Receivables become super sun sun "Fashion cloth"

The rumor that "Ni Kailu ran off the road" sparked widespread speculation and concern. Although Chaoyue Sun claimed that its chairman was overseas collecting receivables, it also revealed a hidden truth in the photovoltaic industry: massive losses were being masked by inflated accounts receivable. According to statistics, in the first three quarters of 2012, the total accounts receivable of 41 listed PV companies reached 31.6 billion yuan. Given the industry downturn and tight financing conditions, these funds were proving difficult to recover. In recent years, many once-thriving PV companies have struggled to maintain their performance. Companies like Yijing Optoelectronics and Hareon Solar failed to meet the promises made during their reorganization processes. In 2012 alone, the reorganization parties may have had to raise as much as 1.8 billion yuan to fulfill these unrealistic commitments. Accounts receivable has become a kind of "fashion cloth" for some companies, used to mask financial weaknesses. For Chaoyue Sun, the chairman’s overseas trip was linked to the issue of accounts receivable, which raised questions about the company's reported profits. Despite a 39% year-on-year increase in net profit in the third quarter, most of the receivables came from overseas partners and affiliates, fueling doubts about the sustainability of its performance. Hareon Solar is not an isolated case. The entire photovoltaic sector, facing a tough market, has seen a sharp decline in profitability. The combined net profit of 41 listed PV companies in the first three quarters of this year was just 600 million yuan, down 89% year-on-year. While many companies still managed to stay profitable, their growth was largely driven by rising accounts receivable. By the end of September, the total accounts receivable of these firms reached 31.6 billion yuan—up nearly 30% compared to the same period last year. This surge in receivables is a key factor behind the apparent growth of some companies. Data shows that nine PV firms with higher net profits saw their accounts receivable rise by up to 78% year-on-year. While short-term financial statements may look better due to these receivables, the long-term risks are significant. If these funds cannot be recovered, operational cash flow will deteriorate, and the need to provision for bad debts will become a heavy burden. Performance promises, once seen as a sign of strong growth, have now turned into empty words. Many PV companies entered the A-share market through backdoor listings, promising substantial profits. However, as the market turned, these projections fell far short of reality. In 2012, the pressure on reorganization parties increased significantly, with expected compensation reaching as high as 1.866 billion yuan. Hairun Solar, for example, promised net profits of 498 million, 510 million, and 530 million yuan for the years 2011 to 2013. But in 2011, the actual profit was only 401 million yuan, leading to a 100 million yuan shortfall. By the first three quarters of this year, Hairun Solar had suffered a loss of 199 million yuan, and the expected compensation was projected to exceed 700 million yuan. To avoid this, the company sought government subsidies, but even that couldn't cover the gap. Other companies, such as Zhongli Science and Technology and Yijing Optoelectronics, also faced similar challenges. Zhongli Technology acquired Tenghui Solar in 2011, expecting net profits of 264 million and 366 million yuan in 2012 and 2013. However, in the first half of the year, Tenghui Solar only achieved a net profit of 28.39 million yuan, far below expectations. Yijing Optoelectronics, too, struggled with its performance promises. While it exceeded its forecast in 2010, the company posted a loss of 427 million yuan in the first three quarters of 2012, falling far short of its 367 million yuan target. Despite past success, the reorganization party may still face compensation obligations. Market analysts believe that the rumors about Chaoyue Sun’s chairman are just the tip of the iceberg. With the U.S. and European anti-dumping measures and weak demand, the practice of inflating earnings through receivables is unsustainable. If the industry's capital chain breaks, more PV companies could face a debt crisis.

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