Hanwha Solutions: Earnings Strong at Chemical, but Tepid at Solar Energy Biz

The author is an analyst of NH Investment & Securities. He can be reached at  ys.hwang@nhqv.com. — Ed.


Hanwha Solutions registered an earnings surprise for 1Q21, led by a sharp jump in OP at its chemical business. The chemical division should continue to enjoy solid earnings in 2Q21, in turn pushing up overall OP. But, rising raw materials prices are likely to continue dampening earnings at the solar energy domain in 2Q21.

1Q21 review: Registers earnings surprise, led by chemical division

On a consolidated basis, Hanwha Solutions announced consensus-topping 1Q21 OP of W254.6bn (+60.1% y-y, +289.4% q-q) and pre-tax profit of W538.5bn (+953.1% y-y, and TTP q-q). Spearheading overall earnings growth, chemical division OP hit W254.8bn. Pre-tax profit was bolstered by non-operating profit, including W190bn gains on the disposal of Galleria Gwanggyo Branch, and equity-method gains of W122.6bn stemming from strong earnings at chemical subsidiaries.

At the chemical business, profitability improved for major products thanks to: 1) soaring LDPE spreads; and 2) historic-high PVC prices and spreads. Demand for LDPE is also strong in 2Q21, and the price of caustic soda is expected to rise on greater demand. However, in the case of PVC, we believe that sales volume will decrease due to both the spread of Covid-19 in India and slowing demand amid rising prices. That said, overall OP at the chemical business is likely to improve in 2Q21.

OP to increase in 2Q21

In the case of the solar energy business (Q Cell), shipments have decreased due to low-season demand, and operating losses have widened owing to rising wafer and logistics costs. Amid the continued burden of raw materials and logistics costs in 2Q21, the module business is expected to suffer an operating loss. That said, as the firm plans to sell its power generation assets in 2Q21, earnings should turn around at the solar energy business. Also, production costs are expected to fall gradually in 2H21 on China’s large-scale wafer capacity expansion, and module shipments should increase, driving up earnings, thanks to the arrival of a peak season.

We forecast 2Q21 OP of W263bn (+92.8% y-y, +3.5% q-q), marking a slight q-q increase. OP should expand thanks to strong spreads for major products at the chemical business. At the retail business, consumer sentiment is improving, but operating losses are expected due to weakened seasonality and the reflection of property holding taxes.