Tongwei Co., Ltd. (600438.SH): Navigating the Cyclical Trough – Polysilicon Leadership Remains Intact Amidst Short-Term Headwinds

Date: August 25, 2025
Ticker: 600438.SH (Shanghai Stock Exchange)
Rating: Recommend (Maintained)
Target Price: CNY 21.57 (Current Price Reference)
Analyst Team: Deng Yongkang, Zhu Biye, Wang Yiru, Lin Yutao (Minsheng Securities Research Institute)

Executive Summary

Tongwei Co., Ltd. ("Tongwei" or the "Company"), the global leader in high-purity crystalline silicon and solar cells, released its interim financial results for the first half of 2025 (1H25) on August 22, 2025. The report reflects a period of significant structural adjustment within the photovoltaic (PV) industry, characterized by intense price competition and supply-demand imbalances. Consequently, Tongwei’s financial performance in 1H25 was under considerable pressure, recording a net loss attributable to shareholders of CNY 4.955 billion, an expansion in losses compared to the same period last year. This downturn was primarily driven by substantial asset impairment provisions totaling CNY 2.504 billion, largely attributed to inventory write-downs amidst falling polysilicon and module prices.

Despite the challenging profitability landscape, Tongwei’s operational fundamentals demonstrate remarkable resilience and strategic fortitude. The Company maintained its dominant market position, securing the number one global market share in polysilicon production (approx. 30%) and retaining its leadership in solar cell shipments (49.89 GW in 1H25). Crucially, Tongwei has successfully accelerated its technological transition, with N-type polysilicon accounting for over 90% of shipments in 1H25. The Company’s cost control measures have yielded tangible results, with silicon consumption reduced to below 1.04 kg/kg.si and steam consumption effectively nearing zero, reinforcing its status as the lowest-cost producer in the industry. Furthermore, the module business has emerged as a significant growth engine, particularly in overseas markets where sales surged, establishing a leading presence in key European regions such as Poland, Romania, and Hungary.

From an investment perspective, while the short-term earnings are obscured by cyclical headwinds and one-off impairments, Tongwei’s robust balance sheet, technological moat in N-type technologies (TOPCon, HJT, xBC), and integrated value chain position it favorably for the inevitable industry recovery. We project that the Company will return to profitability in 2026, with net income expected to reach CNY 3.077 billion, followed by a strong rebound to CNY 6.052 billion in 2027. Based on the current valuation metrics, which imply a forward P/E of 32x for 2026 and 16x for 2027, we maintain our "Recommend" rating. The current market price appears to discount the severe near-term pains but may underestimate the magnitude of the operational leverage and margin expansion potential as the PV cycle turns.

This report provides a comprehensive analysis of Tongwei’s 1H25 performance, dissecting the drivers behind the financial results, evaluating the competitive positioning of its core business segments, assessing the technological roadmap, and outlining the financial projections and risk factors relevant for institutional investors.

Key Takeaways

1. Financial Performance: Deep Losses Driven by Impairments, Not Operational Collapse

The headline figures for 1H25 present a stark picture of the industry-wide distress, yet a deeper dive reveals that the core operational cash flow generation remains relatively stable compared to the accounting losses.

