Hanwha Solutions Corporation (A009830) Earnings Call Transcript & Summary

Good afternoon. I am Han Sung Hun, Head of IR at Hana Solutions. I'd like to thank everyone for joining Hanwha Solutions' earnings call for the second quarter of 2026. Also joining the call, we have Lee Jae-Bin, Head of Finance Office; Jung-Kwon Hong, Head of QCells Strategy Office; Kim Seungkook, Head of Planning at Chemical Division; and Kim Woo Seok, Head of Planning at Hanwha Advanced Materials. We will first present the financial performance, business updates and outlook by segment followed by a Q&A session. Now we will begin with the Q2 business performance and financial highlights.

Head of Finance Office at Hanwha Solutions. Let me report on our business performance and financial status. First, Q2 performance. Please turn to Page 8 of the presentation. On a consolidated basis for Q2 of 2026, Hanwha Solutions posted KRW 4,582.6 billion in sales, KRW 306.5 billion in operating profit, KRW 258.2 billion in pretax profit and KRW 292.9 billion in net profit. Q2 sales were up 18% Q-o-Q and operating profit grew 231% Q-on-Q, thanks to the improved profitability across major business segments, including renewable energy, chemicals and Advanced Materials. In Q2, KRW 214 billion of AMPC was recognized. Please refer to the bottom of Page 8 for performance by segment. Next, financials on Page 9. As of the end of Q2, the total assets increased by KRW 2,226.3 trillion from the end of the previous year to record KRW 35,370.3 trillion, and the cash and cash equivalents increased by KRW 161.7 billion from the year-end to record KRW 2,827.5 trillion. Compared to the end of last year, total liabilities increased by KRW 944.3 billion to KRW 22,903.3 trillion. Total debt increased by KRW 434.4 billion to KRW 15,726.1 billion. and net debt increased by KRW 272.7 billion to KRW 12,898.6 billion. Total equity increased by KRW 1,282 trillion to KRW 12,467 trillion. The total liabilities to equity ratio is 184%, and the net debt-to-equity ratio is 103%. Now each division will present from Page 10 onwards.

Good afternoon. I am Jung Kwon Hong, Head of QCL Strategy Office. Please turn to Page 10. In Q2, the Renewable Energy division posted KRW 2,482.3 billion in sales, up 18% Q-on-Q. -- and KRW 166.4 billion in operating profit, further expanding the amount of profit quarter-over-quarter on the back of a rise in module ASP, an increase in residential volume, product sales and deduction of cost of goods sold due to customs refund. Module sales declined Q-on-Q to 1.3 gigawatts. While sales for residential and commercial segments in the U.S. maintained a solid trend, EPC volume declined due to delays in some projects with restrictions on module delivery to construction sites due to adverse weather conditions. As most of these issues have already been addressed, module deliveries are expected to increase again as construction progresses. Module ASP rose by approximately 5% Q-o-Q with the increasing share of sales in the residential market and the amount of AMPC recognized in the second quarter was KRW 213.4 billion, similar to the prior quarter. The size of AMPC recognition is expected to continue to increase with the operation of the full value chain in Georgia, supported by the ramp-up and stable production at the Cartersville facility that began production in June. To give you more details by business, revenue from EPC business and development asset sales increased Q-on-Q with the sale of Atmos 5 and 6 projects. But the operating profit was similar to the prior quarter on the back of the decline in progress rate due to construction delay and reduced profit. Operating profit from module and other business expanded, thanks to a rise in ASP and AEPA customs refund. In the Residential Energy business, profitability improved Q-on-Q, thanks to strong growth supported by TPO business volume expansion. In Q3, module deliveries for EPC projects in the U.S. will increase and revenue from the residential energy business is expected to expand, thanks to the volumes for contracts signed in Q1 and Q2. As a result, the Renewable Energy division is expected to achieve a Q-on-Q growth in sales and maintain a solid operating profit trend. Next, the Chemical division.

