on the residential business side, then it seems that you are operating the TPO. So could you elaborate on the business model and possibly share with us the guidance for the year?

And the second question is about the cell and wafer plant. So you have shared with us earlier the schedule to have those plants fully operational. And then is there any updates to the schedule? So the plan to have the facility fully operational by the end of this year still holds true?

And the third question is about the dumping, the [ ADC ] and the duties rather, [ AD and the CVD ]. So with those in effect, is expected to happen anytime soon, and that will bring about the imports from China decline greatly. So if you can, please share with us some comments about your expectations about the import volume into the U.S. market and the inventory level.

[Unknown Executive]

[Interpreted] So to answer your first question, the operating profit of the Renewable Energy has increased, thanks to the stronger performance from the Residential Energy business. And we have decided that it will make sense to have it separated out. So it is reflected in the presentation from this quarter and onwards. And that is the result of the combination of many different actions and activities, namely the securitization of ABS and the sales of the TPO assets and the financing services that we are offering to the consumers.

So because of all those combined efforts, so in the first quarter of this year, the OPM we recorded in this area, 22%, and this area grew quite significantly. But in terms of the guidance, as this is a very early phase of this business overall, so we believe that it will be a bit too premature to share any guidance figure yet. But just to share with you the general trend or the tendency that we expect to see from this business is that based upon the structural growth that is expected in the U.S. residential market and also our strategic direction, we expect this business to grow steadily in the mid- to long-term.

So if I may share with you the market forecast is that because of the high rate, high interest rate, the overall, the residential solar market declined slightly in '24, but it rebounded in '25. And this trend is expected to continue until '35, 2035, and the expected annual growth rate of this market is around 8%. And the TPO is a segment that we are offering services too, and it is actually beneficial to the customers because they can install these products without making a huge initial investment. So because of that reason that even though the market rate is very relatively high, then we are offering the TPO at a relatively comparative fashion.

And about the schedule for the U.S. plant for ingot, wafer, and cell, so there is no major change into our schedule. So we expect the facility -- the construction of this facility to be completed sometime after the middle part of 2025, then we will start the production by the end of 2025.

So let me try to respond to you about your question about the inventory level of the modules in the U.S. market. Of course, as you are well aware, there is no official data. So the best possible option to actually conjecture this data is to calculate based upon the production volume of our respective manufacturer and to calculate the demand for the installation and the amount that are imported from outside of the U.S. But it all boils down to the differences in the date of the respective data. And especially for the production volume of the competition, we have only the limited visibility. So we cannot predict the actual figure.

But if you follow the monthly trend of the modules in the U.S. market, so the import is declining. Meanwhile, the installation is maintaining at an average pace. So that can be translated into the alleviation of the inventory pressure. And we have witnessed from the fourth quarter and onwards that while the demand for the installation maintains, the inventory levels is about -- or the demand is still there. So we believe that the situation will improve, but it's difficult to actually predict from when the inventory pressure will go away completely.

[Operator]

[Interpreted] The following question will be presented by Parsley Ong from JPMorgan.

[Rui Hua Ong, analyst]

So I have 2 questions. The first is on your residential energy business. Thank you for your elaboration earlier. But can I just clarify, is this basically related to EnFIN, your residential solar financing business? And out of that KRW 129 billion OP that you booked in first quarter 2025, how much of it was sort of one-off in nature like securitization of ABS, et cetera? And what kind of margin would you say is a normal industry margin for residential solar financing business? And earlier, you mentioned that the industry grows at 8% CAGR, I assume, revenue. So is that the kind of growth rate we can expect for your solar financing business over the next few years? What kind of competitive edge does Hanwha have versus some of the other solar financing companies in the U.S. market?

The second question is on your module shipment and price or margin outlook. Could you share with us, in first quarter, what was your shipment trend? How much was the IRA AMPC? And what is your expectation for 2Q shipments? And for full year '25, is there any change to your guidance? And in terms of U.S. module prices, are you starting -- when do you expect -- are you starting to see an improvement in stabilization? And do you expect some kind of recovery?

[Unknown Executive]

[Interpreted] So let me first respond to you about the module shipments and IRA AMPC for the first quarter of this year. In the previous earnings call for the fourth quarter of '24, we shared with you that for the first quarter of this year, the shipment will decline by about 40% Q-on-Q, and we believe that our expectation turned out to be truth. And as for the AMPC, the KRW 190 billion was what we have booked for the fourth quarter of last year. And during the previous call, we also said that the AMPC amount that we will record into our books will be in the same range, and it was the case as well. So we have booked KRW 183.9 billion for the first quarter of this year.

And for the second quarter shipment and AMPC, we expect the shipment to grow by 10% quarter-on-quarter and the AMPC will be about early KRW 200 billion range. And for the whole year 2025, we maintain the guidance that we have shared with you earlier, which was [ KRW 91 billion ].

And as for the ASP, yes, we have witnessed some marginal growth in the ASP in the first quarter, and we expect that trend will continue down on the second quarter as well and believe that, that is thanks to the variety of the policies that the U.S. government has implemented on this product and also involving tariffs.

