Equity Research: Tongwei Co., Ltd. (600438.SH)

Date: September 5, 2025
Sector: Power Equipment / Photovoltaic (PV) Devices
Rating: OVERWEIGHT (Maintained)
Previous Rating: Overweight
Current Price: CNY 21.98
Target Price: Implied via Valuation Multiples (See Section 5)
Market Cap: CNY 98.95 Billion
Analysts: Jiaxiong Wu (S1300523070001), Zhen Gu (S1300525040003)
Source: BOC International (China)

Executive Summary

Tongwei Co., Ltd. (600438.SH) remains a dominant force in the global photovoltaic supply chain, holding the number one market share in both polysilicon production and solar cell shipments. Despite a challenging macroeconomic and industry-specific environment that led to expanded losses in the first half of 2025 (1H25), the company demonstrated resilience with a sequential reduction in losses in the second quarter (2Q25).

The core investment thesis for Tongwei has shifted from pure volume growth to a narrative centered on industry consolidation, price stabilization, and technological leadership. The Chinese government’s intensified efforts to combat "involutionary" (destructive) competition—termed the "Anti-Involution" initiative—are beginning to yield tangible results, evidenced by a significant rebound in polysilicon prices from CNY 35,000/ton in June 2025 to CNY 46,000/ton by late August 2025. This price recovery, coupled with Tongwei’s robust cost advantages and aggressive deployment of next-generation technologies (HJT and TBC), positions the company for a potential profit repair in the second half of 2025 (2H25) and sustained earnings growth through 2027.

We have adjusted our earnings forecasts to reflect the weaker-than-expected 1H25 performance but maintain an Overweight rating. We project a turnaround in profitability starting in 2026, driven by normalized silicon prices and improved operational efficiency. Our revised EPS estimates for 2025-2027 are CNY -1.30, CNY 0.48, and CNY 1.05, respectively. At current valuation levels, the stock offers an attractive risk-reward profile for long-term institutional investors seeking exposure to the cyclical recovery of the PV sector.

Key Financial Highlights & Forecast Adjustments

Source: Company Reports, BOC International Estimates

Key Takeaways

1. Financial Performance: 1H25 Losses Expand, but 2Q25 Shows Sequential Improvement

Tongwei’s financial results for the first half of 2025 reflect the severe pressure exerted by oversupply and depressed prices across the photovoltaic value chain. However, a closer examination of the quarterly dynamics reveals signs of stabilization.

1H25 Overview:
* Revenue: The company reported total operating revenue of CNY 40.51 billion in 1H25, representing a year-over-year (YoY) decline of 7.51% compared to CNY 43.80 billion in 1H24. This contraction was primarily driven by lower average selling prices (ASPs) for polysilicon and cells, which outweighed the benefits of stable shipment volumes.
* Profitability: Net profit attributable to shareholders stood at a loss of CNY 4.96 billion, a significant widening from the loss of CNY 3.13 billion in 1H24. The gross margin collapsed to 0.07% in 1H25 from 7.12% in 1H24, indicating that sales prices were barely covering direct production costs.
* Expense Management: Despite the revenue decline, Tongwei demonstrated disciplined cost control. Selling expenses decreased by 14.64% YoY to CNY 885.77 million, and administrative expenses dropped sharply by 37.33% YoY to CNY 1.45 billion. However, financial expenses surged by 77.27% to CNY 1.35 billion, likely due to higher interest costs associated with debt financing amidst tight cash flows.
* Asset Impairment: The company recorded asset impairment losses of CNY 2.42 billion in 1H25, slightly higher than the CNY 2.26 billion in the same period last year. This reflects ongoing write-downs of inventory and older production assets as the industry transitions to newer, more efficient technologies.

2Q25 Sequential Trend:
* In the second quarter alone, Tongwei reported a net loss of CNY 2.36 billion. While still negative, this represents a sequential reduction in losses compared to the first quarter (implied Q1 loss of approx. CNY 2.60 billion). This improvement suggests that the worst of the price erosion may have passed and that operational efficiencies are beginning to offset margin compression.

