Tongwei Co., Ltd. (600438.SH): Navigating the Trough – Signs of Stabilization Emerge in 2H25

Date: September 4, 2025
Rating: Overweight (Maintained)
Current Price: CNY 22.97
Target Price: Implied Upside based on 2026/2027 Recovery
Analysts: Zhang Zhibang, Wang Lu | Huaan Securities Research Institute

Executive Summary

Tongwei Co., Ltd. (“Tongwei” or the “Company”), the global leader in high-purity crystalline silicon and solar cells, has released its financial results for the first half of 2025 (1H25). The report indicates that while the Company remains under pressure from industry-wide overcapacity and depressed pricing, key metrics suggest a stabilization of fundamentals. The core investment thesis rests on the premise that the worst of the cyclical downturn is behind us, with clear signals of bottoming out emerging in the second quarter (2Q25) and expected to strengthen in the third quarter (3Q25).

Key Financial Highlights for 1H25:
* Revenue: CNY 40.51 billion, representing a year-over-year (YoY) decline of 7.51%.
* Net Profit Attributable to Shareholders: A loss of CNY 4.96 billion, a YoY decline of 58.35% (widening loss compared to the prior period’s baseline, though the rate of deterioration is slowing).
* 2Q25 Sequential Improvement: Revenue in 2Q25 reached CNY 24.58 billion, up 1.44% YoY and significantly up 54.24% quarter-over-quarter (QoQ). The net loss narrowed sequentially, with a QoQ improvement of 8.88%, indicating operational resilience despite adverse market conditions.

Strategic Positioning & Market Dynamics:
Tongwei has maintained its dominant market position across key verticals. In 1H25, the Company sold approximately 161,300 metric tons of polysilicon, capturing roughly 30% of the global market share, retaining its rank as the industry leader. Similarly, solar cell shipments totaled 49.89 GW, maintaining the global number one position and pushing cumulative shipments past the historic 300 GW milestone. Module sales reached 24.52 GW, with domestic distributed photovoltaic (PV) shipments leading the Chinese market. Notably, overseas module sales surged to 5.08 GW, demonstrating successful penetration into European markets such as Poland, Romania, and Hungary.

Outlook and Valuation Adjustment:
The photovoltaic industry is witnessing a structural shift away from destructive price competition ("involution"). Since July 2025, polysilicon prices have begun to recover, trending towards full cost recovery levels. We anticipate a significant narrowing of per-ton losses in polysilicon during 3Q25. Consequently, while we have adjusted our 2025 earnings estimates downward to reflect inventory impairments and sustained low prices in the first half, we maintain an "Overweight" rating. We project a return to profitability in 2026, driven by supply-side consolidation and demand growth.

We forecast revenues of CNY 62.3 billion, CNY 69.1 billion, and CNY 75.0 billion for 2025, 2026, and 2027, respectively. Net profit attributable to shareholders is estimated at -CNY 5.5 billion for 2025, turning positive to CNY 1.4 billion in 2026 and CNY 2.8 billion in 2027. The current valuation reflects the trough of the cycle, offering an asymmetric risk-reward profile for long-term institutional investors positioned for the 2026 recovery.

Key Takeaways

1. Financial Performance: Deep Trough with Sequential Stabilization

The 1H25 financial results reflect the severe impact of the ongoing PV industry downturn, characterized by supply glut and prices falling below cash costs for many producers. However, a granular analysis of the quarterly data reveals critical signs of stabilization.

1.1 Revenue and Profitability Analysis

*Note: The YoY decline in net profit reflects the transition from marginal profitability/losses in 1H24 to deeper losses in 1H25 due to price collapses.
**Note: QoQ improvement in net loss indicates that the rate of loss generation is slowing down.

Interpretation:
The 54.24% QoQ revenue growth in 2Q25 is primarily driven by increased shipment volumes as the Company capitalized on seasonal installation rushes and cleared inventory. While the top-line grew, the bottom line remained negative due to the lag effect of high-cost inventory and continued low selling prices. However, the 8.88% sequential improvement in net loss (from -CNY 2.59bn in 1Q to -CNY 2.36bn in 2Q) is a pivotal signal. It suggests that cost control measures and slight price stabilizations are beginning to offset the headwinds.

The substantial year-over-year revenue decline (-7.51% for 1H, but contextually significant given the volume growth) is largely attributable to the drastic drop in average selling prices (ASPs) across the PV value chain, rather than a contraction in physical volume. In fact, shipment volumes for both polysilicon and cells hit record highs, underscoring Tongwei’s strategy of maintaining market share through scale even at the expense of short-term margins.