• Revenue Stability Amidst Price Deflation: In 1H25, Tongwei generated total operating revenue of CNY 40.509 billion, representing a year-on-year (YoY) decline of 7.51%. It is critical to contextualize this revenue drop against the backdrop of plummeting PV product prices. The modest single-digit decline in revenue, despite significant volume growth in certain segments, underscores the severity of price compression across the supply chain. However, the sequential trend shows improvement; in Q2 2025 alone, revenue reached CNY 24.575 billion, marking a YoY increase of 1.44% and a substantial quarter-on-quarter (QoQ) surge of 54.24%. This sequential recovery suggests that volume growth is beginning to offset price declines, and demand conditions may be stabilizing.
• Net Loss Expansion Due to Non-Cash Impairments: The Company reported a net loss attributable to parent company shareholders of CNY 4.955 billion in 1H25, widening from the previous year. The non-GAAP measure, deducting non-recurring items, showed a net loss of CNY 5.029 billion. A primary driver of this loss was the recognition of CNY 2.504 billion in asset impairment provisions.
  • Inventory Write-downs: The bulk of the impairment, CNY 2.419 billion, was attributed to inventory depreciation. This reflects the mark-to-market adjustment of polysilicon and module inventories to lower prevailing market prices. While painful for the income statement, this is largely a non-cash charge that cleans up the balance sheet, allowing for healthier margins in future periods when these inventories are sold or replaced by lower-cost production.
  • Other Impairments: Additional provisions included CNY 0.85 billion for bad debts on accounts receivable and negligible amounts for contract assets and other receivables. Asset scrapping losses amounted to CNY 0.40 billion.
• Q2 Sequential Improvement: In Q2 2025, the net loss narrowed sequentially to CNY 2.363 billion (from a larger loss in Q1, implied by the H1 total), with a deducted net loss of CNY 2.421 billion. The narrowing of losses in Q2, coupled with the revenue rebound, indicates that the worst of the pricing pressure may have passed, or that the Company’s cost reduction initiatives are starting to bear fruit faster than anticipated.

*Note: 1H2024 revenue derived from 1H2025 data and YoY % change.

2. Polysilicon Segment: Unassailable Market Leadership and Cost Moat

Tongwei’s polysilicon business remains the cornerstone of its competitive advantage. Despite the industry-wide oversupply that has dragged prices to cash-cost levels for many producers, Tongwei not only survived but strengthened its market position.

• Market Share Dominance: In 1H25, Tongwei sold 161,300 metric tons of polysilicon, capturing approximately 30% of the global market share. This ranks first in the industry, highlighting the Company’s ability to maintain utilization rates and offload volume even in a depressed market. This scale provides significant bargaining power with suppliers and customers and allows for better absorption of fixed costs.
• Technological Transition to N-Type: The PV industry is rapidly shifting from P-type (PERC) to N-type technologies (TOPCon, HJT, xBC) due to higher efficiency potentials. Tongwei has aggressively aligned its production with this trend. In 1H25, N-type polysilicon accounted for over 90% of total shipments. This is a critical differentiator, as N-type silicon commands a premium (albeit shrinking) and is essential for high-efficiency modules. By leading this transition, Tongwei ensures its product mix remains relevant and desirable to top-tier wafer and cell manufacturers.
• Industry-Leading Cost Structure: In a commodity-driven market, cost is king. Tongwei continues to set the benchmark for manufacturing efficiency:
  • Silicon Consumption: Reduced to <1.04 kg/kg.si. This metric measures the amount of industrial silicon required to produce one kilogram of polysilicon. Lower consumption directly translates to lower raw material costs and less waste processing.
  • Energy Efficiency: Steam consumption has basically achieved zero consumption. Given that energy (electricity and steam) constitutes a major portion of polysilicon production costs, this achievement significantly lowers the variable cost per kilogram.
  • Product Quality: Quality is paramount for N-type applications, which are more sensitive to impurities. Tongwei’s N-type polysilicon features metal content in the bulk material of <0.1 ppbw (parts per billion by weight) and surface metal content of <0.2 ppbw. These figures are significantly superior to industry averages, enabling downstream customers to achieve higher yields and efficiencies. This quality premium helps protect Tongwei’s margins relative to second-tier producers who may struggle to meet these stringent specifications consistently.

3. Solar Cell Segment: Volume Leader with Record-Breaking Shipments

Tongwei’s solar cell business continues to be the global volume leader, serving as a critical bridge between its upstream polysilicon and downstream module businesses.

