Tongwei Co., Ltd. (600438.SH): Strategic Consolidation in Polysilicon; Initiate with "Trading Buy"

Date: February 27, 2026
Analyst: Shen Jiajie
Rating: Trading Buy (Range Bound Operation)
Target Price: RMB 20.50
Current Price (Feb 26, 2026): RMB 18.16
Market Cap: RMB 81.76 Billion
Sector: Electrical Equipment / Photovoltaics

Executive Summary

Tongwei Co., Ltd. ("Tongwei" or the "Company"), a global leader in high-purity crystalline silicon and solar cells, has announced a strategic acquisition of Qinghai Lihao Clean Energy Co., Ltd. ("Lihao Clean Energy"). This move is poised to solidify Tongwei’s dominance in the upstream polysilicon segment, pushing its global market share to approximately 36% upon completion. The transaction, structured via share issuance and cash payment, represents a critical consolidation step amidst an industry-wide clearance phase characterized by intense competition and capacity rationalization.

While the photovoltaic (PV) sector has endured significant headwinds through 2024 and 2025, resulting in substantial losses for Tongwei in fiscal year 2025, we observe early signs of fundamental stabilization. Silicon prices have rebounded since July 2025, and the Company has largely completed impairments on legacy assets and inventory. Coupled with a full transition to N-type technology and a robust integrated supply chain spanning from industrial silicon to modules, Tongwei is well-positioned to capitalize on the emerging supply-demand rebalancing.

We project the Company to return to profitability in 2026, with estimated net profits of RMB -9.6 billion, RMB 0.82 billion, and RMB 2.83 billion for 2025, 2026, and 2027, respectively. At the current price of RMB 18.16, the stock trades at a Price-to-Book (P/B) ratio of 1.96x. Given the near-term volatility and the gradual nature of the recovery, we initiate coverage with a "Trading Buy" rating, suggesting investors engage in range-bound operations with a target price of RMB 20.50.

Key Takeaways

1. Strategic Acquisition of Lihao Clean Energy: Cementing Market Leadership

On February 25, 2026, Tongwei announced its intent to acquire 100% equity interest in Qinghai Lihao Clean Energy. This transaction is currently in the planning stage, with意向 agreements signed with key stakeholders including Duan Yong, Hainan Zhuoyue Enterprise Management Partnership, and Hainan Haoyue Enterprise Management Partnership. Notably, this deal does not constitute a major asset restructuring under regulatory definitions, implying a smoother approval process.

Strategic Rationale and Impact:
* Capacity Expansion: Lihao Clean Energy, established in 2021, specializes in PV-grade high-purity polysilicon and electronic-grade polycrystalline silicon. It currently possesses an annual production capacity of 200,000 tons of N-type high-purity polysilicon and 2,000 tons of electronic-grade polysilicon.
* Market Share Consolidation: Post-acquisition, Tongwei’s total polysilicon capacity will exceed 1.1 million tons, up from the current 900,000 tons. This expansion elevates Tongwei’s global market share in polysilicon to an estimated 36%, reinforcing its status as the undisputed industry leader.
* Quality Enhancement: Lihao’s focus on N-type materials aligns perfectly with the industry’s technological shift. As downstream demand increasingly favors high-efficiency N-type cells (TOPCon/HJT), securing high-quality, low-cost N-type silicon supply provides Tongwei with a distinct competitive advantage in both cost and product specification.

2. Industry Clearance and Policy Tailwinds Driving Fundamental Recovery

The global PV industry is undergoing a painful but necessary clearance phase. The period of 2024–2025 saw widespread losses due to overcapacity and plummeting prices. However, several structural and policy-driven factors are now converging to stabilize the market and favor leading enterprises like Tongwei.

A. Price Stabilization and Profitability Repair
Under the guidance of anti-involution policies aimed at curbing irrational price wars, polysilicon prices have stabilized. Since July 2025, prices have trended upward. According to Choice data, the average polysilicon price in February 2026 reached RMB 52,000/ton, representing a 33% year-on-year increase. This price recovery is critical for margin repair. We expect Tongwei’s polysilicon segment to see a marked improvement in profitability in 2026 as higher average selling prices (ASPs) flow through to the bottom line.

B. Completion of Asset Impairments
A significant drag on Tongwei’s recent financial performance has been the impairment of outdated P-type capacity and high-cost inventory. We assess that the Company has largely completed these write-downs. For 2026, we project fixed asset impairments to decrease significantly to RMB 1.5–2.0 billion, down from the heavy burdens seen in 2024 and 2025. This reduction in non-cash charges will directly contribute to the reported net profit recovery in 2026 and 2027.

C. Policy-Induced Supply Side Constraints
Two major policy shifts are accelerating the exit of inefficient capacity:
1. Export Tax Rebate Cancellation: Effective April 2026, China will cancel the 9% export tax rebate for PV products. This measure increases the cost base for exporters, disproportionately affecting smaller, less efficient players who operate on thin margins. Leading firms with superior cost structures, like Tongwei, are better equipped to absorb or pass on these costs.
2. Market-Oriented Electricity Pricing: The full implementation of market-based on-grid electricity pricing rewards high-quality, stable power generation. This drives downstream demand for premium, high-efficiency modules, further squeezing out manufacturers of lower-tier products.