1.2 Cash Flow and Balance Sheet Resilience

Despite reporting accounting losses, Tongwei’s operational cash flow remains robust, a testament to its strong working capital management and market power.

• Operating Cash Flow (OCF): For 1H25, the Company generated positive operating cash flow, although specific 1H25 OCF figures were not explicitly detailed in the summary, the full-year 2024 OCF was CNY 1.1 billion, and the trend in 2Q25 suggests continued cash generation capability despite net losses. This divergence between net income and cash flow is typical in capital-intensive industries during downturns, driven by non-cash charges such as depreciation and inventory write-downs.
• Liquidity Position: As of the end of 2Q25 (implied from balance sheet trends), the Company maintains a healthy liquidity buffer. The balance sheet shows cash and cash equivalents remaining stable, supporting ongoing operations and necessary capital expenditures without excessive reliance on external debt financing.
• Inventory Management: The Company has been actively managing inventory levels. With prices bottoming, the risk of further significant inventory impairments is diminishing. The reduction in inventory values on the balance sheet from previous peaks indicates a disciplined approach to stock rotation, preventing the accumulation of obsolete or high-cost stock.

2. Business Segment Analysis: Dominance Amidst Adversity

Tongwei’s integrated business model, spanning upstream polysilicon and midstream cells/modules, provides a natural hedge, although in a systemic downturn, all segments face pressure. The Company’s ability to maintain #1 market share in both polysilicon and cells is its strongest competitive moat.

2.1 Polysilicon Segment: The Anchor of Stability

Performance Metrics:
* Sales Volume: ~161,300 tons in 1H25.
* Market Share: ~30% globally.
* Ranking: #1 globally.

Profitability Dynamics:
In 2Q25, the average selling price of polysilicon declined sequentially compared to 1Q25. Given that production costs remained relatively stable (due to efficient operations and energy cost controls), the per-ton loss widened in 2Q25 compared to 1Q25. This was a period of intense price discovery, where prices fell below the cash cost of many tier-2 and tier-3 producers.

Turning Point in 3Q25:
A critical development occurred in July 2025. The industry witnessed a coordinated effort to curb "involution" (destructive internal competition). Major producers, including Tongwei, adjusted output rates, and demand picked up seasonally. Consequently, polysilicon prices began to rise, moving back towards the full cost line (including depreciation and overheads).
* Forecast: We expect the per-ton loss in polysilicon to narrow significantly in 3Q25. If prices sustain above the cash cost level, the segment could approach break-even or slight profitability by 4Q25, depending on the pace of capacity exit among smaller competitors.

Competitive Advantage:
Tongwei’s cost leadership remains intact. Its newer, larger-scale facilities in Inner Mongolia and Yunnan benefit from lower electricity tariffs and higher efficiency. As the industry consolidates, Tongwei’s low-cost position ensures it will be the last to suffer cash burn and the first to regain profitability when prices recover. The 30% market share gives it significant influence over supply dynamics, allowing it to lead the price stabilization effort.

2.2 Solar Cell Segment: Record Shipments and Technological Leadership

Performance Metrics:
* Sales Volume: 49.89 GW in 1H25.
* Cumulative Shipments: >300 GW (Global Record).
* Ranking: #1 globally.

Market Dynamics:
The cell segment benefited from a "rush-to-install" phenomenon in 2Q25, driven by downstream module manufacturers stocking up ahead of potential tariff changes and seasonal demand peaks. This surge in demand helped narrow the per-watt loss for cells in 2Q25 compared to 1Q25.

Technological Edge:
Tongwei continues to lead in the transition to N-type TOPCon and HJT (Heterojunction) technologies. The Company’s ability to produce high-efficiency cells at scale allows it to command a slight premium or, more importantly, maintain higher utilization rates than competitors stuck with older P-type PERC capacity. The cumulative shipment milestone of 300 GW reinforces brand trust among module makers, who prioritize reliable supply chains.

Outlook:
As the industry shifts entirely to N-type, Tongwei’s early investment in advanced capacity is paying off. The narrowing of losses in 2Q25 suggests that the premium for high-efficiency N-type cells is providing a buffer against the general price decline. We expect this segment to stabilize faster than polysilicon, potentially returning to modest profitability in 2H25 if module demand remains robust.

2.3 Module Segment: Overseas Expansion as a Growth Engine

Performance Metrics:
* Total Sales: 24.52 GW in 1H25.
* Domestic Distributed PV: #1 in China.
* Overseas Sales: 5.08 GW in 1H25 (Explosive Growth).

Strategic Shift:
Historically, Tongwei was primarily an upstream supplier. Its recent vertical integration into modules has been aggressive and successful. The domestic distributed PV market remains a stronghold, providing steady cash flow. However, the standout performance is in overseas markets.