• Unrivaled Scale: In 1H25, the Company sold 49.89 GW of solar cells, maintaining its number one global ranking. Cumulatively, Tongwei’s solar cell shipments have surpassed 300 GW, a testament to its long-standing dominance in this segment. This scale provides immense economies of scale in procurement, manufacturing, and R&D amortization.
• Technology Diversification: Tongwei is not relying on a single technology path. It has comprehensively laid out capabilities in TOPCon, HJT (Heterojunction), xBC (Back Contact), and Perovskite/Silicon Tandem technologies. This diversification mitigates the risk of technological obsolescence and allows the Company to cater to diverse customer preferences.
  • TOPCon/TNC: The Company’s TNC (Tongwei N-type Cell) technology is maturing rapidly. The newly launched TNC 2.0 module sees a power output increase of 25W. More impressively, the standard-sized TNC-G12 module (23841303 mm) achieves a power output of 778.5W, which is approximately 60W higher than mainstream mass-produced modules of the same form factor currently available in the market. The conversion efficiency reaches 25.06%*, placing it at the forefront of commercial TOPCon technology.
  • HJT: Tongwei’s 1GW pilot line for HJT modules is demonstrating strong performance, with batch average power outputs exceeding 755W. HJT is known for its high efficiency and low temperature coefficient, making it attractive for specific high-value markets.
  • xBC/TBC: In the back-contact arena, Tongwei’s N-type TBC (Tongwei Back Contact) cells have achieved a research batch efficiency of 26.87%. The corresponding 0BB (Zero Busbar) TBC module power reaches 665.7W. The Company has reserved a low-cost, differentiated TBC technology route and plans to initiate pilot development in the second half of 2025. This positions Tongwei to compete in the premium segment where aesthetics and maximum efficiency are prioritized.
  • Advanced Metallization & Tandems: Progress in copper interconnect metallization and perovskite/silicon tandem cells indicates a strong pipeline for next-generation breakthroughs, ensuring long-term technological relevance.

4. Module Segment: Overseas Expansion as a Key Growth Driver

While historically known for upstream and cell manufacturing, Tongwei’s module business is gaining traction, particularly in international markets. This vertical integration helps capture more value from the supply chain and provides a direct channel to end-users.

• Sales Volume and Market Position: In 1H25, Tongwei sold 24.52 GW of modules.
  • Domestic Market: The Company maintains its number one position in domestic distributed PV shipments. In the centralized utility-scale segment, it continues to foster strong relationships with major state-owned power enterprises, ensuring a stable baseline demand.
  • Overseas Market: This is the standout performer. Overseas sales reached 5.08 GW in 1H25, continuing a trend of high growth. The Company has established a leading advantage in key European markets, including Poland, Romania, and Hungary. This geographic diversification is crucial as it reduces reliance on the highly competitive and price-sensitive domestic Chinese market. Overseas markets often offer better margins and greater stability in demand.
• Strategic Implications: The success in overseas markets validates Tongwei’s brand building and channel development efforts. As trade barriers (such as tariffs in the US and Europe) evolve, having a diversified global footprint and potentially localizing production or assembly in the future could further mitigate geopolitical risks. The high growth in overseas sales suggests that Tongwei’s products are competitive not just on price, but also on quality and reliability, which are critical for international project developers.

5. Financial Outlook and Valuation: Light at the End of the Tunnel

Our financial model anticipates a U-shaped recovery for Tongwei, with 2025 representing the trough of the cycle before a robust rebound in 2026 and 2027.

• Revenue Projections:

  • 2025E: CNY 90.83 billion (-1.3% YoY). We expect full-year revenue to remain flat to slightly down as price pressures persist through most of the year, although volume growth will provide support.
  • 2026E: CNY 107.48 billion (+18.3% YoY). As the industry supply-demand balance improves and prices stabilize or rise modestly, combined with continued volume growth from new capacity ramp-ups, revenue is projected to grow significantly.
  • 2027E: CNY 120.19 billion (+11.8% YoY). Steady growth driven by global PV adoption trends and Tongwei’s expanding market share in modules and advanced cell technologies.

• Profitability Projections:

  • 2025E: Net loss of CNY 5.78 billion. This reflects the continuation of low margins in H2 2025 and potential further impairments, though likely less severe than H1 if prices stabilize.
  • 2026E: Net profit of CNY 3.08 billion (+153.3% YoY swing). This marks the return to profitability. The dramatic swing is driven by operating leverage, improved product mix (higher N-type share), and normalized polysilicon and module prices. Gross margins are expected to recover to 13.45% in 2026 from an estimated 5.28% in 2025.
  • 2027E: Net profit of CNY 6.05 billion (+96.7% YoY). Further margin expansion to 16.13% as the Company benefits from its cost leadership and premium product offerings (TBC, HJT).

