• News
• 2024-07-08

Solar 'Sellers' Trapped in Debt Collection

Under the collapsed nest, there are no unbroken eggs; the chill of the photovoltaic industry chain will ultimately spare none of its links. Photovoltaic equipment companies, once considered by the industry to have reaped the full benefits of the growth of new energy and to be consistently profitable, are also finding life increasingly difficult.

It has been observed that recently, disputes over "debt collection" among photovoltaic equipment companies have become frequent, with two lawsuits within a month drawing industry attention.

On October 16, Zhongke Yunwang, a company that has expanded into battery manufacturing, announced that its core subsidiary, Zhongke Gaoyou, was sued due to a dispute over a sales contract. The plaintiff was the equipment manufacturer, Xian Dao Zhineng, and the amount involved in the case was as high as 12.48722 million yuan.

On October 21, another cross-industry battery manufacturer, ST Lingda, announced that its subsidiary, Jinzhai Jiayue, had previously paid more than 100 million yuan in deposits to the equipment supplier, Jie Jia Wei Chuang. Now, due to Jinzhai Jiayue's breach of contract, the deposit will be confiscated by Jie Jia Wei Chuang.

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The "shovel sellers" in the photovoltaic industry, who primarily operate through equipment sales or leasing, had previously enjoyed a boom in orders due to the accelerated expansion of photovoltaic production, resulting in generally good performance in the first half of the year. Compared to the main chain companies that were generally in the red, the pressure of losses was much smaller. However, now that the winter of the photovoltaic industry shows no signs of ending, the payment of goods for the "shovel sellers" has become a problem. Can the good times for equipment companies continue?

"Fancy" Debt Collection by Equipment Companies

This year, collecting payment for goods has become one of the most important tasks for the photovoltaic "shovel sellers." There are various versions of debt collection stories circulating in the industry, which can be described as diverse and colorful.

Some "shovel sellers" hold onto the companies' battery stock to offset debts, while others adopt remote shutdown methods to lock down equipment in operation, causing production lines to be paralyzed and forcing companies to make payments.

Previously, a photo of "shovel sellers" collecting debts circulated in the industry, involving the debtor company, Taichuan New Energy, from Yibin, Sichuan. Because Taichuan failed to pay the final installment for the equipment, several equipment manufacturers came to collect the overdue payments. After failing to collect the overdue payments, the "shovel sellers" chose to "stop the loss" by taking away the equipment they had supplied. However, it is rumored in the industry that when the "shovel sellers" were preparing to take away the equipment, a dispute arose with the investors of Taichuan New Energy, who also wanted to "stop the loss"... This led to the photo: several equipment manufacturers gathered at the entrance of Taichuan New Energy's company, holding banners that read "Return our equipment, Taichuan."The aforementioned "debt collection" is merely a market snapshot, with some information unverified. However, the "debt collection" by Jiajia Weichuang towards ST Lingda last year is evidenced by an announcement.

The announcement indicates that in October 2022, the two parties signed a "Sales Contract." In June 2023, they signed "Supplementary Agreement No. 1," amending the "Sales Contract," with the revised contract value approaching 800 million yuan. However, by September 2023, ST Lingda had only paid 170 million yuan.

It is likely from this point that Jiajia Weichuang began to simultaneously press for payment while preparing for "damage control."

In December 2023, Jiajia Weichuang and ST Lingda signed "Supplementary Agreement No. 2" again. The 170 million yuan prepaid by ST Lingda, after deducting the payment for the delivered equipment, left nearly 100 million yuan, which was all converted into a deposit. The conversion from a prepayment to a deposit implies that if ST Lingda breaches the contract, Jiajia Weichuang can directly confiscate the deposit.

Unfortunately, subsequent events unfolded as Jiajia Weichuang had feared— in 2024, ST Lingda "exploded," with production lines halting, performance plummeting, and stocks "capped." Recently, Jiajia Weichuang has issued a "Demand for Delivery Notice." Of course, it is impossible for ST Lingda to take delivery and make payment. The next step is for Jiajia Weichuang to inevitably confiscate the 100 million yuan deposit.