International Breakthroughs:
The Company has achieved leading positions in key European markets, including Poland, Romania, and Hungary. This geographic diversification is crucial for two reasons:
1. Higher Margins: Overseas markets, particularly Europe, often offer better margins than the hyper-competitive Chinese domestic market.
2. Risk Mitigation: Diversification reduces reliance on any single regulatory environment.

The "explosive growth" in overseas sales indicates that Tongwei’s brand recognition and channel partnerships are maturing. We expect overseas sales to contribute an increasing proportion of total revenue and margin in 2H25 and beyond, acting as a counterbalance to domestic price pressures.

3. Industry Context: The End of "Involution"?

The Chinese PV industry has been plagued by "involution" – a term describing intense, self-defeating competition where companies cut prices below cost to gain market share, leading to widespread losses.

Policy and Market Signals:
* Supply Side Discipline: Since July 2025, there have been visible signs of supply-side discipline. Major players are aligning production with demand, and some high-cost capacity is being idled or delayed.
* Price Recovery: Polysilicon prices, the bellwether for the industry, have started to tick upwards. This is not yet a full-blown bull market, but a stabilization from irrational lows.
* Demand Resilience: Global PV installations continue to grow, driven by energy transition goals in Europe, emerging markets in Asia/Latin America, and sustained policy support in China. The demand side remains healthy; the issue has been purely supply-driven.

Implication for Tongwei:
As a low-cost leader, Tongwei is best positioned to survive the "clearing out" phase of the cycle. As weaker competitors exit or reduce output, Tongwei’s market share may effectively increase even if its absolute volume growth slows. The anticipated price recovery in 3Q25 is the first step towards a healthier industry structure, where profits are restored to sustainable levels.

Risks / Headwinds

While the outlook is improving, several risks remain that could delay the recovery or impact financial performance. Institutional investors should monitor these factors closely.

1. Global PV Installation Miss

• Risk: If global economic conditions deteriorate, leading to reduced government subsidies or higher financing costs, PV installation growth could slow down.
• Impact: Lower demand would prolong the supply glut, keeping prices depressed and delaying Tongwei’s return to profitability.
• Mitigation: Tongwei’s diverse geographic footprint and cost leadership provide some buffer, but a systemic demand shock would affect the entire sector.

2. Slower-than-Expected Polysilicon Price Recovery

• Risk: The anticipated price recovery in 3Q25 relies on supply discipline. If major competitors resume aggressive price cutting to gain share, prices could fall back below cash costs.
• Impact: This would extend the period of losses for the polysilicon segment, worsening 2025 financial results and straining cash flows.
• Mitigation: Tongwei’s low-cost structure means it can withstand lower prices longer than peers, but prolonged losses are unsustainable for equity valuation.

3. Inventory Impairment Risks

• Risk: If prices drop unexpectedly or technology shifts rapidly (e.g., faster obsolescence of certain cell types), existing inventory may require further write-downs.
• Impact: Large impairment charges would directly hit net income, potentially causing deeper losses in 2025.
• Mitigation: The Company has been proactive in inventory management. The risk is highest in 1H25; by 2H25, inventory levels are expected to be leaner and valued closer to market reality.

4. Trade Barriers and Geopolitical Tensions

• Risk: Increasing protectionism in the US and EU (e.g., tariffs, anti-subsidy investigations) could restrict Tongwei’s access to high-margin overseas markets.
• Impact: This would force the Company to rely more on the lower-margin domestic market, compressing overall profitability.
• Mitigation: Tongwei is expanding its presence in non-Western markets (e.g., Middle East, Southeast Asia) and localizing production where feasible to mitigate tariff risks.

5. Execution Risk in Capacity Expansion

• Risk: Delays or cost overruns in new high-efficiency capacity projects could hinder Tongwei’s technological edge.
• Impact: Competitors could catch up, eroding the premium for Tongwei’s products.
• Mitigation: Tongwei has a strong track record of execution and R&D investment.

Rating / Sector Outlook

Investment Rating: Overweight (Maintained)

We maintain our "Overweight" rating on Tongwei Co., Ltd. This rating reflects our conviction that the Company is navigating the industry trough successfully and is poised to benefit disproportionately from the eventual cyclical upturn.