3. Robust Integrated Value Chain: A Defensive Moat

Tongwei has successfully evolved from a pure polysilicon supplier into a fully integrated PV giant. This vertical integration enhances supply chain security, cost control, and resilience against sector-specific shocks.

Capacity Overview (Estimated as of 2026):

Cell Business Dominance:
Tongwei’s cell business remains a core profit driver and a strategic anchor. In 2025, the Company maintained its position as the largest solar cell supplier globally, with a market share exceeding 50%. The production lines are predominantly configured for TOPCon technology, which is currently the mainstream high-efficiency standard. This dominance allows Tongwei to exert significant influence over cell pricing and standards, while also providing a captive market for its own polysilicon and wafer production.

Module Growth:
While newer to the module segment compared to incumbents like Longi or Jinko, Tongwei’s module shipments ranked 5th globally in 2025. The integrated model allows Tongwei to offer competitive pricing without sacrificing margins, as it captures value at every stage of the production chain.

4. Financial Analysis and Earnings Forecast

Historical Performance Context:
Tongwei reported a net loss of RMB 7.04 billion in 2024, followed by an estimated deeper loss of RMB 9.6 billion in 2025. These losses were driven by the collapse in polysilicon and cell prices, coupled with massive asset impairments. However, revenue remained relatively resilient at RMB 88.7 billion in 2025E, indicating sustained volume growth despite price erosion.

Forward-Looking Estimates (2026–2027):
We anticipate a inflection point in 2026. As polysilicon prices stabilize above RMB 50,000/ton and impairments normalize, the Company is projected to return to profitability.

• 2026E: Net Profit of RMB 817 million (EPS: RMB 0.18). This modest profit reflects the ongoing transition period, where revenue growth (estimated +44% YoY to RMB 128.2 billion) offsets remaining operational inefficiencies and debt servicing costs.
• 2027E: Net Profit of RMB 2.83 billion (EPS: RMB 0.63). By 2027, we expect full realization of the benefits from the Lihao acquisition, optimized N-type product mix, and a healthier industry competitive landscape. Revenue is projected to reach RMB 146.2 billion.

Financial Health:
* Balance Sheet: Total assets are estimated at RMB 191.2 billion in 2026E. The debt-to-asset ratio remains manageable, though leverage increased during the expansion phase. Long-term liabilities are projected to decline from RMB 75.8 billion in 2025E to RMB 70.5 billion in 2026E, indicating a focus on deleveraging.
* Cash Flow: Operating cash flow remains positive but tight (RMB 926 million in 2026E), reflecting the working capital intensity of the business. Investment cash outflows are decreasing as major capex cycles conclude, shifting the focus from expansion to optimization.

(Note: 2026E P/E is elevated due to the low base of recovered earnings; P/B is a more relevant valuation metric in the current cyclical trough.)

Risks / Headwinds

While the outlook is improving, investors must remain cognizant of the following risks:

1. Polysilicon Price Volatility:
   The core investment thesis relies on the stabilization of polysilicon prices around RMB 50,000–60,000/ton. If new capacity enters the market faster than expected, or if demand growth slows, prices could fall back below the cash cost of higher-cost producers, reigniting price wars and compressing Tongwei’s margins.

2. Technological Disruption:
   The PV industry is technologically dynamic. While TOPCon is currently dominant, rapid advancements in Heterojunction (HJT) or Perovskite tandem cells could render existing TOPCon capacity less competitive. Although Tongwei is investing in R&D, any lag in technology adoption could erode its premium pricing power.

3. Geopolitical and Trade Barriers:
   The cancellation of export tax rebates is just one aspect of trade policy. Increasing protectionism in key markets such as the US, Europe, and India (e.g., tariffs, local content requirements) could restrict Tongwei’s ability to export modules and cells, forcing it to rely more heavily on the domestic Chinese market, which is already saturated.

4. Integration Risks:
   The acquisition of Lihao Clean Energy carries execution risk. Integrating a different corporate culture, managing combined operations, and realizing projected synergies will take time. Failure to integrate smoothly could lead to operational disruptions or unexpected costs.

5. Financial Leverage and Interest Rates:
   Tongwei carries significant debt (Total Liabilities ~RMB 123.7 billion in 2026E). In a high-interest-rate environment, financial expenses (projected at RMB 3.08 billion in 2026E) will continue to weigh on net profits. Any tightening of credit conditions could constrain future flexibility.

6. Regulatory Changes in Domestic Power Markets:
   While market-oriented electricity pricing is a tailwind for high-quality products, changes in grid connection policies or subsidies for renewable energy storage could impact the overall economics of PV projects, indirectly affecting demand for Tongwei’s products.

