HONG KONG —¬†After two years of suspension, the Kaisa Group (01638.HK) recently resumed trading and its stocks soared by 55.77% with a closing price of HKD $2.43. The resumption of trading and the soaring of prices result mainly from two factors: one is the stimulation provoked by the bull news of resumption; and the other is the room for compensatory growth as a result of a sharp drop in the past.

In November 2014, the Kaisa Group was restricted to trade for housing resources in Shenzhen; with its cash flow drying up, it fell into a debt crisis. Meanwhile, the Kaisa Group was suspended from trading for a long period of time due to its incapacity to issue financial reports. Analysts from many institutions even claimed that the Kaisa Group would never resume trading. However, after debt restructuration, the company’s financial condition greatly improved. As shown in its 2016 Annual Report, the annual sales amount of the Kaisa Group in 2016 was RMB 29.8 billion, with a year-on-year growth of 222%. It has had record-breaking annual sales and significantly upturned its state of business.

Similar to the Kaisa Group, the Hanergy Thin Film Power Group Limited (00566.HK, hereinafter referred to as “Hanergy Thin Film”) has also been suspended from trading for nearly two years. The past two years were years of breakthrough and growth amid extreme adversity for the company. According to the two requirements set out by the Securities & Futures Commission of Hong Kong (SFC) for the resumption of trade, the company has been preparing a Disclosure Document. It has also hired a financial adviser to conduct due diligence and auditors to audit the consolidated financial statements of the company, so that they would meet the resumption requirements set out by the SFC.

Hanergy’s cash flow improving with sharp revenue increase in 2016
As shown in the performance report of the financial year ending December 31st, 2016 recently released by Hanergy Thin Film, the company made a revenue of HKD 4.483 billion, representing a sharp increase of approximately 59% in comparison with HKD 2.815 billion in 2015. Its gross profit rose to HKD 2.598 billion, representing an increase of approximately 89% in comparison with previous year’s HKD 1.373 billion. The company has successfully turned its losses into profits for the year, with an annual profit of HKD 252 million.

The great improvement in the company’s performance was mainly due to the following reasons: due to the success of the Household Power Generation Unit through dealer channels, approximately thirty thousand sets of household photovoltaic system were sold during the aforementioned period, and a strong surge in sales revenue for the year was recorded, increasing sharply from HKD 281 million in 2015 to HKD 1.235 billion; and the revenue for the company’s delivered products under its manufacturing business increased to HKD 2.996 billion during the same period, approximately representing a 55% increase when compared with the previous year’s HK 1.934 billion revenue for the same period.

In regards to trade receivables, the company partly collected due receivables, improving its cash flow and positively influencing future business development and improving its sustainable business capacity. In March 2017, the company received RMB 1.5 billion (approximately equivalent to HKD 1.692 billion) from Hanergy Holding and its affiliates for the repayment of trade receivables; and in the first quarter of 2017, Shandong Macrolink has repaid RMB 650 million (approximately equivalent to HKD 735 million) to Hanergy Thin Film.

Hanergy is actively carrying out organization and system reforms so as to respond to the market in a more timely and efficient manner
Hanergy Thin Film has been suspended from trading for nearly two years, and the past two years were years of breakthrough and growth amid extreme adversity for the company. Faced with various difficulties due to the lingering effect of trade suspension, the company tackled difficulties with great enthusiasm and strong determination.

The company is actively carrying out organization and system reforms. As it establishes an organizational structure and mechanism that responds to the market in a more timely and efficient manner, it is also promoting technological innovation and upgrading by making use of its technological advantages, actively exploring the localization and mass production of advanced thin film technologies, implementing a customer-based sales culture, and focusing on promoting sales operations, including downstream household power generation, distributed power generation, agricultural photovoltaic applications, BIPV, and photovoltaic poverty alleviation projects, in order to develop more suitable applications for thin film power generation technologies.