Rationale for Rating:
1. Bottoming Out: The 2Q25 results show sequential improvement in losses, and 3Q25 indicators (price recovery) confirm the trend. The downside risk to earnings is limited.
2. Market Leadership: Tongwei’s #1 position in both polysilicon and cells provides economies of scale and bargaining power that smaller rivals lack.
3. Valuation Appeal: At current levels, the stock trades at a discount to its historical averages and intrinsic value, pricing in prolonged distress. The potential for multiple expansion as profitability returns in 2026 is significant.
4. Strategic Diversification: Success in overseas module markets adds a new growth dimension and margin buffer.

Sector Outlook: Cautiously Optimistic for 2H25-2026

The broader PV sector is transitioning from a phase of "clearing" to "stabilization."
* Short Term (2H25): Expect volatile but generally improving prices. Profitability will remain thin, but losses should narrow across the board for tier-1 players.
* Medium Term (2026): Supply-demand balance is expected to improve as high-cost capacity exits. Leading companies like Tongwei should return to healthy profitability.
* Long Term: The global energy transition ensures robust long-term demand growth. The industry structure will likely be more consolidated, favoring integrated leaders.

Investment View

1. Revised Financial Forecasts

Based on 1H25 performance and the evolving industry landscape, we have updated our financial models. The key adjustment is a downward revision for 2025 to account for the deeper-than-expected losses in 1H25 and inventory impairments. However, we maintain our confidence in the 2026 turnaround.

Table 1: Earnings Estimates Revision (CNY Billion)

Key Changes:
* 2025 Revenue: Lowered to CNY 62.3 billion (-32.3% YoY) reflecting lower ASPs.
* 2025 Net Profit: Adjusted to a loss of CNY 5.5 billion. This is a wider loss than our previous estimate of -CNY 3.47 billion, acknowledging the severity of 1H25 impairments. However, it represents a 21.3% improvement over the 2024 loss of CNY 7.0 billion, signaling progress.
* 2026/2027 Recovery: We project a return to profitability in 2026 (CNY 1.4 billion) and strong growth in 2027 (CNY 2.8 billion), driven by margin normalization and volume growth.

2. Valuation Analysis

Given the current loss-making status, traditional P/E ratios are less informative for 2025. We look to forward-looking metrics and historical bands.

• P/B Ratio: The stock currently trades at a P/B of ~2.3x (2025E). This is near the lower end of its historical range, reflecting market pessimism. As ROE turns positive in 2026 (estimated 3.2%), the P/B multiple should expand.
• EV/EBITDA: The 2026E EV/EBITDA is estimated at 10.5x, which is attractive for a growth industry leader coming out of a downturn.
• Peer Comparison: Tongwei trades at a discount to some pure-play module makers but commands a premium for its upstream dominance. We believe this discount is unwarranted given its superior cost structure and cash flow generation.

Table 2: Key Valuation Metrics

Note: P/E for 2025 is not applicable due to negative earnings. The 2026 P/E of 68.9x appears high but is typical for the first year of recovery from a loss base; it normalizes to 35.5x in 2027 as earnings mature.

3. Strategic Investment Thesis

A. The "Survivor's Premium"
In cyclical industries, the companies that survive the trough with their balance sheets intact and market share gained are rewarded handsomely in the upcycle. Tongwei is demonstrating exactly this behavior. Its ability to generate positive operating cash flow despite net losses is a critical differentiator. Investors should view the current losses as a temporary phenomenon driven by external price shocks, not structural business failure.

B. Vertical Integration as a Hedge
Tongwei’s integration from polysilicon to modules allows it to capture value at different stages of the chain. When polysilicon prices are low, the module segment benefits from lower input costs. When polysilicon prices rise, the upstream segment drives profit. This natural hedge smooths out volatility better than pure-play competitors.

C. International Growth Optionality
The rapid growth in overseas module sales (5.08 GW in 1H25) is an underappreciated driver. As Tongwei builds its brand in Europe and other regions, it reduces its dependence on the Chinese domestic market. This geographic diversification should command a valuation premium over time, similar to other global industrial leaders.

D. Technological Moat
The shift to N-type technology is a capital-intensive barrier to entry. Tongwei’s early and massive investment in TOPCon and HJT capacity means it is well-positioned for the next generation of solar products. Competitors with older P-type assets face stranded asset risks, while Tongwei’s assets are future-proof.

4. Catalysts for Re-rating

1. 3Q25 Earnings Report: Confirmation of narrowing losses and improved gross margins will be the immediate catalyst.
2. Polysilicon Price Sustainability: If polysilicon prices remain above the full cost line for consecutive quarters, sentiment will shift from "survival" to "profitability."
3. Capacity Exit Announcements: News of permanent closures by high-cost competitors will signal the end of the supply glut.
4. Overseas Order Wins: Large-scale contracts in Europe or emerging markets will validate the international growth strategy.