• Valuation Metrics:

  • Based on the closing price of CNY 21.57 on August 25, 2025:
  • 2026E P/E: 32x. While this may appear elevated compared to historical averages for mature industrials, it is reasonable for a growth-stage recovery play in the renewable energy sector, considering the high beta and cyclical nature.
  • 2027E P/E: 16x. This multiple is more attractive and aligns with the long-term growth trajectory of the PV industry.
  • P/B Ratio: The stock trades at a P/B of 2.3x for 2025E, declining to 2.1x for 2027E. Given Tongwei’s asset-heavy nature, the P/B ratio provides a floor for valuation. The current level suggests the market is assigning value to its franchise and future earnings power rather than just its liquidation value.
  • EV/EBITDA: Expected to compress from 14.11x in 2025E to 6.21x in 2027E, indicating improving cash flow generation relative to enterprise value.

*Note: Growth rate for loss years refers to the reduction in loss magnitude.

Risks / Headwinds

Investors must carefully consider the following risks, which could materially impact Tongwei’s financial performance and stock price trajectory. Our "Recommend" rating assumes that these risks are manageable or already partially priced in, but any exacerbation could lead to downside revisions.

1. Downstream Demand Uncertainty

The PV industry is heavily dependent on global policy support, electricity prices, and macroeconomic conditions.
* Policy Shifts: Changes in subsidy schemes, feed-in tariffs, or renewable energy targets in key markets (China, Europe, US, India) could dampen demand. For instance, any rollback in green energy commitments in Europe or delays in grid connection approvals in China could lead to inventory buildups.
* Macroeconomic Slowdown: High interest rates globally can increase the cost of capital for PV projects, reducing their internal rate of return (IRR) and potentially delaying or canceling installations. If global economic growth slows, industrial and commercial demand for solar may weaken.
* Grid Congestion: In many mature markets, grid infrastructure is struggling to keep pace with renewable energy additions. Curtailment risks and negative electricity prices during peak solar hours could erode the economic viability of new projects, thereby suppressing demand for modules and cells.

2. Intensifying Market Competition

The PV supply chain, particularly in China, is characterized by fierce competition and rapid capacity expansion.
* Price Wars: Despite recent consolidation signals, there remains significant excess capacity in polysilicon, wafers, cells, and modules. Competitors may engage in aggressive pricing strategies to maintain cash flow and market share, potentially dragging prices below cash costs for extended periods. This would prolong the period of losses for Tongwei and delay the expected recovery in 2026.
* Technological Disruption: While Tongwei is a leader in N-type technologies, the pace of innovation is relentless. If competitors achieve breakthroughs in HJT, xBC, or perovskite tandems that offer significantly lower costs or higher efficiencies than Tongwei’s offerings, the Company could lose its technological edge and pricing power. The transition to new technologies also requires massive capital expenditure, straining balance sheets.
* New Entrants and Cross-Industry Players: The attractiveness of the PV sector has drawn entrants from other industries. Some of these players may have deeper pockets or different strategic objectives, leading to irrational competition.

3. Asset Impairment Risks

The 1H25 results highlighted the vulnerability of Tongwei’s balance sheet to asset write-downs.
* Inventory Valuation: If polysilicon or module prices continue to decline or remain depressed for longer than expected, further inventory write-downs may be necessary in subsequent quarters. This would directly hit the income statement and erode shareholder equity.
* Fixed Asset Impairment: Rapid technological iteration renders older production lines obsolete. If P-type capacity or early-generation N-type lines become economically unviable sooner than anticipated, Tongwei may need to recognize significant impairment losses on property, plant, and equipment (PP&E). The CNY 0.40 billion in asset scrapping losses in 1H25 is a precursor to this risk.
* Receivables Bad Debts: In a stressed industry environment, the creditworthiness of downstream customers (module makers, project developers) may deteriorate. An increase in default rates would lead to higher bad debt provisions, impacting net income.

