A Chinese Solar Company Has Rallied 173% Since Trump's Inauguration

(Bloomberg) -- Call it the superpower squeeze. Battling U.S. President Donald Trump’s unfriendly trade strategy and indifference toward clean energy on one hand, while navigating a major China policy change on the other.

That didn’t stop LONGi Green Energy Technology Co. from emerging as best performer among 15 of the world’s top solar energy companies tracked by Bloomberg. The Xi’an-based firm has surged 187% since Trump was inaugurated January 2017, and endured China’s surprise decision to cut support to the sector last year that hurt demand in the largest consumer.

The gains may be justified. LONGi is moving up the solar value chain, mirroring a broader shift in China toward higher-end manufacturing. That strategy is paying off, with analysts forecasting the stock could rally a further 18% in the next 12 months, data compiled by Bloomberg show. Buoying optimism are widening profit margin and increased demand from overseas.

“Solar markets like the U.S. and Europe prefer top manufacturers” for panels, said Jiang Yali, an analyst at BloombergNEF in Hong Kong. LONGi is one of them, she added.

LONGi declined to comment on the story. The stock jumped as much as 5.6% to 23.6 yuan in Shanghai on Friday, tracking an early rally in Asian equities before fresh U.S. tariffs kicked in on Chinese goods. It closed 5% higher at 23.47 yuan.

Trade War

While China remains by far the largest market for LONGi, accounting for about two-thirds of sales last year, the company is making inroads overseas. Even as the trade war escalated, its Americas business more than doubled revenue contribution to 1.9 billion yuan ($279 million), or 9% of the total, from the year before. U.S. is its biggest market in that region. The share of sales from Euro-zone also more than doubled to 5%.

Trump in early 2018 approved duties of as much as 30% on solar equipment made abroad, a move that threatens to handicap a $28 billion industry that mainly relies on parts made overseas. The tariffs represent a step toward making good on his campaign promise to get tough on the country that produces the most panels -- China.

LONGi’s focus on higher-value products helped cushion the impact. It is the world’s biggest supplier of monocrystalline solar products, which tend to be more efficient at converting sunlight to electricity than multicrystalline material, but is also generally more expensive.

Stronger Demand

Demand for mono is strengthening and that trend will continue at least through the rest of the year, Jiang said. Mono products accounted for 45% of the solar market last year, up from 28% the year before, BNEF data show.

The company is also getting more money from solar panels, which are made from wafers. Panels contributed 60% of sales last year, while wafers made up 28%. That’s a reversal from as recently as 2015, when wafers were its largest revenue generator. It is the world’s No. 2 wafer manufacturer.

In terms of profitability, LONGi has the second-highest operating margin after Chinese rival GCL-Poly Energy Holdings Ltd. out of the top five companies by market value on the Bloomberg solar gauge. LONGi has an margin of 11.7% in the past 12 months in dollar terms, even though the figure last year was the lowest since 2014 amid a shift in government policy.

China halted some new solar plant approvals last year and curbed financial aid to developers as a way to combat overcapacity and rein in the government’s ballooning subsidy bills. The clampdown hurt domestic demand and hammered prices of photovoltaic products globally.

Things are starting to look up. Regulators proposed easing the policy this year, including restarting approvals for some projects, boosting the outlook for demand. LONGi’s net income may jump 59% from last year, according to consensus forecast compiled by Bloomberg.

Zero Subsidies

However uncertainty over China’s solar policy remains. The nation is pushing for plants to be built without subsidies. That may trim margins and damp appetite for new projects.

LONGi is trading at about 20 times earnings. Among the top solar firms tracked by Bloomberg, Shanghai Aerospace Automobile Electromechanical Co. and First Solar Inc. trade at premiums, while Canadian Solar Inc. is at a discount.

To reinforce its position, the manufacturer pledged to more than double wafer capacity to 65 gigawatts between 2018 and 2021. Its panel-capacity target of 30 gigawatts in 2021 can probably meet at least a fifth of global demand, BNEF forecasts.

High investment costs and economies of scale needed in the solar industry make it difficult for competitors to expand fast enough to displace LONGi, said Wang Peng, an analyst at Zheshang Securities Co. in Shanghai. “We are positive on the company’s growth prospects.”

LONGi’s gains are enriching its biggest shareholders. President Li Zhenguo’s 11.6% stake is worth about $1.4 billion, while director Li Chunan’s 8.5% holdings crossed $1 billion last month. The president’s wife Li Xiyan owns 4.1%.

To contact Bloomberg News staff for this story: Lee Miller in Bangkok at lmiller@bloomberg.net;Feifei Shen in Beijing at fshen11@bloomberg.net

To contact the editors responsible for this story: Ramsey Al-Rikabi at ralrikabi@bloomberg.net, Jasmine Ng, Charlie Zhu

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With assistance from Bloomberg