Financial Review

Backed by the solid foundation and competitive advantages, the Group's managed to record a set of resilient results despite of the challenging market sentiment and the release of "2018 PV Power Generation Notice" dated 31 May 2018 ("May 31 Notice") during the period under review. The Group's total revenue amounted to HK$4,177.4 million. Revenue of its core businesses (i.e. solar glass and solar farm businesses) increased by 27.4% to HK$4,052.9 million. Gross profit of solar glass and solar farm businesses surged 48.4% and 25.7% respectively, but due to the offset by the decline in EPC services (i.e. non-core business), the Group's gross profit dropped slightly by 1.3% to HK$1,778.1 million. Net profit was HK$1,214.0 million. Gross and net profit margins grew to 42.6% and 29.1% respectively. It was mainly attributable to the improvement in gross profit margin of the solar glass segment and higher percentages of the Group's total revenue derived from the solar glass and solar farm businesses.

Basic earnings per share were 16.35 HK cents (1H 2017: 18.25 HK cents). As at 30 June 2018, the Group's financial position remained healthy, with cash and bank balances of HK$1,306.6 million (As at 31 December 2017: HK$1,380.6 million). The Board of Directors proposed payment of an interim dividend of 8.0 HK cents per share (1H 2017: 8.0 HK cents). Dividend payout ratio for 1H 2018 was 48.9%.

Business Review

Solar Glass Business - Capacity Change to Accommodate New Market Conditions

In recent years, the evolvement of solar power has gone through a much faster pace than other types of energy in many different countries as a result of the continuous and spectacular cost reduction. According to SolarPower Europe, the global PV installation was 99.1GW in 2017, up from 76.6GW in 2016, representing a year-on-year growth of 29%. The global PV market demand was dominated by China, which accounted for more than half of the total newly added capacity in 2017. The explosive growth of China's solar power demand for 2017 was largely contributed by the surging installations of distributed generation ("DG") system.

The market contraction in China resulting from the release of the May 31 notice will undoubtedly affect the global PV development and cause diversification of the global PV demand. Nine countries installed more than 1GW in 2017 compared to six countries in 2016, and the number of GW-scale countries keeps on counting in 2018. The subsequent decline in installation costs as a result of the drop in PV demand in China could help to boost the demand in overseas PV market, especially in some emerging countries.

Without quota restriction on DG projects, PV installation in China continued to remain robust in the first few months of 2018 prior to the policy change on 31 May 2018. The Group reported a 3.5% year-on-year increase in its sales volume of solar glass for 1H 2018 despite the contraction in sales in June. During the period under review, no new solar glass production capacity has been added by the Group. Its aggregate daily melting capacity has remained around 6,300 tonnes. The production volume growth is mainly driven by the capacity and efficiency ramp-up of the three ultra-clear PV raw glass production lines with an aggregate daily melting capacity of 2,900 tonnes added in the last quarter of 2016 and the first quarter of 2017.

The Group will continue to add new solar glass production capacity in order to sharpen its competitive edge and resilience to adverse operating environment. Capacity expansion and the introduction of new production technology and knowhow can further enhance the benefits of economies of scale, overall production efficiency and cost competitiveness of the Group, thereby enabling it to expand the market share and reinforce market position as a leading solar glass manufacturer.

Solar Farm Business - Increased Contribution from Electricity Generation of Solar Farms andPlacing Significant Emphasis on Technological Innovation and Quality Enhancement

Over the past decade, China's PV installation has increased rapidly amid the favourable government policies. In order to foster the healthy development of the PV industry and reducing the reliance on the government subsidy, policy change has been made in June 2018 with the issuance of May 31 Notice. The sudden policy shift slowed down the installation pace and caused near-term market turmoil. Nevertheless, it can help the industry to sustain growth through technological innovation and quality enhancement, thus accelerating the country to achieve grid parity. Besides, the seventh batch of the Subsidy Catalogue was announced in June 2018. The Group has eight self-owned solar farm projects with an aggregate capacity of 724MW and a joint venture project with capacity of 100MW enlisted in this batch of the Subsidy Catalogue. Given the substantial and continuous decline in installation costs and riding on its experience in the solar value chain, the Group is confident that it can further advance and expand its solar farm business.