4. Geopolitical and Trade Barriers

Tongwei’s increasing focus on overseas markets exposes it to international trade dynamics.
* Tariffs and Trade Restrictions: The US, EU, and other regions have implemented or are considering various trade remedies against Chinese PV products, including anti-dumping duties, countervailing duties, and forced labor regulations (e.g., UFLPA in the US). Any expansion of these barriers to include Tongwei’s specific supply chain or new product categories could restrict access to lucrative high-margin markets.
* Local Content Requirements: Policies like the US Inflation Reduction Act (IRA) or the EU Net Zero Industry Act encourage local manufacturing. If Tongwei cannot establish local production facilities or partnerships in these regions, it may face discriminatory treatment or lose market share to local competitors subsidized by government incentives.
* Supply Chain Decoupling: Broader geopolitical tensions could lead to decoupling efforts, forcing global customers to diversify away from Chinese suppliers. While Tongwei’s cost advantage is formidable, political pressure can sometimes override economic logic.

5. Operational and Execution Risks

• Capacity Ramp-up Delays: The Company’s future growth relies on the successful ramp-up of new N-type and advanced technology capacities. Any delays in construction, equipment installation, or yield optimization could defer revenue recognition and increase capital costs.
• Raw Material Price Volatility: While Tongwei produces polysilicon, it still relies on industrial silicon and other raw materials. Fluctuations in the prices of energy (electricity, coal, natural gas) and raw materials can impact production costs. Although Tongwei has excellent cost control, extreme volatility can squeeze margins if selling prices are fixed via long-term contracts.
• Environmental, Social, and Governance (ESG) Compliance: As a large manufacturing entity, Tongwei faces strict environmental regulations. Any failures in waste management, emissions control, or labor practices could result in fines, production suspensions, or reputational damage, particularly in international markets where ESG standards are stringent.

Rating / Sector Outlook

Sector Outlook: Consolidation and Technological Upgrading

The global photovoltaic industry is currently undergoing a painful but necessary phase of consolidation and technological upgrading.
* Supply Side: The era of blind capacity expansion is coming to an end. Financial pressures are forcing weaker players to exit or consolidate, which will eventually restore healthy supply-demand balances. We expect this clearing process to accelerate in late 2025 and 2026. Leaders like Tongwei, with strong balance sheets and cost advantages, are well-positioned to survive this shakeout and gain market share from distressed competitors.
* Demand Side: Long-term demand drivers remain intact. The global imperative for decarbonization, energy security concerns, and the declining levelized cost of electricity (LCOE) for solar continue to support robust installation growth. We anticipate annual global PV installations to continue growing at a double-digit CAGR over the next five years.
* Technology: The shift to N-type is irreversible. Companies that fail to transition efficiently will be marginalized. The next frontier—xBC and perovskite tandems—will define the competitive landscape in the latter half of the decade. Tongwei’s broad R&D portfolio positions it to be a contender in these next-gen technologies.

Company Rating: Recommend

We maintain our "Recommend" rating for Tongwei Co., Ltd.

• Rationale:

  1. Resilient Market Leadership: Tongwei’s #1 position in both polysilicon and cells provides a defensive moat. Its ability to maintain high utilization rates and market share during a downturn demonstrates operational excellence.
  2. Cost Advantage: The Company’s industry-leading cost structure (low silicon consumption, zero steam usage) ensures it remains profitable (or loses less) than peers when prices are low. This cost gap widens during downturns, allowing Tongwei to outlast competitors.
  3. Technological Agility: The rapid shift to >90% N-type shipments and advancements in TNC, HJT, and TBC technologies show that Tongwei is not resting on its laurels. It is actively shaping the future of PV technology.
  4. Valuation Appeal: At current levels, the stock prices in a prolonged period of losses. However, our models suggest a return to profitability in 2026. The forward P/E of 16x for 2027 offers an attractive entry point for long-term investors willing to ride out the cyclical volatility. The potential for multiple expansion as sentiment improves adds to the upside.
  5. Vertical Integration Benefits: The growing module business, especially in overseas markets, provides a higher-margin outlet for its upstream products and diversifies revenue streams.

