Huaxia Energy Network (public number hxny3060) learned that on March 28, Tongwei Co., Ltd. (SH: 600438) announced that its wholly-owned subsidiary, Sichuan Yongxiang Co., Ltd. (hereinafter referred to as "Yongxiang Co., Ltd."), plans to introduce strategic investors and implement capital increase and share expansion.

According to the announcement, the strategic investors to be introduced by Yongxiang will increase the total capital of the company by no more than 10 billion yuan, and the total equity ratio after the company's capital increase is expected to not exceed 27.03%.

Tongwei Co., Ltd. said that the introduction of strategic investors will help the company enrich its financial strength, gather multiple advantageous resources, and further consolidate the company's industry-leading core competitiveness.

In 2024, polysilicon overcapacity will be severe, and all the four leading companies will suffer huge losses. According to industry insiders, only when a leading company is eliminated can polysilicon production capacity be cleared and companies can be expected to make a profit. At this time, Yongxiang shares introduced tens of billions of war investment mainly to repay debts, which will help to win this "knockout game" lightly.

What is 10 billion blood transfusions?

Tongwei said that the proposed capital increase is mainly used for Yongxiang shares to repay the liabilities of financial institutions and replenish liquidity.

Financial data show that from January to September 2024, Yongxiang Co., Ltd. had a net profit loss of 993 million yuan, with total assets of 68 billion yuan and total liabilities of 34.7 billion yuan in the same period.

The main financial data of Yongxiang shares

The parent company, Tongwei Co., Ltd., is also facing greater financial pressure. In the first three quarters of 2024, Tongwei's net cash flow from operating activities was less than 3 billion yuan, a decrease of 4/5 compared with the same period in 2023. However, the total debt scale increased by 46.1 billion yuan from the end of 2023 to 136.6 billion yuan.

Therefore, it is not realistic for Yongxiang shares to want to transfuse blood through Tongwei shares, and the introduction of war investment to reduce debt has become one of the best choices.

According to the announcement, the strategic investors participating in this time are mainly financial institutions, but the list of all strategic investors will not be determined until April.

At present, Yongxiang Co., Ltd. has signed the "Capital Increase Agreement" and "Shareholders' Agreement" with ICBC Financial Assets Investment Co., Ltd., CITIC Financial Asset Management Co., Ltd., and Yongan Futures Co., Ltd.; Bank of Communications Financial Assets Investment Co., Ltd., Bank of China Financial Assets Investment Co., Ltd., CCB Financial Assets Investment Co., Ltd., and China Orient Asset Management Co., Ltd. have passed their internal investment approval processes. In addition, some other investment institutions are moving forward with their internal investment approval and agreement signing processes.

As of September 30, 2024, the audited consolidated statements of Yongxiang shares attributable to the owners of the parent company were 25.693 billion yuan. Taking into account factors such as the market competitiveness of Yongxiang shares and the profit and loss during the transition period of capital increase and share expansion, the equity valuation of Yongxiang shares before the capital increase and share expansion was 27 billion yuan.

Yongxiang Co., Ltd.'s high-purity crystalline silicon production capacity has ranked first in the world for many years, with a total production capacity of more than 900,000 tons so far. Compared with Daqo Energy (polysilicon production capacity of 305,000 tons and total market value of 42.8 billion), which is also in the A-share market, it can be seen that the valuation of Yongxiang shares to introduce war investment is very "kind".

The competition among polysilicon leaders is fierce

Against the backdrop of severe polysilicon overcapacity, competition among polysilicon leaders has intensified.

Since the polysilicon market price fell below the production cost line in the second quarter of 2024, polysilicon leaders have also entered a state of "the more they sell, the worse they lose".

According to the 2024 financial report and performance forecast, Tongwei Co., Ltd., GCL Technology (HK: 03800), Daqo Energy (SH: 688303), and Xinte Energy (HK: 01799) all lost money, of which GCL Technology and Daqo Energy lost 4.8 billion yuan and 2.718 billion yuan respectively, and Xinte Energy suffered a loss of 3.8-4.1 billion yuan. Tongwei shares, which has the best cost control in the field of rod silicon, also suffered heavy losses, with an estimated loss of about 7 billion yuan to 7.5 billion yuan.

Since the beginning of this year, due to the impact of limited production, although the industry's monthly output has been maintained in the range of 90,000 tons, the inventory is still high. The Silicon Branch of the China Nonferrous Metals Industry Association recently said that the current inventory of the polysilicon industry is still at a high level of about 390,000 tons, and the downstream hands hold at least one month of inventory (more than 100,000 tons) to meet its normal production, and it is a buyer's market with sufficient raw materials at this stage.

Due to the high inventory pressure, polysilicon prices have not risen even in the face of the downstream rush to install polysilicon. So far, the spot transaction price of silicon has remained at the level of 41,700 yuan/ton (N-type re-feeding). Obviously, it will take time for the polysilicon sector to get out of the bottom despite the delay in clearing the excess capacity.

In order to go through the cycle, leading enterprises are stepping up the competition for technological highlands and reserve funds and ammunition. GCL Technology has reduced the cost of its granular silicon to 28.17 yuan/kg, and announced that all executive directors will voluntarily cut their salaries in 2024, a reduction of more than 90%.

In the current environment where the refinancing of A-shares has not yet been relaxed, Tongwei Co., Ltd. has introduced 10 billion yuan of war investment to transfuse Yongxiang shares, which is conducive to consolidating its position as a polysilicon giant and adding enough confidence to go through the cycle.

(Please indicate the source for reprinting, article source: Huaxia Energy Network, WeChat ID: hxny3060).