Detailed 1H25 vs 1H24 Financial Comparison:

Source: iFind, BOC International

2. Operational Resilience: Global Leadership in Volume and Market Share

Amidst the financial headwinds, Tongwei’s operational metrics remain robust, reinforcing its status as the industry leader. The company has successfully maintained high utilization rates and market dominance, which is critical for surviving the current industry shakeout.

Polysilicon Segment:
* Capacity: As of June 30, 2025, Tongwei’s annual high-purity polysilicon capacity exceeded 900,000 metric tons. This massive scale provides significant economies of scale and bargaining power.
* Sales & Market Share: In 1H25, the company sold 161,300 metric tons of polysilicon. This volume translates to a global market share of approximately 30%, firmly retaining its position as the world’s largest polysilicon producer. Maintaining this share during a period of low prices demonstrates the company’s cost competitiveness and reliable supply chain relationships.

Solar Cell Segment:
* Capacity: Annual solar cell capacity surpassed 150 GW.
* Sales & Market Share: Cell shipments in 1H25 reached 49.89 GW, keeping Tongwei at the number one spot globally for cell shipments. The ability to move nearly 50 GW of cells in six months underscores the strong demand for Tongwei’s high-efficiency products, even as module makers face their own margin pressures.

Module Segment:
* Capacity: Annual module capacity exceeded 90 GW.
* Sales: Module sales totaled 24.52 GW in 1H25. While smaller relative to its cell and silicon businesses, this segment is growing and serves as a strategic outlet for integrating downstream value and capturing brand premium.

Strategic Implication:
Tongwei’s "Volume King" strategy ensures that it remains cash-flow positive at the operating level (before impairments and heavy financial costs) and maintains critical relationships with downstream customers. In an industry where many smaller players are exiting or cutting production, Tongwei’s ability to sustain volume allows it to capture greater market share as the supply side consolidates.

3. Technological Moat: Leading the N-Type Transition

The photovoltaic industry is undergoing a rapid technological shift from P-type (PERC) to N-type technologies, primarily TOPCon, Heterojunction (HJT), and Back Contact (BC/TBC). Tongwei is not merely participating in this transition but is actively leading it through substantial R&D investments and pilot line deployments.

R&D Investment:
* The company continues to prioritize innovation, with R&D expenses remaining significant. In our forecast, R&D expenses are projected to be CNY 1.70 billion in 2025, rising to CNY 2.43 billion by 2027. This sustained investment is crucial for maintaining efficiency leads.

Heterojunction (HJT) Progress:
* Pilot Line Success: Tongwei’s 1 GW HJT module pilot line has achieved mass production with an average power output exceeding 755W. This is a benchmark figure that places Tongwei among the top tier of HJT manufacturers globally. High wattage modules reduce balance-of-system (BOS) costs for developers, making Tongwei’s HJT products highly attractive despite potentially higher manufacturing costs compared to TOPCon.
* Commercialization: The success of the pilot line paves the way for larger-scale commercial deployment in 2026-2027, positioning Tongwei to capture the premium segment of the market.

TBC (Tunnel Oxide Passivated Contact Back Contact) Breakthroughs:
* Efficiency Records: In recent R&D batches, Tongwei’s N-type TBC cells achieved a conversion efficiency of 26.87%. This efficiency level is competitive with the best-in-class records globally and signals strong technical prowess in passivation and contact engineering.
* Module Performance: The corresponding 0BB (Zero Busbar) TBC modules reached a power output of 665.7W.
* Timeline: The company plans to initiate pilot development for TBC technology in the second half of 2025. This strategic timing allows Tongwei to validate the manufacturability and yield of TBC before committing to massive capex, de-risking the investment while staying ahead of the curve.

Technology Mix Strategy:
Tongwei is adopting a multi-technology approach. While continuing to optimize TOPCon (the current mainstream), it is aggressively scaling HJT and preparing for TBC. This diversification mitigates the risk of betting on a single technology winner and allows the company to offer tailored solutions to different customer segments (e.g., utility-scale vs. distributed residential).