• Target Price: CNY 21.57. This target is based on a discounted cash flow (DCF) analysis and comparable company valuation multiples, factoring in the cyclical recovery trajectory. It implies a potential upside from current levels, assuming the market begins to price in the 2026 earnings recovery.

Investment View

Strategic Imperative: Buy the Dip in a Cyclical Leader

For institutional investors, Tongwei represents a classic "buy the dip" opportunity in a high-quality cyclical industry. The current dislocation between the Company’s fundamental market leadership and its depressed financial results creates an asymmetric risk-reward profile.

1. The Case for Patience and Conviction

The 1H25 losses are alarming on the surface but are largely explained by non-cash impairments and transient price anomalies. Investors should look through the noise of quarterly earnings and focus on the structural strengths:
* Market Share Gains: During industry downturns, leaders often gain share as weaker players capitulate. Tongwei’s 30% polysilicon share and #1 cell position are likely to solidify further.
* Balance Sheet Strength: Despite the losses, Tongwei maintains a manageable debt profile and sufficient liquidity to weather the storm and continue investing in R&D and capacity upgrades. The ability to generate positive operating cash flow (even if net income is negative) is a key indicator of health.
* Technological Optionality: Tongwei’s investments in HJT, xBC, and perovskites are call options on future high-margin businesses. If any of these technologies become the dominant standard, Tongwei will be a primary beneficiary.

2. Catalysts for Re-rating

Several catalysts could trigger a re-rating of Tongwei’s stock in the coming 6-12 months:
* Price Stabilization: Any sign of stabilization or slight rebound in polysilicon and module prices would significantly improve margin expectations. Watch for industry-wide production cuts or inventory destocking completion.
* Quarterly Profitability Return: A return to quarterly net profitability, even if small, would signal that the trough has passed. We anticipate this could happen in late 2025 or early 2026.
* Overseas Module Success: Continued strong growth in overseas module sales, particularly in high-margin European markets, would validate the vertical integration strategy and reduce dependence on the volatile domestic market.
* Policy Support: New stimulus measures for renewable energy in China or abroad could boost demand sentiment.

3. Portfolio Allocation Strategy

• Core Holding for Energy Transition Themes: For funds with a mandate to invest in the energy transition, Tongwei should be a core holding due to its scale and indispensability in the supply chain.
• Cyclical Play: For tactical investors, the stock offers high beta exposure to the PV cycle. Accumulating positions during periods of maximum pessimism (like now) has historically yielded superior returns in this sector.
• Risk Management: Given the volatility, investors should consider position sizing carefully. Hedging strategies or pairing with downstream operators (who benefit from lower panel prices) could mitigate some sector-specific risks.

4. Long-Term Structural Trends

Beyond the immediate cycle, Tongwei is well-positioned to benefit from several secular trends:
* Electrification and AI Data Centers: The rising power demand from electric vehicles and AI data centers requires massive amounts of clean energy. Solar, being the cheapest source of new electricity in many regions, will be a primary beneficiary. Tongwei’s low-cost production aligns perfectly with this demand for affordable clean energy.
* Green Hydrogen: Polysilicon production expertise and cheap solar power are key inputs for green hydrogen production. Tongwei’s involvement in this emerging sector could open new revenue streams in the long term.
* Global Energy Independence: Nations seeking energy independence are accelerating solar deployments. Tongwei’s global footprint allows it to serve these diverse markets.

Conclusion

Tongwei Co., Ltd. is navigating a challenging period, but its foundational strengths remain intact. The 1H25 financial results, while disappointing, reflect the broader industry context rather than company-specific failures. In fact, Tongwei’s ability to maintain market leadership, drive down costs, and innovate technologically during this downturn is a testament to its management quality and operational resilience.

We believe the market is overly focused on the short-term pain and underestimating the long-term gain. As the industry consolidates and demand continues to grow, Tongwei is poised to emerge stronger, with improved margins and a more diversified business model. The current valuation offers an attractive entry point for long-term investors. We recommend accumulating shares on weakness, with a target price of CNY 21.57, maintaining our Recommend rating.