The revenue and profit contribution from the electricity generation of the Group's solar farms continued to show robust growth. Revenue and gross profit reported 28.8% and 25.7% increases year-on-year respectively for 1H 2018. As at 30 June 2018, the Group had grid-connected solar projects with a total capacity of 2,086MW, including 1,934MW utility-scale ground-mounted projects, 34MW commercial DG projects and 118MW self-used DG projects. In terms of ownership, 1,032MW are from projects held by wholly-owned subsidiaries while 954MW are from projects held by 75%-owned subsidiaries and 100MW is from a 50%-owned joint venture project.

For EPC services, since the inherent one-off and ad-hoc nature of this business, it seldom provides a predictable and stable revenue stream, the Group has never considered it as a key growth driver. No large-scale PV poverty alleviation project has been undertaken by the Group for 1H 2018. The revenue of EPC services was mainly derived from a non-wholly-owned subsidiary in relation to the residential and commercial DG projects carried out in Canada.

Additionally, Xinyi Solar had submitted an updated application for the spin-off and separate listing of the shares of its non-wholly-owned subsidiary on 10 April 2018, Xinyi Energy Holdings Limited ("Xinyi Energy"), on the Main Board of The Stock Exchange of Hong Kong Limited ("HKEX"), and the HKEX has confirmed on 21 May 2018 that the Group may proceed with the Spin-Off. Xinyi Energy has submitted a listing application on 19 June 2018.

Looking ahead, substantial drop in PV demand from China in the coming months is unavoidable, and this will create pressure along the supply chain. Nevertheless, there is no sign that China will cease its commitment and support to its solar industry. Instead, the purpose of the policy change is to rationalize solar development and mitigate the renewable energy fund deficit. The focus will shift from quantitative growth to qualitative growth, accompanied by increasing degree of electricity marketisation in the long run. With an internationally competitive and complete industrial chain, China will continue to take the lead in the global PV development.

The Group will continue to adopt flexible marketing strategies, diversify its customer bases, explore new markets and further strengthen the cost competitiveness of its products. To further expand the market share, the Group will continue its expansion plan of adding three new solar glass production lines with a daily melting capacity of 1,000 tonnes each in Malaysia. The first new production line is expected to be ready for commercial production by the end of 2018, and the development plan of the second and third new production lines will be adjusted in accordance with the market conditions. The Group is optimistic about the potential growth of the Group's solar glass business in the long run as industry consolidation will create more market opportunities in the future.

Mr. LEE Yin Yee, B.B.S., Chairman of Xinyi Solar, said, "As solar power remains one of the key renewable energy solutions for China to tackle pollution, Xinyi Solar is confident that the PV industry will grow strongly again after reform and innovation. Leveraging on our diversified production bases, innovative products, proven business strategies, effective operational management and advanced production techniques, we are well positioned to capture new business opportunities, rise above the rapidly changing and challenging market conditions and reinforce its market leader position in the solar value chain."

About Xinyi Solar Holdings LimitedXinyi Solar Holdings Limited is engaged in the production and sales of solar glass products including ultra-clear PV raw glass, ultra-clear PV processed glass and back glass. Xinyi Solar has production complexes in China (Wuhu and Tianjin) and Malaysia. In addition, the Group has invested in several solar farm projects across different locations in China such as Anhui, Tianjin, Hubei, Henan and Fujian. The Group is a constituent of the Hang Seng Global Composite Index, Hang Seng Composite Index, Hang Seng Composite Industry Index - Industrials, Hang Seng Composite MidCap & SmallCap Index and Hang Seng SCHK High Dividend Low Volatility Index and MSCI China Index. Its single largest shareholder is Xinyi Glass Holdings (stock code: 868), which holds 29.5% of the number of the Group's shares in issue. For details, please visit http://www.xinyisolar.com.^[1]

Topic: Press release summarySectors: Daily Finance, Energy, Daily News^[2][3][4] http://www.acnnewswire.com From the Asia Corporate News Network

Copyright © 2018 ACN Newswire. All rights reserved. A division of Asia Corporate News Network.

References

1. ^{^} http://www.xinyisolar.com (www.xinyisolar.com)
2. ^{^} Daily Finance (www.acnnewswire.com)
3. ^{^} Energy (www.acnnewswire.com)
4. ^{^} Daily News (www.acnnewswire.com)