The Moutai of solar falls
Discussing how Sungrow Solar performance has collapsed within a year
Sungrow Power Supply (阳光电源 yáng guāng diàn yuán) is one of China’s largest solar companies, and known as the ‘Moutai of Photovoltaics’ (光伏茅 guāng fú máo).
Investors in China’s capital markets (in A-shares) add the character máo 茅 onto the name of sector as a shorthand for the biggest company in that space.
A ‘Moutai’ business normally dominates at least half of their market, as the real Moutai does in China’s liquor sector.
Other ‘Moutai-like’ businesses include include:
CATL 宁德时代 is the Moutai of batteries - 电池茅 diàn chí máo
Yili Group 伊利集团 is the Moutai of milk - 牛奶茅 niú nǎi máo
Vanke 万科 is the Moutai of real estate 地产茅 dì chǎn máo
Turning back to China’s photovoltaic industry, since the double carbon goals were announced in 2019 the sector has enjoyed explosive growth, with Sungrow accounting for more than 60% of China’s total photovoltaic inverter industry.
Sungrow published its 2021 annual results at the end of April, and its forecasts for Q1 this year. A significant drop in performance caused shocks across the whole industry:
The share price of the Moutai of Photovoltaics has fallen sharply.
Net profit fell by 19.01% year-on-year. In the fourth quarter, it earned less than RMB 80 million, a year-on-year decline of nearly 90%.
This disastrous report showed that performance was far lower than expected, and has hit the whole photovoltaic new energy sector.
‘Perhaps we pushed things too far in 2021’, said company chairman, Cáo Rénxián, attributing the decline in performance to their aggressive overseas expansion.
Perhaps the future road of Sungrow may not be so smooth.
There are lots of reasons for the dramatic fall in sales, but the main one, according to tech blog 36Kr is:
This is mainly due to the mismatch between valuation and performance growth. As a leading business in the clean energy field, the market has put a high value on the company.
In 2021, the aggressive sales strategy and downward pressure on growth led to a sudden collapse in the company’s performance. This means the gap between valuation and actual business growth became wider and wider.
So this week we explore conversations about Sungrow and some of its competitors as they adjust to pressures in China and internationally.
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The Favourite Five
Of this weeks favourite five words, four have their origins in non-Chinese thinking, ideas or language!
1. 拉胯 lā kuǎ
make a mistake at a critical time
这份“拉胯”的报表，远低于预期，也冲击了光伏新能源板块 - This disastrous report was way below expectations, and had a negative impact on the share prices in the whole sector.
Note: a northern dialect word which was originally discussed on 8 January newsletter.
2. 暴雷 bào léi
激进销售策略导致公司业绩突然暴雷 - Its aggressive sales strategy caused company performance to collapse.
Note: this is a financial neologism which always has negative connotations.
Related: 炸雷 zhà léi - explode
3. 卖铲子 mài chǎn zi
在投资人眼中，光伏逆变器本是“卖铲子”的生意，稳赚不赔 - In the eyes of investors, photovoltaic inverts are the equivalent of ‘selling shovels in a gold rush’. It’s a solid business that always delivers good returns.
Note: a reference to the American idiom which dates back to the gold rush in California in the 1850’s.
4. 旋转门 xuán zhuǎn mén
revolving door, at a cross-roads
巨头们似乎又如同十多年前一般，走进了命运的旋转门 - The major players in the sector seem to have returned to a time like ten years ago when they all faced the revolving door of fate.
Note: originally from the American idiom, ‘revolving door’ between politics and business. But here is means to come to a crossroads when things might not turn out so well.
5. 强者恒强 qiáng zhě héng qiáng
the strongest get stronger
随着行业发展，竞技门槛也在提升，似乎到了强者恒强的阶段 - As the industry develops, and the technological barriers to entry increase, it seems we have arrived at a time where the strongest become increasingly dominant.
Note: this is from the original English phrase, Matthew effect of accumulated advantage, Matthew principle, or Matthew effect for short, is sometimes summarised by the adage ‘the rich get richer and the poor get poorer’.
The full phrase in Chinese is: 强者恒强，弱者恒弱 qiáng zhě héng qiáng, ruòzhě héng ruò - 'the strong get stronger, the weak become weaker.
Consuming the Conversation
光伏 guāng fú - photovoltaic
逆变器 - solar inverter
硅料 guī liào - silicon
The main companies referred to are:
Sungrow Power Supply 阳光电源 yáng guāng diàn yuán
Tongwei Solar 通威太阳能 tōng wēi tài yáng néng
LONGi Green Energy Technology 隆基股份 lóng jī gǔ fèn
坎坷 kǎn kě
市场吃了一惊，也才回想起，光伏行业的本质，坎坷且内卷 - The market was surprised, which was a reminder that the solar industry is difficult and competitive.