Good afternoon. I am Kim Seungkook, Group, Head of Planning at Chemical Division. Please turn to Page 11. Let me explain the factors behind the recent performance improvement in the Chemical division. On a consolidated basis in 2025, the Chemical segment posted KRW 249.1 billion in operating loss. However, we are expected to turn a profit in 2026, generating more than KRW 100 billion of operating profit. In the first half of the year, several positive factors contributed to improved earnings, including short-term demand changes and supply disruptions due to the geopolitical issues in the Middle East, the resulting rise in prices of products as well as some lagging effects from the period when oil prices were high. However, the overall business environment remained highly volatile and disruptions in logistics and supply in some regions had a negative impact on production and sales. Against this backdrop, we sourced basic petrochemicals from overseas in a timely manner to offset disruptions in domestic supply, thereby capturing spread expansion opportunities. Furthermore, we maximize profitability by flexibly adjusting plant operations based on contribution margin. We also strengthened customers' trust and the foundation for long-term business by supplying products to our customers in a reliable manner. However, market circumstances in Q3 are going to be quite different from the first half of the year. As tensions in the Middle East become prolonged, we view that the market has passed the initial shock phase and entered a stage where geopolitical risks are structurally reflected in prices. Therefore, risk premiums that were previously reflected are being reduced. As customers continue to remain cautious about purchases, we expect that the expansion in spreads driven by stock-up demand will be limited compared to the first half of the year. Furthermore, as real demand has not been fully recovered, favorable conditions that we enjoyed in the first half of the year are not likely to continue into the second half. In particular, given the sharp decline in oil prices, we expect a negative inventory lag effect in the second half as existing high-cost inventory is reflected in costs with a time lag. There are also concerns over higher volatility in oil prices as military tensions in the Middle East are escalating once again. We're closely monitoring the market situation to respond to market volatility in a swift and agile manner. While short-term fluctuations in oil prices may continue in the second half, given the current supply and demand as well as our business competitiveness, we believe that the likelihood of a recurrence of extreme spread narrowing and margin decline that we experienced in 2024 and 2025 is rather limited. Our continued efforts to restructure the business portfolio and improve the profit structure have translated into substantial improvement in profitability of about KRW 150 billion. Therefore, despite short-term earnings headwinds, including oil price volatility, in the second half of the year, we expect that the annual earnings forecast disclosed in the prospectus is fully achievable. Next, Advanced Materials.

Good afternoon. I am Kim Seok, Head of Planning at Hana Advanced Materials. Please turn to Page 12. In Q2, cost burden has increased due to rising raw material prices resulting from the war in Iran, but thanks to the increase in solar material sales volume in North America, DCA premiums and exchange rate effects, Advanced Materials division saw a significant improvement in profitability with a 5% growth in revenue and 136% growth in operating profit on a quarter-on-quarter basis. In Q3, based on solid demand for DCA, profitability is expected to improve even further on the back of increased sales of solar materials in North America and the continuation of the premium pricing trend. In addition, we expect an increase in sales of composite materials driven by production volume growth of our North American customers and the launch of mass production for new vehicle models in the second half of the year. With the added benefit from refunds of reciprocal tariffs paid in 2025, we expect to maintain solid profitability better than the second quarter. Finally, on equity method gains. Please turn to Page 13. Q2 saw an increase in equity method gains compared with the prior quarter, mainly due to the valuation gains generated from a financial investment product held by Hanwha Impact. In Q3, equity method gains are expected to decline due to the absence of a one-off event that we had in Q2. This concludes the briefing. Thank you.

The first question is from Mirae Asset Securities. First, congratulations on the excellent earnings results. I would like to ask 2 questions regarding the Renewable Energy segment. First, the improvement in profitability in module and others was particularly notable. I assume that the main factor driving this profitability improvement is the rise in North American module prices. I'd like to know the contribution of this and whether there were any other contributing factors. Also, you projected that the improved profitability would continue into the third quarter. Could you share your thoughts on how this will continue? Secondly, you mentioned that the size of AMPC recognition will increase in the future as the 3.3 gigawatt wafer and cell facilities become operational. Could you tell us the current utilization rate of the 3.3 gigawatt wafer and cell plants, how the pace of ramp-up will be accelerated going forward and also provide guidance regarding the future AMPC recognition.