Rating / Sector Outlook

Sector Outlook: Cautiously Optimistic – The "Clearance" Phase

The global photovoltaic sector is transitioning from a phase of chaotic expansion to one of structured consolidation. The "involution" (race to the bottom on price) is being actively discouraged by policy makers and market forces.
* Supply Side: High-cost, outdated P-type capacity is exiting the market. The cancellation of export tax rebates acts as a filter, removing inefficient exporters.
* Demand Side: Global demand for renewable energy remains robust, driven by climate goals and energy security concerns. However, the quality of demand is shifting towards high-efficiency, reliable products.
* Price Trend: We expect polysilicon and module prices to remain stable to slightly upward trending in 2026–2027, supporting margin recovery for tier-1 manufacturers.

Investment Rating: Trading Buy (Range Bound Operation)

We assign a "Trading Buy" rating to Tongwei Co., Ltd.

• Definition: Potential upside between 5% and 15%.
• Target Price: RMB 20.50.
• Current Price: RMB 18.16.
• Upside Potential: ~12.9%.

Rationale for Rating:
1. Valuation Support: At a P/B of 1.96x, Tongwei is trading at a reasonable multiple for a market leader with strong asset quality. It is not cheap enough to be a deep-value "Strong Buy" given the recent losses, but it is attractive relative to its long-term earning power.
2. Earnings Inflection: The shift from loss-making in 2025 to profitability in 2026 is a key catalyst. However, the magnitude of 2026 profits (RMB 817 million) is still modest relative to the company's size, limiting immediate explosive upside.
3. Market Sentiment: Investor sentiment towards the PV sector is recovering but remains fragile. A "Trading Buy" encourages investors to accumulate shares on dips within a defined range, rather than chasing momentum.
4. Strategic Optionality: The Lihao acquisition provides a long-term structural advantage that may not be fully priced in yet. As integration progresses and 2027 earnings grow to RMB 2.8 billion, the valuation multiple could expand.

Comparison to Peers:
Tongwei’s integrated model and cost leadership in polysilicon give it a defensive edge over pure-play module makers or wafer producers who are more exposed to margin compression. Its P/E of ~29x for 2027E is competitive given its growth trajectory and market dominance.

Investment View

Core Investment Logic

1. The "Survivor Takes All" Thesis:
In cyclical industries, the downturn is the best time to assess future winners. Tongwei’s ability to sustain operations, invest in N-type technology, and acquire competitors (like Lihao) during the downturn demonstrates superior financial resilience and strategic foresight. As weaker players exit due to the export tax rebate changes and price pressures, Tongwei’s 36% polysilicon market share will grant it significant pricing power and economies of scale.

2. Vertical Integration as a Risk Mitigator:
Unlike competitors who rely on external suppliers for polysilicon or wafers, Tongwei controls its entire value chain. This integration allowed it to survive the 2024–2025 price crash with less severe liquidity crises than peers. Moving forward, this structure ensures consistent product quality and cost advantages, particularly important as downstream customers prioritize reliability over lowest-first-cost.

3. Technological Alignment:
The successful transition to TOPCon and the acquisition of Lihao’s N-type capabilities ensure Tongwei is not left behind in the technology race. With >50% market share in cells, Tongwei effectively sets the standard for the industry. Its module business, though smaller, benefits from this technological backbone.

Operational Trends to Monitor

• Polysilicon Spot Prices: Watch for sustained trading above RMB 50,000/ton. Any dip below RMB 45,000/ton would signal renewed oversupply risks.
• Utilization Rates: Monitor Tongwei’s capacity utilization rates, particularly in the cell and module segments. High utilization (>85%) indicates strong demand and effective sales channels.
• Impairment Charges: Track quarterly reports for any residual asset impairments. A clean balance sheet free of legacy P-type assets is crucial for the 2027 profit surge.
• Lihao Integration Progress: Look for announcements regarding the finalization of the acquisition and any immediate synergy realizations (e.g., cost savings, cross-selling).

Conclusion

Tongwei Co., Ltd. stands at a pivotal juncture. Having weathered the storm of industry overcapacity and technological transition, it emerges stronger, larger, and more integrated. The acquisition of Lihao Clean Energy is a decisive move that cements its leadership in the critical polysilicon segment. While the immediate financial picture shows a turnaround from deep losses to modest profits, the long-term trajectory points to robust earnings growth as the industry stabilizes.

For institutional investors, Tongwei offers a compelling risk-reward profile. It is not a speculative play but a strategic holding in the global energy transition. The "Trading Buy" rating reflects the need for patience as the market digests the recovery. We recommend accumulating positions near the lower end of the trading range (RMB 17.50–18.50) with a target of RMB 20.50, while maintaining a long-term view on the company’s dominance in the post-consolidation PV landscape.

Disclaimer:
This report is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities. The information contained herein is based on sources believed to be reliable, but its accuracy and completeness are not guaranteed. Past performance is not indicative of future results. Investors should conduct their own independent research and consult with financial advisors before making investment decisions.

Appendix: Detailed Financial Projections

Income Statement Highlights (RMB Million)

Balance Sheet Highlights (RMB Million)

Cash Flow Highlights (RMB Million)