In recent times, one of the once-thriving conglomerates, TBEA Co., Ltd., known for its brilliance in the power and energy sector, has found itself tumbling down from its formerly exalted positionOnce boasting a market capitalization nearing 120 billion yuan, the company has seen its value precariously drop to just above 60 billion yuan, marking a staggering retreat of over 45% during the tumultuous financial climate that started in mid-2022.

The plunging figures don’t just stop at market valuation; the company’s net profit has also taken a significant hitReports indicate a horrifying year-on-year descent of 32.62% and then further down to an alarming 54.17% in the first three quarters of 2024. This descendance raises critical questions: what on earth has happened to TBEA?

A simplistic yet precise dissection reveals that the company is grappling with severe downturns in its three primary business sectors: photovoltaic, coal, and transformers

Among these, the solar photovoltaic sector appears to be the most beleaguered, while the transformer division harbors a flimsy hope, struggling to bear the brunt of the company’s overall performance.

Examining the photovoltaic sector first provides insight into the challenges faced.

TBEA’s photovoltaic business revolves largely around polysilicon production, supported heavily by its subsidiary, Xinte EnergyBesides solar-grade silicon, the company also partakes in other avenues of renewable energy, such as wind and solar energy constructionHowever, since the beginning of 2023, the photovoltaic industry has been engulfed in dire supply-demand mismatches, spiraling into intense price wars that have led to the entire industry facing substantial losses.

Polysilicon, the essential upstream material in the photovoltaic chain, witnessed a shocking price plunge from an average price of around 300 yuan per kilogram in 2022 to a dismal low of 40 yuan per kilogram

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This drastic fall has crippled companies’ ability to cover production costsFor perspective, Xinte Energy, which made its public listing on the Hong Kong Stock Exchange, reported a staggering 67.56% dip in net profit last year and an eye-watering direct loss of 1.4 billion yuan in the initial three quarters of 2023.

Unquestionably, the immense pressures within the photovoltaic sector constitute the primary reason behind TBEA's abysmal performanceAdding to this are the waning market shares — the company has been gradually losing ground to its competitors in the polysilicon arenaThis trend indicates that even if the photovoltaic industry sees a revival in the future, TBEA may have already missed the bus.

In 2021, Xinte Energy’s polysilicon output stood at 78,200 tons, capturing approximately 15.49% of the nation’s total

Yet, this figure shrunk to 15.22% in 2022 and further plummeted to about 13% in 2023, signaling alarming declines in operational capacity.

Moving on to coal, the situation does not paint a brighter picture.

Beginning in the fourth quarter of 2022, coal prices began their retreat after peaking over 1,900 yuan per tonAs of now, they have more than halved, underscoring the bleak conditions in this sectorTBEA’s profit margins from coal-related products have similarly taken a hit, with figures dropping from 47.63% in 2022 to just 34.09% projected for the first half of 2024.

Moreover, TBEA lacks competitive edges in its coal operationsThe company predominantly relies on internal consumption within Xinjiang; however, the major demand areas for coal are located in northern and eastern China

Additionally, TBEA's approved coal production capacity of 74 million tons per year pales in comparison to titans in the industry such as China Shenhua’s 350 million tons and Shaanxi Coal and Chemical’s 162 million tons.

As such, the coal segment represents a significant limitation for TBEA, likely leading to limited future potential as well.

Finally, we come to the transformer segment of the company.

This branch does have potential but is fraught with its own risks.

Recent years have seen an uptick in policy support for ultra-high voltage (UHV) infrastructure, marking it as a critical trend for future grid investmentsTransformers serve a pivotal role in voltage regulation, particularly in long-distance power transmission, thus their significance cannot be downplayed.

TBEA has earmarked its focus on UHV projects, competing against other industry players such as Shandong Electric Power Equipment and Pinggao Electric

Much of the primary contracts for power equipment and devices come from State Grid projectsAs they move into 2024, TBEA has seen a slight lift in its share of bids for UHV equipment from the State Grid, with a reported market share increase to 16.7% from 16.0% in early 2023.

However, a competitive threat looms large as TBEA has recently slipped into second place in terms of bidding shareLast year, the company was the top contender, but it has now yielded the crown to Shandong Electric, whose share rose from 15.4% to a notable 17.9% this year.

Furthermore, TBEA's transformer operations are beset with two significant risks:

First, R&D innovation has become a crucial asset for bidding, yet TBEA’s investments in research and development have been abysmally low, hovering at just around 1.3% of revenue in 2022 and 2023—far inferior compared to its competitors like XJ Electric and Pinggao Electric.

Secondly, TBEA has faced significant ethical issues, with its subsidiary TBEA (Hunan) Energy Construction Co., Ltd being blacklisted by the Southern Power Grid due to violations of integrity commitments, leading to a market ban lasting over 22 months, effective from May 31, 2024.

It is also important to note that TBEA's transformer segment constitutes merely around 20% of the company's revenue structure, making it challenging to shoulder the heavy burden of performance.

Overall, a thorough examination of TBEA’s three primary business sectors reveals a bleak outlook for the company's operational expectations