4. Macro & Industry Catalyst: The "Anti-Involution" Policy Framework

A pivotal development supporting our positive outlook is the Chinese government’s decisive intervention to curb destructive competition in the PV sector. For the past two years, "involution" (neijuan)—characterized by below-cost pricing, overcapacity, and margin erosion—has plagued the industry. The new policy framework aims to restore healthy profit margins and sustainable growth.

Policy Evolution:
1. Central Economic Work Conference: Explicitly called for the "comprehensive rectification of involutionary competition." This high-level directive signaled a shift from laissez-faire expansion to managed consolidation.
2. Government Work Report: Emphasized "promoting orderly industrial development and benign competition." This reinforces the state’s commitment to preventing wasteful capital expenditure and price wars.
3. Industry Self-Discipline: Industry associations have taken the lead in drafting self-discipline conventions, encouraging major players to adhere to minimum price floors and rationalize production schedules.
4. Legal Oversight: Price order is increasingly being incorporated into legal regulatory frameworks, providing a stricter enforcement mechanism against predatory pricing.

Impact on Polysilicon Prices:
The effectiveness of these measures is already visible in commodity pricing.
* June 2025: Polysilicon prices hovered around CNY 35,000 per ton, a level that was unsustainable for most producers and resulted in widespread cash losses.
* August 2025: By the end of August, prices had risen to CNY 46,000 per ton.
* Significance: This 31% increase in just two months is a strong indicator that supply discipline is taking hold. For Tongwei, which has one of the lowest cost structures in the industry (estimated fully loaded cost well below CNY 40,000/ton), this price move translates directly into gross margin expansion.

Long-Term Outlook:
We believe this is not a temporary spike but the beginning of a structural repricing. As weaker competitors exit the market and capacity additions slow down due to tighter financing and regulatory scrutiny, the supply-demand balance will improve. Tongwei, as the low-cost leader, stands to benefit disproportionately from this normalization. We expect silicon prices to have medium-to-long-term upside potential, which will underpin the company’s profit repair in 2H25 and drive earnings growth in 2026-2027.

Risks / Headwinds

While the outlook is improving, investors must remain cognizant of several key risks that could derail the recovery thesis.

1. Intensified Price Competition

Despite the "Anti-Involution" policies, the risk of price wars persisting cannot be entirely eliminated. If major competitors decide to ignore self-discipline conventions to gain market share or clear inventory, prices could fall back to unsustainable levels. Additionally, if new capacity comes online faster than expected, it could overwhelm the demand absorption rate.
* Monitoring Indicator: Weekly polysilicon and module price trends; inventory levels at major manufacturers.

2. Raw Material Price Volatility

Tongwei’s cost structure is sensitive to the prices of key raw materials such as industrial silicon, electricity, and chemicals. An unexpected surge in energy costs (particularly in regions where Tongwei operates) or raw material shortages could compress margins, even if product prices remain stable.
* Monitoring Indicator: Industrial silicon prices; regional electricity tariff adjustments.

3. Downstream Demand Miss

The PV industry is ultimately demand-driven. If global installation targets are not met due to macroeconomic slowdowns, trade barriers, or grid connection bottlenecks, the anticipated demand growth may fail to materialize. Key markets like Europe, the US, and China are critical. Any significant deviation in installation forecasts would impact Tongwei’s volume assumptions.
* Monitoring Indicator: Monthly installation data from China NEA; import data from EU and US; global policy updates on renewable subsidies.

4. Policy Uncertainty

While domestic policies are currently supportive, changes in international trade policies (e.g., tariffs, anti-dumping investigations) could restrict Tongwei’s export opportunities. Furthermore, if domestic subsidies or support mechanisms are withdrawn prematurely, it could dampen local demand.
* Monitoring Indicator: US/EU trade rulings on Chinese PV products; changes in China’s renewable energy subsidy framework.

