Hanergy Thin Film Power Shares Plunge 47 Percent, Trading Halted

Hanergy just lost $18 billion in market value as its stock dropped 47 percent and triggered a shutdown in trading. The Wall Street Journal suggests that the sell-off was prompted by Yingli's recent financial news and weakness in the China solar market. But Hanergy has plenty of reasons to shed shareholder value.

It's hard to know what to make of Hanergy's announcement that it will be opening up to 1,500 retail stores to sell its solar products. But that's just the latest in a series of startling announcements from the world's most highly valued solar firm.

The market value of Hanergy Thin Film Power, a Hong Kong-listed company, has increased sixfold so far this year. Here's a table comparing Hanergy's market cap (as of yesterday) to the market caps of actual solar companies:

So Hanergy was purportedly worth more than the combined market caps of the entire public solar sector. That makes no sense, considering Hanergy's meager solar production, sales, and costs. Hanergy has not guided on annual production or sales for 2015. 

Still, Li Hejun, the founder of Hanergy Group, was China’s fifth-richest man.

He might be a little lower on the list after today.

Over the last few years, Hanergy has acquired a number of thin-film solar companies that had run out of gas in the U.S. and Germany.

In 2012, Hanergy, the owner of gigawatts' worth of hydropower, wind and solar assets, acquired MiaSolé, a technologically accomplished CIGS thin-film solar firm, for a fraction of that company's original VC investment. In 2013, Hanergy acquired gallium-arsenide solar developer Alta Devices for an undisclosed amount. Alta and MiaSolé joined CIGS firms Solibro and Global Solar Energy under the Hanergy roof. With little synergy amongst the acquired firm's technologies, Hanergy's solar shopping spree appeared less than focused. 

None of these acquisitions were immediately accruable to the bottom line. MiaSolé was valued at billions during the VC solar bubble, but was valued at $50 million in the VC funding round prior to acquisition. Alta Devices made technical strides in flexible gallium-arsenide photovoltaics, setting records for the materials system and boasting NREL-verified 28.8 percent cell efficiencies for a single-junction solar cell and 30.8 percent for a dual-junction cell. These days, Alta seems to be focused on powering drones, because its PV material is "ideal for embedding onto the skin of an aircraft."

Hanergy Thin Film Power Group has also revealed plans to open 1,500 retail stores globally for its suite of thin-film solar products by 2017, according to PV Tech. According to reports, Hanergy's thin film group has already "opened 60 flagship stores and ‘experience centers’ in China that will be extended to 300 by the end of 2015."

Here's a notable quote from that article: Liu Min, deputy chairman of Hanergy Thin Film Power Group and chairman of the board and CEO of Hanergy Global Solar Power and Applications Group, said: "Thin-film solar has ushered in a mobile energy era and is fundamentally subverting the energy utilization mode of mankind. The implementation of a thin-film solar all-channel sales strategy by Hanergy Thin Film Power enables more residents to benefit from distributed power generation through online and offline O2O three-dimensional channel platforms and accelerates the spread of thin-film power products for civil use."

Congrats, China -- your press-release-word-salad aptitude has totally caught up with the U.S.

Here are some recent announcements from and about the firm:

• April 14: Citi analysts Timothy Lam and Pierre Lau suggest that Hanergy's thin-film solar is not commercially viable. 
• April 23: Bloomberg reports, "The investment arm of China’s foreign-exchange regulator bought a stake in Hanergy Thin Film Power Group Ltd. as it adds alternative-energy assets to its portfolio, said people familiar with the matter. SAFE Investment Co. bought a stake that’s less than 5 percent and worth billions of Hong Kong dollars. [...] Motivation for the move was Hanergy’s possible inclusion in Hong Kong’s benchmark Hang Seng Index."
• April 29: Bloomberg notes, "Hanergy Thin Film Power Group Ltd.’s executive chairman raised his stake in the Chinese solar equipment maker this month, buying 53.9 million shares as the company’s market value surged."
• May 4: According to Barron's Asia, citing a filing with the Hong Kong Stock Exchange, Hanergy Thin Film said its parent Hanergy Holding "will pay a total of $585 million for its solar panel assembly lines." According to reports, "Hanergy Holding will buy six sets of thin-film solar panel assembly lines totaling 900 megawatts of production capacity for $175.5 million. In addition, the parent will pay $410 million for the listed subsidiary to upgrade existing production lines with its equipment. PV Magazine reports that "while the statement from the two companies does not reveal details, it is presumably a variant on amorphous silicon production equipment that Apollo has supplied Hanergy with in the past." The company claims it is "capable of producing BIPV curtain wall modules of different light transmittance rates, sizes and shapes.” Hanergy Holdings’ Chairman Li Hejun is on the board of Hanergy as well as Apollo.
• Frank Dai Mingfang, chief executive of HTF, "brushed off all worries in an interview with the FT -- as well as reports that hedge funds were shorting its shares -- as being rooted in a basic misunderstanding about Hanergy’s product line: 'No one else can do what we do with solar power embedded in glass windows.'"

An industry source suggests, "MiaSolé equipment is still a hobby shop, and integration/expansion is not moving forward in a well-organized fashion," adding that although the "Solibro process expansion in China is progressing...the capacity expansion ordered is below public announcements."

Here's a comment from short-seller Anthony T. Bozza of Lakewood Capital on Hanergy Thin Film Power.

"Hanergy Thin Film Power is perhaps the most astonishing stock in the entire market today. Shares of Hanergy, a manufacturer of solar panel equipment, are up more than 500% over the last year and over 3,000% in the past three years. With a market cap of over $40 billion, Hanergy is one of the largest companies listed on the Hong Kong stock exchange, and its founder, Li Hejun, is now the wealthiest person in China (at least on paper). The company is now the most highly valued solar company in the world by a wide margin, and it is the largest holding of the Guggenheim Solar ETF (the last stock we encountered that had the top weighting in this ETF was GT Advanced Technologies, which is now in bankruptcy). For seven straight weeks this year, the stock spent nearly every minute of the trading day at a price between HK$6.70 and HK$6.90 per share. If this isn’t odd enough, consider a recent analysis conducted by The Financial Times that showed over a two-year period, all of the monumental gains in Hanergy’s stock occurred in just the last 10 minutes of the trading day (an investor who only held the stock during the first 6 hours and 20 minutes over those two years actually lost money!). We have considerable experience analyzing some pretty peculiar situations, but even the untrained eye can detect something isn’t quite right here. When the stock soared in March following its inclusion in a large market index (which in turn freed up considerable borrow), we started a small short position in Hanergy’s stock.

Last year, Hanergy recorded revenues of $1.2 billion, an increase of nearly 200%. If these figures are real, the shares are pricey at 30x revenues. The company is majority-controlled by Hanergy Holding, a private company owned by Li Hejun. Up until last year, nearly all of Hanergy’s sales had been to its parent. In 2014, the parent company accounted for just 60% of Hanergy’s revenues, but much of the remaining revenues were related to a sale of solar power stations to a Chinese investment vehicle called Hongsheng, which was curiously only incorporated 13 days before the deal was announced. One of the three shareholders of Hongsheng lists the wife of a former Hanergy board member as its legal representative. Also, the company’s robust revenue growth has barely translated into any actual cash flow as receivables have ballooned. I could go on. Simply, we believe this is a manipulated stock with manipulated financials. There is a significant anti-corruption drive in China right now, and given the company’s sizeable market capitalization and importance to the Hong Kong market, it should be only a matter of time until this distorted situation comes to an end."

Here are some screen shots of Hanergy's online solar product offerings.