The company has adopted a deployment strategy consisting in “One Base and Two Fronts”; that is, on the basis of continuous innovation in the field of thin-film solar technology, it employs “turnkey” solutions for high-end equipment and production lines on the left front, and “one-stop” solutions for distributed energies and mobile energies on the right front. The company focuses on the upstream business of equipment production lines, and the downstream businesses of distributed and mobile energies.

In the aspect of business development and exploration, by targeting the Asia-Pacific market and through direct sales to major customers, the company’s upstream business provides major customers with integrated “turnkey” solutions for thin film solar equipment and production lines. By targeting emerging markets in the Asia-Pacific region and the Americas, its downstream business provides “one-stop” services and solutions driven by dealers/channel partners and direct sales to major customers. Meanwhile, the company is also actively exploring the PPP model so as to facilitate the development of its upstream and downstream businesses.

The company will actively develop thin-film solar technology as its core element of competitiveness: it will further enhance the conversion efficiency of CIGS solar cells and GaAs solar cells through continuous investment and R&D, and will continue to improve its R&D and manufacturing capacities with regards to the equipment production line of CIGS and GaAs technologies.

To match its business development, Hanergy Thin Film carried out organizational restructuring during the aforementioned period, forming a total 13 business units after restructuration. Through continuous corporate restructuring and management optimization, the company has established a clearer management structure, more efficient business processes, and a customer-oriented sales culture, in addition to further clarifying its vision to become a leading global provider of thin film power generation equipment and photovoltaic application solutions.

Two of the company’s future priorities remain the establishment of production bases for CIGS and GaAs as soon as possible, and the building up of its mass production capacity for flexible and efficient thin-film cells. Therefore, the company will focus on Alta Devices, MiaSole and GSE in the coming years and rapidly proceed with the implementation of advanced thin film technologies and the construction of production bases.

Hanergy continually moved up the upstream in 2016, with various technological paths reaching new highs in terms of R&D and mass production efficiency
Through the continued acquisition of overseas thin film technology firms, including Solibro in Germany, MiaSole in the U.S., Global Solar Energy in the U.S., and Alta Devices in the U.S., the company has acquired copper indium gallium selenium (“CIGS”) and gallium arsenide (“GaAs”) technologies (currently the most advanced in the world) as well as obtained a grasp on globally advanced equipment production line manufacturing technology and related R&D capacity. These technologies have become the company’s main competitive advantages.

Over the past year, the company continued to move up the upstream, with various technological paths reaching new highs in terms of R&D and mass production efficiency, therein: the efficiency of Alta Devices’ mass production modules reached 24.8%, having passed the NREL verification in November 2016; Alta Devices currently holds three world records for the conversion efficiency of GaAs single junction cells, double junction cells and modules. R&D efficiency in the case of MiaSole’s chips has reached 19.4%, while efficiency in the case of the winner module from the new generation technique has reached 18%; this currently represents the highest efficiency in the world for sputtering CIGS flexible modules. Solibro’s top mass production modules have an efficiency of 16.97%, which set the world record for the mass production of co-evaporation CIGS modules. R&D efficiency for GSE’s chips is 18.7%, and top mass production modules efficiency is 16.2%. HIT’s cells have an R&D efficiency of 23%.

The developmental situations of all specific units are listed below:

Unit / Development and Achievements in 2016

Equipment Business Unit
This unit will gradually achieve the self-design and manufacturing of CIGS and HIT production lines. As a platform company, the Equipment Business Unit provides three sets of services for other business units, including Original Equipment Manufacturing (OEM), Original Design Manufacturing (ODM), and Onsite Field Services (OFS). Leveraged on the world’s most advanced thin film solar cell technologies, the Equipment Business Unit will independently self-develop and continue to innovate, so as to promote the domestic development and manufacturing of solar cell manufacturing equipment and hence gradually realize the landing of advanced thin film solar energy turnkey production lines in China.