5. New Product Verification Delays

Tongwei’s future competitiveness relies heavily on the successful commercialization of HJT and TBC technologies. If there are delays in pilot line ramp-ups, yield issues, or if the market adoption of these technologies is slower than anticipated, the company may face higher unit costs and lose its technological edge.
* Monitoring Indicator: Efficiency records; pilot line yield rates; customer acceptance of HJT/TBC modules.

6. Financial Leverage and Liquidity

The company has seen an increase in financial expenses and debt levels. In a prolonged downturn, high leverage could strain liquidity, especially if operating cash flows remain negative for longer than expected. While Tongwei has strong banking relationships, tightening credit conditions could pose a risk.
* Monitoring Indicator: Debt-to-equity ratio; interest coverage ratio; cash flow from operations.

Rating / Sector Outlook

Sector Outlook: Stronger than Market (Overweight)

We maintain a "Stronger than Market" rating for the Photovoltaic Equipment sector. The sector is currently at an inflection point. After a prolonged period of correction and capacity clearing, the combination of policy support ("Anti-Involution"), stabilizing prices, and resilient global demand creates a favorable environment for leading companies.

Key Sector Drivers:
1. Supply Side Reform: The exit of inefficient capacity and the halt of irrational expansion are improving the supply-demand balance.
2. Price Stabilization: The rebound in silicon and module prices is restoring profitability across the value chain.
3. Technological Iteration: The shift to N-type technologies is creating a differentiation gap, allowing leaders with superior tech to command premiums.
4. Global Energy Transition: Long-term demand for clean energy remains robust, supported by global carbon neutrality goals.

Company Rating: Overweight (Maintained)

We maintain our Overweight rating on Tongwei Co., Ltd. (600438.SH).

Rationale:
1. Valuation Appeal: Despite the near-term losses, the stock is trading at a discount to its historical averages and peers when considering its 2026-2027 earnings potential. The current price of CNY 21.98 implies a P/E of 46.0x for 2026E and 20.9x for 2027E. Given Tongwei’s leadership position and expected earnings CAGR, this valuation is attractive.
2. Earnings Turnaround Visibility: The sequential improvement in 2Q25 and the rise in silicon prices provide high visibility for profit repair in 2H25 and a return to profitability in 2026.
3. Competitive Moat: Tongwei’s dual leadership in silicon and cells, combined with its cost advantage and technological pipeline, makes it the most resilient player in the sector. It is best positioned to gain market share during the consolidation phase.
4. Policy Tailwinds: The company is a primary beneficiary of the government’s efforts to stabilize the industry.

Price Performance Context:
* YTD (2025): -0.5% (Absolute); -17.4% (Relative to Shanghai Composite)
* 1 Month: +6.8% (Absolute); -0.3% (Relative)
* 3 Months: +35.8% (Absolute); +22.3% (Relative)
* 12 Months: +15.7% (Absolute); -20.4% (Relative)

The recent outperformance over the past 3 months reflects the market’s anticipation of the policy-driven recovery. We believe this trend has further room to run as earnings confirm the turnaround.

Investment View

1. Core Investment Logic: From "Volume Growth" to "Quality Recovery"

The investment case for Tongwei has evolved. Previously, investors rewarded the company for its aggressive capacity expansion and volume growth. Today, the focus is on profitability recovery, market share consolidation, and technological leadership.

The "Anti-Involution" Trade:
The most immediate catalyst is the policy-driven price recovery. Investors should view Tongwei as a proxy for the stabilization of the entire PV supply chain. As silicon prices rise from CNY 35k/ton to CNY 46k/ton and potentially higher, Tongwei’s margins will expand exponentially due to its operating leverage. Every CNY 1,000/ton increase in silicon price above its break-even cost flows directly to the bottom line.

The Technology Optionality:
Tongwei’s investments in HJT and TBC provide an embedded call option on the next generation of PV technology. If HJT or TBC becomes the dominant technology sooner than expected, Tongwei’s valuation multiple could re-rate significantly higher, reflecting its status as a tech leader rather than just a commodity producer.

Consolidation Beneficiary:
In any cyclical industry, the survivors emerge stronger. Tongwei’s balance sheet, while leveraged, is supported by its strong cash generation capabilities (once prices normalize) and its status as a systemically important enterprise. We expect Tongwei to acquire assets or talent from distressed competitors, further strengthening its moat.

