Shanghai Aerospace Automotive Electromechanical Co., Ltd. (referred to as Aerospace Electromechanical, 600151.SH), the first listed company within the aerospace system, has once again encountered challenges in its photovoltaic business after 17 years. Known for its historical struggles in this sector, the company recently released its interim results bulletin for this year, revealing some concerning figures.
In the first half of the year, the company reported total operating revenue of approximately 2.646 billion RMB, representing a 9.96% increase from the previous year. However, the net profit attributable to shareholders plummeted to -1.99 billion RMB, marking a 305.99% drop compared to the same period last year. This performance places it among the minority of loss-making firms within the A-share market, particularly surprising given the general optimism surrounding the photovoltaic industry this year.
According to data from Wind Information, as of July 28th, out of the listed A-share companies that have published interim results announcements, 22 companies reported losses, with Aerospace Electromechanical and another two companies—Tianlong Optoelectronics and Yinxing Energy—being the only ones incurring significant losses. This contrasts starkly with the overall upward trend in the photovoltaic sector this year, making Aerospace Electromechanical's situation appear somewhat anomalous.
Aerospace Electromechanical's reliance on its photovoltaic business has made it particularly vulnerable to fluctuations in the market. By the end of 2016, the company's photovoltaic revenue accounted for nearly 60% of its total revenue. The company ventured into polysilicon and component production early on, subsequently expanding into photovoltaic power plant EPC (Engineering, Procurement, and Construction) services and operations. After over a decade of operation, the company established a vertically integrated photovoltaic supply chain.
However, this extensive investment has not always yielded consistent returns. Initially, Aerospace Electromechanical's photovoltaic products focused on crystalline silicon and components. But when prices for these products dropped significantly in 2011 and 2012, the company's photovoltaic business posted negative gross profits for two consecutive years. In 2012, the company reported its largest loss ever, with a gross profit of -4.447 billion RMB, contributing to an overall loss of nearly 900 million RMB.
Facing such dire circumstances, Aerospace Electromechanical urgently sought funding to pivot its strategy. In 2013, the company announced three financial support plans, securing comprehensive credit lines and loans totaling 5.025 billion RMB from various institutions, including China Aerospace Science and Technology Finance Co., Ltd., commercial banks, and the China Development Bank Shanghai Branch. Additionally, the company raised over 800 million RMB by selling stakes in several subsidiaries, including Inner Mongolia Zhonghuan Photovoltaic Materials Co., Ltd. and Gaotai County Taike Photovoltaic Power Co., Ltd.
With these funds, Aerospace Electromechanical ramped up investments in photovoltaic power station projects. The company initiated a 150MW grid-connected photovoltaic project in Gansu and a 500MW photovoltaic power station collaboration project in Ningxia. It also established several regional subsidiaries to support power station projects. These efforts bore fruit almost immediately. In 2013, the company completed the construction of an ultra-500MW photovoltaic power station, transferred a 150MW photovoltaic power station, and maintained a power plant with over 280MW in scale. Consequently, the annual EPC revenue surged more than 11 times year-over-year, turning the company profitable in 2013.
By the second quarter of this year, Aerospace Electromechanical operated power plants across 10 provinces and autonomous regions in China, including Gansu, Ningxia, Xinjiang, Inner Mongolia, and Hebei, with a cumulative installed capacity of 414MW. Through heavy investment, the company rapidly became one of the leading photovoltaic EPC companies in the industry.
Despite these achievements, the sustainability of the company's photovoltaic business remains uncertain. Over the past few years, the company's photovoltaic gross profit has continued to decline. The main pressures stem from falling component prices, which have put significant strain on the company's gross margins, and the company's inability to consistently meet its power station sales targets, leading to lower-than-expected investment returns.
In its performance report, Aerospace Electromechanical attributes its poor results partly to falling market prices and rising costs in the photovoltaic manufacturing sector, which led to operational losses in the first half of the year. Additionally, the company's investment income has significantly decreased compared to the previous year.
This ongoing struggle highlights the inherent risks of concentrating too heavily on a single sector, even when investing heavily in infrastructure and technology. While Aerospace Electromechanical's strategic moves initially paid off, the company must now navigate a challenging landscape to maintain profitability in the competitive photovoltaic industry.
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