泡影 pào yǐng
a burst bubble
曾喊出建设“千亿光伏产业园”的规划也早已成为泡影 - The plan to build a ‘100 billion photovoltaic industrial park’ has long since disappeared.
沾光 zhān guāng
touch light; benefitted from
在碳中和的政策下，光伏行业长期的景气度自然也让逆变器沾了光 - With the carbon neutral policy goal, the photovoltaic industry’s long-term prospects have also had a positive effect on inverter manufacturers.
壁垒 bì lěi
从进入壁垒来看，逆变器行业的技术壁垒和资本壁垒并不高 - From the perspective of barriers to entry, the technical and capital barriers in the inverter industry are not high.
板斧 bǎn fǔ
axe, main focus
阳光电源就凭借着成本和服务这两板斧一路攻城略地 - Sungrow has seized market share by focussing on cost and service.
猛药 měng yào
阳光电源不得不再掏出曾经维持增长的两板斧，给自己打一剂猛药：继续推进渠道建设 - Sungrow had to focus on its two main strengths that previously delivered growth and self-administer a strong medicine: continue to build sales channels.
倒春寒 dào chūn hán
a cold spring
重仓赛道股突遭“倒春寒”，基金经理的新能源信仰还在吗？- Previously popular stocks in the sector are suddenly experiencing ‘cold spring’. Do fund managers still believe in new energy stocks?
泼冷水 pō lěng shuǐ
throw cold water on
通威可不是一直这么风光，甚至刚入行的时候，就被泼了冷水 - Tongwei did not always do so well, and even suffered setbacks when it first entered the market.
俱往矣 jù wǎng yǐ
然而，俱往矣 - However, it was then all gone.
Note: from a Mao Zedong poem, Snowscape (沁园春·雪 qìn yuán chūn·xuě), written in 1936 - see classics section in the member newsletter for the full poem and a recital.
大跌眼镜 dà diē yǎn jìng
glasses fall off; eye-popping
逆变器龙头阳光电源公布了其2021年全年业绩以及2022年一季度业绩预告，结果令市场大跌眼镜 - Solar inverter giant, Sungrow, announced its 2021 full-year results and 2022 Q1 results forecast, which surprised the market.
急转直下 jí zhuǎn zhí xià
rapid fall, plummet
同比增长25.15%，勉强合格，但净利润却急转直下 - It had a year-on-year increase of 25.15%, which is barely passable, but the net profit has plummeted.
猝不及防 cù bù jí fáng
be caught off guard
本次利润增速突然由正转负，令市场猝不及防 - This time, the profit growth rate suddenly turned from positive to negative, which caught the market off guard.
祸不单行 huò bù dān xíng
misfortune never comes singly
祸不单行，4月23日阳光电源又被爆出外部董事失联的消息，进一步加剧了市场的恐慌 - Misfortune never travels alone. On 23 April the news of Sungrow’s independent directors losing contact further aggravated the market’s uncertainty.
罪魁祸首 zuì kuí huò shǒu
各类激增的费用才是拖累报告期内阳光电源业绩的罪魁祸首 - Various rapid increases in costs are the main culprit which has dragged down Sungrow's performance during the reporting period.
一潭死水 yī tán sǐ shuǐ
a pool of stagnant water; stagnant
行业格局至少不会是一潭死水 - At the very least the industry overall won’t stagnate.
不得已而为之 bù dé yǐ ér wéi zhī
as a last resort
隆基的最初目的，是面对组件支持多晶硅的情况下，为了推广单晶硅业务，不得已而为之 - Longi did so initially as a last resort to promote its mono-crystalline silicon business as poly-silicon models emerged.
向前走不要回头望 xiàng qián zǒu bùyào huítóu wàng
moving forward, do not look back
当一步步靠近旋转门的时候，也只能向前走不要回头望 - As the company gets closer to the revolving door, the only thing it can do is to look forward and not look back.
赶了一个晚集 gǎn le yī gè wǎn jí
late to market
通威是结结实实地赶了个晚集，别的企业前几年还赚了钱 - Tongwei Solar were well and truly late to market, while other companies had already started making money several years before.
Note: first discussed in this newsletter and SupChina’s phrase of the week in January this year. The full phrase is 起了一个大早，赶了一个晚集 - got up early but was late to market.
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