Shanghai Aerospace Automotive Electromechanical Co., Ltd. (referred to as "Aerospace Electromechanical," 600151.SH), the first listed company within China's aerospace system, has encountered challenges in its photovoltaic business for the past 17 years. This year, the photovoltaic industry witnessed a "June 30 rush," yet the industry's momentum hasn't fully subsided. On July 28, Aerospace Electromechanical released its interim earnings bulletin, revealing some concerning figures. For the first half of this year, the company reported total operating revenue of approximately RMB 2.646 billion and a net loss of RMB 1.99 billion, representing a 9.96% increase in revenue but a staggering 305.99% drop in net profit compared to the same period last year.
According to data from Wind Information, as of July 28, out of the A-share listed companies that have published their interim results (excluding Express Reports), 22 companies have reported net losses, accounting for over 80% of the total. Among these, Aerospace Electromechanical, along with Tianlong Optoelectronics and Yinxing Energy, stand out as the only loss-making enterprises. Despite the photovoltaic industry's recovery in the first half of this year, Aerospace Electromechanical's loss of nearly RMB 200 million can be seen as somewhat contradictory to the broader trend.
Looking at the company's revenue structure, the photovoltaic business contributes significantly to Aerospace Electromechanical's overall performance. By the end of 2016, the photovoltaic business accounted for nearly 60% of the company's main revenue. Initially entering the polysilicon and component sectors, Aerospace Electromechanical later expanded into EPC (Engineering, Procurement, and Construction) and the operation of photovoltaic power plants. After over a decade of development, the company has built a comprehensive photovoltaic industrial chain spanning upstream and downstream industries. However, this long-term focus has not been without its struggles.
In its early stages, Aerospace Electromechanical's photovoltaic products primarily focused on crystalline silicon and components. Affected by the continuous decline in crystalline silicon and component prices, the company experienced consecutive years of negative gross profits in 2011 and 2012. In 2012, the company suffered its worst losses, with a gross profit margin as low as -4.447 billion yuan, contributing to a company-wide loss of nearly 900 million yuan.
At a critical juncture, Aerospace Electromechanical urgently sought funding and liquidated assets, heavily investing in photovoltaic power plants. According to announcements on the Interface News, in 2013, Aerospace Electromechanical announced three financial support initiatives, securing comprehensive credit lines and entrusted loans totaling 5.025 billion yuan from entities such as China Aerospace Science and Technology Finance Co., Ltd., commercial banks, and the Shanghai branch of the China Development Bank. Simultaneously, the company raised over 800 million yuan through the frequent sale of stakes in subsidiaries like Inner Mongolia Zhonghuan Photovoltaic Material Co., Ltd. and Gaotai County Taike Photovoltaic Power Co., Ltd.
With ample capital, Aerospace Electromechanical ramped up investments in photovoltaic power station projects in 2013. It initiated a 150MW grid-connected photovoltaic project in Gansu and a 500MW photovoltaic power station collaboration project in Ningxia, while also establishing regional service subsidiaries for power station projects. These efforts bore immediate fruit. In 2013, Aerospace Electromechanical completed the construction of a 500+MW photovoltaic power station project, transferred a 150MW photovoltaic power station, and maintained a plant with a scale exceeding 280MW. The annual EPC revenue of the power station surged more than 11 times year-on-year. Thanks to this, Aerospace Electromechanical turned profitable in 2013.
As of the second quarter of this year, Aerospace Electromechanical operates photovoltaic power plants in 10 provinces and autonomous regions across China, including Gansu, Ningxia, Xinjiang, Inner Mongolia, and Hebei, with a cumulative installed capacity of 414MW. Through significant investments, Aerospace Electromechanical rapidly became one of the leading photovoltaic EPC companies in the industry.
However, the long-term profitability of the photovoltaic business came under scrutiny again. In 2015 and 2016, the gross profit of the photovoltaic business continued to decline year-on-year. Two key pressures weighed on the company's photovoltaic operations: First, component prices in the photovoltaic industry continued to fall, putting pressure on the company's component business margins. Second, although competition in photovoltaic power plants intensified, the company's power station sales frequently fell short of targets, resulting in lower-than-expected investment returns from the sale of power stations.
In this performance report, Aerospace Electromechanical's "self-analysis" seems to corroborate these points: "One factor is that the photovoltaic manufacturing sector has been impacted by both falling market prices and lagging cost adjustments, leading to operational losses in the company's PV manufacturing segment during the first half of the year. Additionally, the company's investment income has substantially decreased compared to the same period last year."
This ongoing struggle underscores the complexities of navigating the ever-evolving photovoltaic industry landscape, where balancing innovation, cost control, and market demand remains crucial for sustained success.
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