Being able to collect payment or to cut losses in time is already a stroke of luck. For some other equipment companies, the final resort is to reluctantly choose to go to court against their former clients.

According to incomplete statistics from Huaxia Energy Network, there have been 13 lawsuits this year caused by disputes over photovoltaic industry equipment contracts.

In addition to the dispute between Xian Dao Zhi Neng and Zhong Ke Yun Wang mentioned earlier, companies such as Jin Chen Shares, Wei Dao Nano, Jiang Song Technology, and Da Quan Electric are also involved in such lawsuits, with defendants including well-known photovoltaic companies like Wuxi Shangde.

It is worth noting that Jin Chen Shares alone has had six sales contract disputes this year. These involve listed companies such as Wuxi Shangde, Bao Xin Technology, and Jia Yu Shares, as well as the delisted Aikang Technology.

Performance pressure is becoming apparent.In the industry's winter this year, the photovoltaic sector has suffered losses across the board. However, equipment companies have been the exception, previously considered to be "making a killing."

In the first half of this year, many equipment manufacturers achieved significant profit growth, such as Jiajia Weichuang (SZ: 300724), Aotwei (SH: 688516), Fuleite (SH: 601865), Dir Laser (SZ: 300776), and Jingshan Light Industry (SZ: 000821), with net profit increases ranging from 63% to 11% year-on-year. In terms of net profit amounts, JingSheng Machinery and Jiajia Weichuang even surpassed photovoltaic module leaders like Jinko, Trina, and Longi, ranking in the top ten of the industry.

In the third quarter, the performance of equipment companies was also good.

Among the main equipment companies that have released their third-quarter financial reports, although JingSheng Machinery's net profit attributable to the parent company decreased in the third quarter, it still had 864 million yuan; Jiajia Weichuang's net profit attributable to the parent company in the third quarter was 797 million yuan, a year-on-year increase of 69.10%; Maiwei Shares' net profit attributable to the parent company in the third quarter was 297 million yuan, a year-on-year increase of 2.87%; Aotwei's net profit attributable to the parent company in the third quarter was 397 million yuan, a year-on-year increase of 20.58%.

The most eye-catching performance belongs to Jingshan Light Industry, which achieved a revenue of 2.67 billion yuan in the third quarter, a year-on-year increase of 72.65%; the net profit attributable to the parent company was 163 million yuan, a year-on-year increase of 200.74%.

However, the dazzling performance cannot cover up the hidden crisis.

The delivery and acceptance cycle of photovoltaic equipment is generally long, with an average inventory turnover of 629 days. Against the backdrop of the current industry's intensified reshuffling, equipment manufacturers generally bear the risk of receivables.

According to the companies' third-quarter reports, as of September 30, JingSheng Machinery's accounts receivable were nearly 4 billion yuan, an increase of 73.23% compared to the end of last year.

Jiajia Weichuang's accounts receivable exceeded 3.6 billion yuan, an increase of about 25% compared to the end of last year. Maiwei Shares' accounts receivable also exceeded 3.6 billion yuan, an increase of about 53% compared to the end of last year. Aotwei's accounts receivable were 2.6 billion yuan, an increase of 61% compared to the end of last year. Jingshan Light Industry's accounts receivable were nearly 3 billion yuan, an increase of 30.88% compared to the end of last year.

Regarding the reasons for the increase in accounts receivable, JingSheng Machinery and Jingshan Light Industry explained in their financial reports. JingSheng Machinery stated, "Mainly due to the increase in sales scale and a slowdown in the pace of receivables." Jingshan Light Industry stated, "Mainly due to the expansion of sales scale in this period, and the existence of account periods for receivables."This means that while orders are signed, the money is not immediately receivable. In the current climate, the industry is on edge, with "explosive" companies emerging from time to time. Helplessly, for equipment companies, in order not to let accounts receivable become bad debts, "collection" and "stop loss" have become the top priorities.

The aforementioned Jinchen Shares may also have chosen to go to court due to immense operational pressure. Recently released financial reports show that Jinchen Shares' net profit for the first three quarters of this year was 68.2694 million yuan, a year-on-year decrease of 8.50%.