The answer is, first, regarding module ASPs in the renewable energy sector, the U.S. market itself has seen an increase in module prices since the first quarter of this year compared to the end of last year. The trend is currently being maintained through the second quarter. Also, from our company's perspective, as the EPC sector decreased slightly and our residential module business increased, the ASP effect was greater, resulting in an increase of about 5% and the increase in operating profit for Q2 also includes the effect of the tariff refunds I mentioned earlier. And regarding your second question about Q3 profitability, we currently expect TPO business profits to increase further in the third quarter. Also, the mass production at the Cartersville facilities will result in an increase in AMPC as well because it involves the shipments of modules produced from ingots, wafers and cells. On your third question regarding the ingot and wafer operational status, we started ingot and wafer production early this year, and the cell plant was completed and commenced production in June. Currently, we are proceeding with ramp-up and process stabilization to expand production capacity, and we plan to gradually increase the utilization rate depending on yield and production stabilization. Moving on to your question on the quarterly guidance for AMPC. If you look at the quarterly AMPC outlook that we provided previously, we projected approximately KRW 230 billion in Q3 and KRW 310 billion in Q4. We expect an additional AMPC effect of about KRW 100 billion with full ramp-up.

The next question is from Hana Securities. I have 3 questions. First, regarding the deduction from the cost of goods sold in relation to tariff refunds that you mentioned earlier because I'm not familiar with the details, I would appreciate it if you could provide detailed explanation. Second, prices have recently started rising in the first half of the year. Could you please elaborate on the specific reasons for this? Is it due to the product mix improvement you mentioned earlier? Or is it because the oversupply in the U.S. market has resolved, leading to the formation of a premium in market prices? I would also appreciate it if you could tell me how much of a price increase we can expect in the second half of the year. Finally, I understand that U.S. competitors have recently filed a petition regarding solar cell imports from Korea. Could you share the details regarding this and the company's response plan?

The answer is, first, regarding the tariff refund effect in the second quarter, a refund decision was made for the APA tariffs that we had previously paid. In Q2, this resulted in an improvement in our profit by deducting approximately KRW 90 billion from the cost of goods sold. Regarding your second question about the price increase in the first half of the year, it is rather complex. There is certainly an improvement in the product mix. Also, compared to the end of last year, there was an increase in overall market selling prices in the first half. However, when forecasting the second half, we anticipate that there will be market volatility depending on when and how the Section 232 ruling is announced. We are continuously monitoring the situation and reviewing various scenarios regarding its impact on our business. Finally, regarding the petition filed by U.S. manufacturers concerning solar cell imports from Korea. The petition has been submitted to the Department of Commerce, but an official investigation has not yet commenced. We have sufficient factual evidence and objective grounds to prove that this does not constitute circumvention of exports. In fact, our production system and supply chain are clearly different from the claims raised in the petition. And even when considering the key criteria applied by the Department of Commerce to determine circumvention of exports, our case is fundamentally different from past cases that were determined as such. One more point I'd like to mention is that in 2023, there was a similar petition regarding our Qcell Malaysian factory. And at that time, the Department of Commerce issued a non-circumvention ruling. In short, we do have stronger factual grounds compared to the past case, so anticipate that there will be no impact from this matter.

The next question is from HSBC. The solar module sales in Q2 were 1.3 gigawatts, which was slightly lower than your guidance. Could you share your outlook on Q3? Also, since your second quarter result was lower than the guidance, I'd like to know if there will be any impact on the annual guidance.

The answer is regarding the decline in module sales in Q2, sales for the residential and CCI sectors remained at the same level compared to the first quarter. Yet, as I mentioned earlier, there were several cases in the EPC sector where access roads to construction sites were damaged due to adverse weather conditions. Consequently, shipments were delayed in those areas, and we plan to fully catch up on this in the second half of the year. As for Q3 guidance on module shipments, our forecast is around 2.5 gigawatts, which is an increase of more than 1 gigawatt compared to the second quarter.

Next question is from Mirae Asset Securities. I would like to ask one more question. Since the first quarter, you've mentioned that you would expand into the Korean market and increase production volume. I'd like to know if there have been any updates on the back of recent government policies or announcements and if the utilization rate of your factory in Ssinchian has increased recently.