Flexible Industrial Applications Business Unit (MiaSole)
This unit focused on the development of CIGS flexible thin film solar cell turnkey production lines and set up the MiaSole HiTech R&D Center in Silicon Valley in the U.S. The business unit adopts the “One Base and Two Fronts” strategy as its business model: it fully utilizes MiaSole’s equipment R&D and delivery advantages; made production line R&D, manufacture, sales and delivery its foundation business; and adopted the development and sales of CIGS target and core raw material as one of its business fronts, and the development and sales of high-end flexible CIGS application systems as its other front. Based on its basic business, both fronts jointly support the development of this business unit.

Flexible Consumer Applications Business Unit (GSE)
This unit is engaged in the R&D, production, sales and delivery of photovoltaic equipment. It uses the Global Solar Energy (GSE) flexible co-evaporation CIGS technology, and possesses advanced flexible product packaging technology widely applicable to a variety of civilian mobile energy markets.

Solibro Business Unit
This unit is mainly engaged in the delivery of CIGS solar energy modules production lines based on Solibro technology, as well as in the provision of engineering and technical support for turnkey projects. Currently, the 21.1% efficiency rate for the laboratory chip and the 16.97% efficiency rate for the champion module achieved by the business unit’s Sweden R&D center are top ranked globally and enjoying a technological advantage in the industry.

Mobile Energy Business Unit (Alta Devices)
Based on the technology of the U.S. subsidiary Alta Devices, this unit is mainly engaged in the R&D and industrialization of the gallium arsenide (“GaAs”) thin film cell technology and equipment. The conversion efficiency rates of the GaAs thin film single junction cell and double junction cell it produced have both broken world records; the product’s unique and excellent characteristics, including its flexibility, lightness, high performance under weak light conditions, and good temperature adaptability, have made it the ideal material for mobile energy applications. It can be applied to high value-added markets, like aeronautics (unmanned aerial vehicles, low earth orbit satellite, etc.),ground transportation (new energy vehicle), drones, and other daily applications (Internet-of-things, wearable devices, e-commerce, etc.).

HIT Business Unit
As a newly established department, this business unit is engaged in the production of Hetero-junction with Intrinsic Thin-layer (HIT) solar cells turnkey production lines. HIT technology has great product controllability, low production costs and bright development prospects, and will become the best photovoltaic product for distributed and household solar power stations.

Hanergy achieves good results in downstream applications and gradually establishes its business model
At present, the company’s downstream business model has been established, and the unique household system dealership model and system have proven preliminarily mature, with more than 1200 dealers covering basically all the markets at the city and county levels across China. These have laid the foundation for the company’s further development.

The company has put huge resources and efforts in downstream photovoltaic applications and achieved good results:

Unit / Performance and Achievements in 2016 and Anticipations

Household Power Generation Business Unit
This unit realized over HKD 1.235 billion in sales revenues in 2016, positioning itself comfortably at the top of the household market. After developing for over two years, the company has developed a huge network of channel dealers, a system of product series and a complete after-sales services system. The service is planned to cover more than 90% of 2,000 franchise dealers across cities, regions and counties in 2017, hence establishing an integrated service system for sales, installation and after-sales services, and forging a top brand in the field of household power generation in China.

Commercial Power Generation Business Unit
This unit focuses on the following five major sectors: industrial and commercial distributed power generation, centralized power station, county-level photovoltaic poverty alleviation, new energy city, and special solar energy equipment. Currently, the Commercial Power Generation Business Unit is divided into six regional sales departments and four industrial sales departments, basically covering all regions across China as well as major industry markets. In 2017 the unit will enter a joint venture and cooperate with major clients and major partners on the building of a new energy project development company, which will focus on China’s major domestic new energy market and actively explore new energy projects under the “Belt and Road” initiative. It is expected that these industrial and commercial distributed generation projects will demonstrate a fast growth trend in 2017.