2. Earnings Forecast and Valuation Analysis

We have significantly revised our earnings estimates to align with the 1H25 results and the new price environment.

Revised EPS Forecasts:
* 2025E: CNY -1.30 (Previously CNY 0.84). The downgrade reflects the deeper-than-expected losses in 1H25 and the assumption that full-year profitability will remain negative due to the lingering effects of low prices in the first half and ongoing impairments.
* 2026E: CNY 0.48 (Previously CNY 1.48). We anticipate a return to profitability in 2026 as silicon prices stabilize at higher levels and volume growth continues. The downgrade from the previous estimate is conservative, accounting for potential lingering competition.
* 2027E: CNY 1.05 (New Estimate). By 2027, we expect full normalization of the industry, with Tongwei benefiting from its expanded N-type capacity and improved product mix.

Valuation Metrics:

Note: P/E ratios are negative for loss-making years.

Interpretation:
* 2026 P/E of 46.0x: While this appears high, it is typical for cyclical companies emerging from a trough. The base effect of low earnings inflates the multiple. Investors should focus on the absolute earnings recovery and cash flow generation.
* 2027 P/E of 20.9x: This is a more reasonable valuation for a mature, leading industrial company. It suggests that by 2027, the stock will be trading at a fair value relative to its normalized earnings power.
* EV/EBITDA: The drop in EV/EBITDA from 93.6x in 2024 to 10.3x in 2026 highlights the expected recovery in operating cash flows. EBITDA is a better metric than Net Income in this transition phase as it excludes depreciation and amortization, which are high due to recent capex.

3. Strategic Recommendations for Institutional Investors

For Long-Term Investors:
* Accumulate on Weakness: The current price level offers an attractive entry point for long-term holders. The downside risk is limited by the company’s asset value and market leadership, while the upside potential from the earnings turnaround is significant.
* Focus on 2026-2027: Look beyond the 2025 losses. The real value creation will occur in 2026 and 2027 as margins normalize.

For Tactical Traders:
* Monitor Silicon Prices: Use weekly polysilicon price data as a trading signal. A continued upward trend in silicon prices will likely drive short-term stock price appreciation.
* Policy Catalysts: Pay attention to further announcements from the Ministry of Industry and Information Technology (MIIT) or industry associations regarding capacity controls or price floors.

Portfolio Allocation:
* Tongwei should be considered a core holding within a China Renewable Energy or Clean Tech portfolio. Its size and liquidity make it suitable for large institutional positions.
* Given the sector volatility, it is advisable to pair Tongwei with downstream module or inverter companies to hedge against specific segment risks, although Tongwei’s vertical integration already provides some natural hedging.

4. Detailed Financial Analysis & Projections

To provide a deeper understanding of the forecast, we analyze the key drivers behind our numbers.

Revenue Growth Drivers:
* 2025E (CNY 106.2 bn, +15.4%): Growth is driven primarily by volume increases in cells and modules, partially offset by lower average selling prices for polysilicon compared to 2023 peaks. The modest revenue growth reflects the "volume up, price down" dynamic of the current cycle.
* 2026E (CNY 138.8 bn, +30.7%): We project a stronger revenue rebound as silicon prices stabilize and potentially rise, boosting the value of sales. Additionally, the contribution from higher-value HJT and TBC products will begin to scale.
* 2027E (CNY 151.7 bn, +9.3%): Growth moderates to single digits as the market matures and Tongwei’s base becomes larger. Focus shifts to margin expansion rather than pure top-line growth.

Margin Expansion Trajectory:
* Gross Margin: Expected to recover from 5.5% in 2025E to 12.4% in 2026E and 13.5% in 2027E. This recovery is predicated on silicon prices staying above CNY 45,000/ton and the company’s ability to reduce production costs through technological improvements.
* Operating Margin: Expected to turn positive in 2026E (2.1%) and expand to 4.0% in 2027E. This reflects the operating leverage inherent in Tongwei’s business model—once fixed costs are covered, incremental revenue flows strongly to operating profit.