Jinchen Shares is a veteran photovoltaic "shovel seller". In 2003, Jinchen Shares crossed over from the aluminum material equipment field into the photovoltaic industry, mainly providing automated production lines for photovoltaic module enterprises. Industry insiders analyze that Jinchen Shares' average accounts receivable turnover rate is 2.25 (times/year), indicating that the company faces great pressure in collecting accounts. The average inventory turnover rate is 0.67 (times/year), indicating poor inventory liquidity.

However, perhaps due to the effectiveness of debt collection, Jinchen Shares' accounts receivable have dropped from 1.138 billion at the end of last year to 976 million yuan as of September 30.

Is the good times over?

In recent years, the photovoltaic industry has experienced rapid development, with market demand growing year by year, and equipment companies have fully enjoyed the dividends of industry expansion and technological iteration.

On the one hand, it has driven the performance of equipment companies. On the other hand, in the capital market, equipment companies are also very popular with investors.

In this round of A-share rise that began a month ago, companies such as Liancheng Numerical Control (BJ: 835368), Jiajia Weichuang, Maiwei Shares (SZ: 300751), and Aotwei have played the role of "pioneers" in the photovoltaic sector. Laplace, which officially went public on October 29, saw its stock price soar by 468.83% on the first day of listing.

However, the good times for equipment companies may not last long.

On the one hand, equipment manufacturing requires a large amount of capital, and the payback period is relatively long. However, the pace of technological iteration in the photovoltaic industry is also accelerating, and equipment companies will continue to face the old problem of equipment replacement. A senior executive of an equipment company told China Energy Network that they hope the pace of technological iteration can slow down, giving them time to recover some costs before investing in the manufacturing of equipment needed for the next generation of technology.The market, however, does not wait for anyone. The iteration of TOPCon over PERC is not yet fully concluded, and the photovoltaic industry is about to collectively embrace the next technological iteration.

On the other hand, the risks caused by industry overcapacity are accelerating their transmission to equipment companies. The "explosions" within photovoltaic companies are increasing, and equipment companies will become one of the bearers of risk. Take the aforementioned ST Lingda as an example; its performance pillar, the Jixi Jiayue battery production line, has long been suspended, and the construction of the second-phase battery slice production line has also been halted. Zhongke Yunwang also reported several months ago that it had been defaulting on employee salaries for months. Such "explosive" companies will also "drag down" the equipment manufacturers they are tied to.

Previously, Wang Bohua, the honorary chairman of the China Photovoltaic Industry Association, warned that under the current situation, the photovoltaic industry has accumulated multiple risks, especially the systemic risks of payment defaults and triangular debts are intensifying.

Of course, for photovoltaic companies at present, ensuring cash flow is crucial; having money in hand is the key to survival. Therefore, the reasons for debt are not purely financial; some photovoltaic companies, even with the ability to pay, tend to delay payments and may not fulfill their obligations on time.

In addition, with overcapacity and product prices below cost, the ability and motivation of companies to build new production lines are diminishing, making it difficult for equipment companies to maintain growth in new orders.

Regarding the current situation of equipment companies, industry insiders believe that their performance lags behind the overall market trend. Now, more than a year after the industry's downturn, it's time for equipment companies to feel the chill.

Even though equipment companies are on the path of debt collection, it does not mean they are the "victims." The issues within equipment companies must also be confronted head-on, such as how to reasonably arrange production rhythms, which more directly determines their ability to weather the winter. Some believe that many equipment companies have sold production materials and technology without barriers, joining in irrational expansion, and now they are reaping the bitter fruits of their own actions.

The essence of the debt collection tide can be seen as the result of the exposure of systemic risks in the photovoltaic industry. Under the current circumstances, the "sellers of shovels" can no longer return to the days of "making a killing." If they want to ensure survival, there is only one path: to collaborate with the entire industry chain to achieve self-regulation, reasonably adjust capacity, clear out what needs to be cleared, and the industry may hope to return to a sunny "spring."