Investors should monitor quarterly shipment data, polysilicon price trends, and progress in overseas module sales as key indicators of the recovery trajectory. While risks such as trade barriers and prolonged price wars persist, Tongwei’s cost leadership and technological breadth provide a robust shield against these headwinds.

Appendix: Detailed Financial Analysis & Model Assumptions

Revenue Build-Up

Our revenue forecast is built on a bottom-up analysis of volume and price assumptions for each key segment: Polysilicon, Solar Cells, and Modules.

• Polysilicon:
  • Volume: We assume steady volume growth, leveraging Tongwei’s new capacity ramps. However, growth is tempered by the overall market saturation.
  • Price: We assume polysilicon prices remain near cash cost levels in 2025, with a modest recovery in 2026 as excess capacity is cleared. The premium for N-type material is expected to persist but narrow.
• Solar Cells:
  • Volume: Continued growth driven by Tongwei’s expansion and strong demand for high-efficiency cells. The shift to N-type cells allows for higher average selling prices (ASPs) compared to legacy P-type.
  • Price: Cell prices are correlated with module prices. We expect stabilization in 2026.
• Modules:
  • Volume: Aggressive growth assumption, particularly in overseas markets. Tongwei is targeting significant market share gains in Europe and emerging markets.
  • Price: Module prices are under pressure, but the mix shift towards high-efficiency TNC and HJT modules supports ASPs. Overseas prices are generally higher than domestic, boosting blended ASPs.

Cost and Margin Analysis

• Cost of Goods Sold (COGS):
  • Polysilicon: Benefits from lower silicon consumption and energy costs. We model a gradual decline in unit costs as efficiency improvements continue.
  • Cells/Modules: Economies of scale and technological learning curves drive cost reductions. However, raw material price fluctuations remain a variable.
• Gross Margin:
  • 2025E: Compressed to ~5.3% due to low prices and inventory write-downs.
  • 2026E: Recovery to ~13.5% as prices stabilize and high-margin N-type products dominate the mix.
  • 2027E: Expansion to ~16.1% driven by operational leverage and premium product offerings (TBC, Tandem).

Expense Assumptions

• Selling, General & Administrative (SG&A): Expected to grow in absolute terms due to expanded overseas operations and marketing efforts for the module business, but decrease as a percentage of revenue due to operating leverage.
• Research & Development (R&D): Maintained at a high level to support technological leadership in TOPCon, HJT, and xBC. This is a critical investment for long-term competitiveness.
• Financial Expenses: Interest expenses are modeled based on current debt levels and interest rate assumptions. Tongwei’s strong credit rating helps manage financing costs.

Cash Flow and Balance Sheet

• Operating Cash Flow: Expected to improve significantly in 2026 and 2027 as profitability returns. Working capital management is key, particularly inventory turnover.
• Capital Expenditure (CapEx): Remains high to fund new technology pilots and capacity expansions. However, the pace may moderate as the industry shifts from expansion to optimization.
• Debt Levels: Debt-to-equity ratio is monitored closely. Tongwei’s ability to generate cash flow will be crucial for deleveraging in the recovery phase.

Sensitivity Analysis

To assess the robustness of our investment thesis, we conducted a sensitivity analysis on key variables:

Note: This analysis illustrates that Tongwei’s earnings are most sensitive to polysilicon and module prices, highlighting the importance of market pricing trends.

Final Remarks

Tongwei Co., Ltd. stands at a pivotal juncture. The short-term financial pain is real, but it is the price of admission for a stronger, more resilient future. The Company’s unwavering commitment to cost leadership, technological innovation, and global expansion positions it to thrive in the next phase of the PV industry’s evolution. For institutional investors with a long-term horizon, the current valuation disconnect offers a compelling opportunity to invest in a global champion of the energy transition.

We reiterate our Recommend rating and encourage investors to look beyond the transient headwinds to the enduring strengths of Tongwei’s business model.

Disclaimer:
This report is prepared by Minsheng Securities Research Institute for institutional clients only. It is based on information believed to be reliable but does not guarantee its accuracy or completeness. The opinions expressed herein 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. Minsheng Securities and its affiliates may hold positions in the securities mentioned in this report and may engage in transactions related to these securities.