Balance Sheet & Cash Flow:
* Capex Discipline: We forecast capital expenditures to drop significantly to CNY 1.16 billion in 2025E and remain low in 2026-2027. This reflects the end of the massive expansion phase and a shift towards maintenance and targeted tech upgrades. This discipline is crucial for preserving cash.
* Debt Management: The company is expected to actively manage its debt, with net borrowing turning negative in 2026E and 2027E as cash flow improves. This will help reduce financial expenses and improve the net debt-to-equity ratio.
* Free Cash Flow: With capex dropping and EBITDA recovering, Free Cash Flow is expected to turn strongly positive in 2026, enabling potential dividend resumption in the future (though we forecast zero dividends for 2025-2027 to prioritize balance sheet repair).

5. Comparative Analysis: Tongwei vs. Peers

While this report focuses on Tongwei, it is useful to contextualize its position relative to peers (e.g., GCL Technology, Daqo New Energy, LONGi Green Energy).

• Cost Advantage: Tongwei consistently boasts the lowest cash cost of production for polysilicon in the industry. In a low-price environment, this is the single most important defensive attribute.
• Vertical Integration: Unlike pure-play silicon producers, Tongwei’s integrated model (Silicon -> Cell -> Module) allows it to capture value at multiple stages and smooth out volatility. When silicon prices are low, its cell and module margins may benefit from lower input costs.
• Tech Leadership: Compared to traditional peers, Tongwei’s aggressive push into HJT and TBC places it ahead of the curve. Many peers are still struggling to transition from PERC to TOPCon.

6. Conclusion

Tongwei Co., Ltd. is navigating one of the most challenging periods in the history of the photovoltaic industry. However, the company’s response—maintaining volume leadership, controlling costs, and investing in next-generation technology—has positioned it to emerge from the downturn stronger than ever.

The "Anti-Involution" policy framework provides a crucial external tailwind, accelerating the industry’s return to profitability. With silicon prices already showing signs of sustained recovery, Tongwei’s earnings trajectory is poised for a significant upturn in 2026 and 2027.

We believe the market has overly penalized the stock for the 1H25 losses, failing to fully price in the magnitude of the upcoming recovery. At current levels, Tongwei offers a compelling risk-reward profile for institutional investors willing to look through the near-term noise. We maintain our Overweight rating and encourage investors to accumulate shares as a strategic play on the global energy transition and the consolidation of the Chinese PV sector.

Appendix: Detailed Financial Statements

Income Statement Forecast (CNY Million)

Balance Sheet Forecast (CNY Million)

Cash Flow Statement Forecast (CNY Million)

Key Financial Ratios

Disclosure Statement

This report accurately reflects the personal views of the securities analysts. The analysts declare that they do not hold any other positions within or outside the company that would compromise their independence and objectivity; they have not served as directors, supervisors, or senior executives of the listed company commented on in this report; nor do they hold any financial interests related to the listed company. The listed company or any third party has not provided or promised to provide any compensation or other benefits related to this report.

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Rating System Explanation

The rating is based on the performance of the company's stock price/industry index relative to the relevant market index over the 6-12 months following the report's release.

Company Investment Ratings:
* Buy: Expected to outperform the benchmark index by more than 20%.
* Overweight: Expected to outperform the benchmark index by 10%-20%.
* Neutral: Expected to fluctuate within -10% to +10% relative to the benchmark index.
* Underweight: Expected to underperform the benchmark index by more than 10%.
* Not Rated: Unable to provide a clear rating due to lack of necessary data or other reasons.

Industry Investment Ratings:
* Stronger than Market: Expected to outperform the benchmark index.
* Neutral: Expected to perform in line with the benchmark index.
* Weaker than Market: Expected to underperform the benchmark index.
* Not Rated: Unable to provide a clear rating.

Benchmark Indices: CSI 300 for A-shares; Hang Seng Index for HK stocks; NASDAQ/S&P 500 for US stocks.

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