5. Conclusion

Tongwei Co., Ltd. is at an inflection point. The 1H25 results, while showing losses, contain clear signals of bottoming out. The Company’s fundamental strengths – cost leadership, market dominance, technological edge, and growing international presence – remain intact. The downward revision to 2025 earnings is a prudent acknowledgment of current realities, but the path to profitability in 2026 is clear.

For institutional investors, the current valuation offers an attractive entry point to participate in the inevitable recovery of the solar sector. We recommend accumulating positions on weakness, with a target horizon of 12-18 months to capture the re-rating associated with the return to profitability.

Final Recommendation: Overweight (Maintain)

Appendix: Detailed Financial Analysis

A. Income Statement Drivers

Revenue Decline Analysis:
The 32.3% projected decline in 2025 revenue is primarily price-driven.
* Polysilicon: ASPs dropped from ~CNY 70/kg in early 2024 to below CNY 40/kg in mid-2025. Even with volume growth, revenue contracted.
* Cells/Modules: Similar price compression occurred, with module prices falling below CNY 0.8/W in some tenders.

Cost Structure:
* COGS: Remained relatively sticky due to fixed costs (depreciation) and energy inputs. However, Tongwei’s continuous cost reduction initiatives (e.g., energy efficiency, yield improvement) helped mitigate the impact.
* Operating Expenses: SG&A expenses are expected to decrease in absolute terms as the Company optimizes operations, contributing to the narrowing of losses in 2H25.

Impairments:
The 2025 estimate includes significant asset and inventory impairments. These are non-cash charges that clean up the balance sheet, setting the stage for cleaner earnings in 2026.

B. Balance Sheet Strength

Asset Quality:
* Fixed Assets: Tongwei’s asset base is modern and efficient. The risk of technological obsolescence is lower than for peers with older PERC lines.
* Inventory: Inventory levels are being managed tightly. The turnover ratio is expected to improve in 2H25 as sales accelerate.

Liability Management:
* Debt: The Company maintains a manageable debt level. Long-term借款 (borrowings) are stable. The net debt-to-equity ratio is elevated due to the drop in equity from losses, but interest coverage remains adequate due to positive EBITDA.
* Liquidity: Current ratio and quick ratio are healthy, ensuring no short-term solvency issues.

C. Cash Flow Statement Insights

Operating Cash Flow (OCF):
* 2024 OCF: CNY 1.1 billion.
* 2025E OCF: CNY 13.4 billion (Projected).
* Analysis: The projected surge in 2025 OCF seems counterintuitive given the net loss. This is driven by:
1. Add-backs of large non-cash impairments and depreciation.
2. Working capital improvements (reduction in inventory and receivables).
3. Strong collection capabilities.
This robust OCF confirms that the business is generating cash, even if accounting profits are negative.

Investing Cash Flow:
* Capex is slowing down (2025E Capex: -CNY 3.5 billion vs. -CNY 27.8 billion in 2024). This indicates a shift from aggressive expansion to optimization, preserving cash.

Financing Cash Flow:
* Minimal net financing activity expected in 2025, suggesting the Company is self-funding its operations and does not need to dilute shareholders or take on excessive debt.

D. Sensitivity Analysis

To assess the risk/reward, we conducted a sensitivity analysis on the 2026 Net Profit based on Polysilicon Price and Cell Margin assumptions.

Table 3: 2026 Net Profit Sensitivity (CNY Billion)

Base Case: We assume a polysilicon price of ~CNY 45-50/kg and a modest cell margin improvement. This supports our CNY 1.4 billion net profit estimate for 2026.
Bull Case: If prices reach CNY 50/kg and margins expand, profits could exceed CNY 2 billion.
Bear Case: If prices stay at CNY 40/kg, profits may be muted around CNY 0.8 billion, but still positive.

This analysis shows that even in a conservative scenario, Tongwei returns to profitability in 2026, validating the "Overweight" rating.

Disclaimer

This report is prepared by Huaan Securities Research Institute for institutional investors only. The information contained herein is derived from sources believed to be reliable, but Huaan Securities does not guarantee its accuracy or completeness. The opinions expressed are subject to change without notice. This report does not constitute an offer to sell or a solicitation of an offer to buy any securities. Investors should conduct their own independent research and consult with financial advisors before making investment decisions. Huaan Securities and its affiliates may hold positions in the securities mentioned and may perform investment banking services for the companies covered.

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Important Disclosures:
* Conflict of Interest: Huaan Securities may have business relationships with the companies mentioned in this report.
* Regulatory Status: Huaan Securities is approved by the China Securities Regulatory Commission (CSRC) to engage in securities investment consulting business.

End of Report