Agricultural Applications Business Unit
This unit’s target markets include photovoltaic agricultural greenhouses, photovoltaic agricultural parks and photovoltaic agricultural poverty alleviation. In 2017, the Agricultural Application Business Unit plans to upgrade existing solutions for photovoltaic agricultural greenhouses – thus reducing overall costs and difficulties in terms of system installation – as well as to develop high-efficiency light permeating modules and application products, such as standardized photovoltaic pest control light.

Overseas Sales Business Unit
This business unit’s current businesses cover regions including the Americas, Europe, Asia-Pacific, and the Middle East. In an effort to increase sales by the expansion of sales channels for new product developers, the business unit has, through cooperation with industry partners like local project developers, installers, EPC, etc., established a network for sales and installation services aas well as developed a cooperation mechanism for the sales of solar PV metal rooftops and new power generation building materials.

E-commerce Business Unit
Through online and O2O sales channels, this unit has set up its official Hanergy Shop, T-Mall Flagship Store, JD Flagship Store, and Chinese and English webpages on Alibaba. It is planning to set up an Amazon store and a Suning store as well.

In 2016, newly installed capacity for PV power generation in China maintained a strong momentum, reaching 34.54GW. It not only contributed to almost half of the global PV new installations of that year, but also ranked first in the world for four consecutive years. Therein, the installed capacity for distributed PV power generation grew at an accelerated rate, with 4.24GW of newly installed capacity in 2016.

Recent Chinese Government Policy Support for the Development of Thin-Film Solar Technology

Date of Issue / Main Policy Content

June 2016
The National Development and Reform Commission (NDRC), the Ministry of Industry and Information Technology (MIIT) and the Energy Administration of the PRC jointly issued the “Made in China 2025 – Energy Equipment Implementation Program” , in which the “Technical Breakthrough Section” stated that, “in the case of thin film and other new PV cells and modules, research and development effort should focus on new solar cells available for mass production, such as cadmium telluride thin film cells with a conversion efficiency exceeding 20%, CIGS thin-film cells with a conversion efficiency exceeding 21%, three-five family compound cells, perovskite cells, dye-sensitized cells, organic solar cells, quantum dot cells, laminated cells, and high-efficiency gallium arsenide cells with a conversion efficiency exceeding 43%”.

July 2016
The NDRC of the PRC issued the 2016 working draft of its “Guiding Catalogue of Key Products and Services in Strategic Emerging Industries”, which stated in “5.3.2 Solar Manufacturing Equipment” that “photovoltaic equipment includes high purity & low energy consumption solar energy class polysilicon production equipment, mono-crystalline silicon drawing equipment, polycrystalline silicon ingot equipment, multiline cutting equipment, high efficiency battery pack and module manufacturing equipment, thin film solar cells manufacturing equipment, and manufacturing equipment for new solar cells such as condensed, flexible solar cells manufacturing equipment.”

July 2016
The State Council of the PRC issued the “13th Five-Year National Scientific and Technological Innovation Plan”, in which it is planned to, in “III. Develop Intelligent Green Service Manufacturing Technology”, under “Column 6 Advanced Manufacturing Technologies”: “4. Key optoelectronic manufacturing equipment. Conduct R&D of key manufacturing equipment in emerging industries including new optical communication devices, semiconductor lighting, efficient photovoltaic cells […], and enhance independent research and development capacities of key equipment in emerging sectors.”

October 2016
The NDRC issued the “Notice on the Application of the Third Batch of Special Construction Funds to Enhance the Core Competitiveness of the Manufacturing Industry and Technology”, stating in “V. The Development of Key New Materials” that “(B) 4. The industrialized application of thin film solar cell materials (GaAs, CdTe, CIGS, etc.), vanadium cells and large-scale energy storage technologies”.

Supported by the above policies on the development of thin-film solar technology in China, and with the construction of PV poverty alleviation power stations and the possible introduction of a favorable policy on tariff adjustment, the installed capacity of distributed PV is expected to reach 6GW or above in 2017, accounting for a proportion of more than 20%. As the leading company in thin-film solar technology, Hanergy Thin Film will significantly benefit from policy support as well as from the rapid development of the industry.