So of course, we cannot disclose exactly how the module price is at this moment, but the general trend is that it is starting to bottom out, and that is the general trend for the module price for the U.S. market. And because of the recent announcement on the new tariff for the export of the modules from the Southeast Asia, some companies are losing competitiveness in the U.S. market. Meanwhile, we do maintain the local manufacturing facilities in the United States. So that enables us to be more flexible and efficient in responding to any fluctuation in the market. So with that, as a competitive advantage, we believe that we can expect that the profitability will go even higher with the recovery of module price.

Let me respond to you or elaborate our competitive advantage in the Residential Energy market. So for the TPO services that we are offering in the U.S. market, there are 2 definite competitive advantage that we have over the other players in the U.S. market. They are mostly focused on the installation and the sales, and they do not necessarily own the manufacturing facilities in the United States. Meanwhile, we do own a massive manufacturing complex in the United States. So that means that we can expect additional profit and revenue from the modules and the other parts and the material that goes into this business.

And our profit includes the profit from the ABS securitization and the TPO asset sales as well. But because of the nature of this Residential Energy business, we expect the share will be larger from the securitization or larger from the TPO rather than from the securitization of ABS.

And as for the solar financing companies, as you have rightly mentioned, there are many different players offering many different types of financing schemes.

And about the CAGR of 8%, that is what are being predicted for the overall U.S. Residential Energy business market for the -- by the year 2035. And we believe that our business will grow in the similar range. As I have said earlier, the business is still at a very early phase, so we cannot share any guidance as of yet. But once the business is more stabilized, then I hope that we can share the figure with you earlier.

[Operator]

[Interpreted] The following question will be presented by Jae Sung Yoon from Hana Securities.

[Jae Sung Yoon, analyst]

[Interpreted] I have 2 questions as well. And the first is about the sales of the power generation asset sales and the EPC. So if I remember the performance of the first quarter of last year, you recorded the loss. And it seems that in the second quarter of this year, and am I correct to forecast that you will also record the loss, and it will be some kind of a seasonality?

And the second question is about the U.S. module market. You said that it is turning around, it is improving. But if I recall correctly, about 40% of the total capacity in the U.S. market has some kind of the Chinese ownership inside. Do you believe that the U.S. government will continue the subsidy -- offering subsidy to those companies as well?

[Unknown Executive]

[Interpreted] So let me respond to your first question about the sales of the power generation asset in the first quarter of this year. So there was the minor sales of the development asset and EPC. And because of that reason, we have recorded the revenue of KRW 419 billion and the operating loss of KRW 41.8 billion. In the second quarter, we expect the EPC revenue to -- we'll focus on EPC business and the figure will be around KRW 400 billion to KRW 500 billion.

And it is our policy to not disclose the profitability-related figure as a guidance. But you might think that when there is massive sales in our power development assets, then there is improvement in the profitability. And without, then there is no profit, but it is not necessarily the case, and there will be some kind of fluctuation on a quarter-to-quarter basis.

For the Chinese companies operational in the U.S., manufacturing and selling those products, of course, we cannot verify if and when they have received that AMPC, but they are eligible. So far, it is the U.S. government's position to maintain the IRA. Of course, we cannot predict any possible change into the government's position in the future. But according to what has happened so far, we do not expect any major change in any time soon.

[Operator]

[Interpreted] The last question will be presented by Hyunryul Cho from Samsung Securities.

[Hyunryul Cho, analyst]

Three questions about the Residential Energy business. So last year, you have separated your performance for the financial sectors, but now you have decided to actually separate the Residential Energy business. So am I correct to actually predict or look into the performance of the Residential Energy businesses last year by looking at the performance of the financial segment last year?

And the second question is that the Residential Energy business, the profitability is pretty strong. And is it because of the residential TPO, you are eligible for the ITC up 30%?

And the third question is that if you look into the module manufacturing only, the OPM is still very negative, about minus 20%. And so far, there are only the financing companies that are offering the solar financing in this market and not the solar module manufacturer that are offering the financing services yet. But considering such a high profitability of the solar -- the residential solar business or the energy business, do you expect the conventional or existing solar module manufacturing to diversify their business model to enter into the solar financing business as well?

[Unknown Executive]

[Interpreted] So for the operating profit of the Residential Energy business for the fourth quarter of last year, it was about KRW 20 billion. And in the first quarter of this year, it went up by KRW 100 billion. For the fourth quarter of last year, we have captured the ABS securitization of the instrument financing. And there was practically no TPO-related revenue recognized. And that started to be recorded into the books from the first quarter of this year, and that has contributed to such a strong growth in our revenue and also operating profit.

And also to elaborate on high profitability in the Residential Energy business. So we do have the vertically integrated structure from manufacturing, sales, and installation, and onwards. So that is why we have had a very strong presence in the residential solar market and the profitability as well. So now in the U.S. market, the rate is going down, and there has been the pent-up demand for this service. We are witnessing the fast recovery of the Residential Energy business. So utilizing our traditional competitive advantage in this area. So we are growing very rapidly with a very healthy profit.

And responding to your last question, so far, we have not witnessed any move by any U.S. module manufacturer to venture out into the solar financing business yet.

[An Yoon, executive]

[Interpreted] This concludes the earnings call for the first quarter of 2025 for Hanwha Solutions. Thank you very much for your participation. Goodbye.

[Portions of this transcript that are marked [Interpreted] were spoken by an interpreter present on the live call.]