TCL Zhonghuan Earnings: Falling Solar Wafer Prices Pressure Bottom Line; Shares Oversold

TCL Zhonghuan's 2023 net income of CNY 3.4 billion implies a CNY 2.8 billion net loss in the fourth quarter. In addition, falling solar wafer prices continued to pressure its bottom line in the first quarter, although net loss narrowed to CNY 880 million. After factoring in lower solar wafer prices amid overcapacity, we now project Zhonghuan to record a net loss of CNY 340 million for 2024 versus our previous CNY 3.9 billion net income estimate. We expect Zhonghuan to be profitable in 2025-27 but our earnings forecasts are lowered by 19%-63%. The impact from earnings cuts was mitigated by lower capital expenditure. As a result, we reduce our fair value estimate to CNY 17.50 per share from CNY 19.50. Zhonghuan's share price is currently 39% below our fair value estimate. We see buying opportunities, as we anticipate solar wafer prices to bottom out over the next few months.