Receivables become super sun sun "Fashion cloth"

The rumor that "Ni Kailu ran off the road" sparked widespread speculation. Although Chaori Sun claimed the chairman was abroad to collect receivables, it also revealed a hidden truth in the solar 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 photovoltaic companies reached 31.6 billion yuan. Given the industry downturn and tight liquidity, these funds were hard to recover, creating a growing financial risk. In the past, many booming PV companies had lost their way. Companies like Yijing Optoelectronics and Hareon Solar failed to meet the performance promises made during reorganization. In 2012 alone, the reorganization parties might have needed to raise 1.8 billion yuan to fulfill those unrealistic commitments. Accounts Receivable as "Fashion Cloth" The issue of accounts receivable became central to the controversy surrounding Chaori Sun. The company’s net profit in the third quarter reached 148 million yuan, up 39% year-on-year, reversing its earlier loss. However, most of these receivables came from overseas partners and affiliates, leading investors to question whether the improved performance was real or just a temporary fix. Chaoyue Sun was not an isolated case. The entire photovoltaic sector, struggling with declining demand and overcapacity, saw profits drop sharply. In the first three quarters of this year, the combined net profit of 41 listed PV companies was only 600 million yuan, down 89% compared to the previous year. Despite this, many companies managed to stay profitable, largely due to rising accounts receivable. By the end of September, the total accounts receivable of these companies hit 31.6 billion yuan, up nearly 30% compared to the same period last year. The sharp increase in receivables is key to understanding the growth of some companies. Data shows that nine PV firms with rising net profits saw a 23% increase in earnings, but their accounts receivable surged by 33%, with some even rising by 78%. This trend highlights a dangerous reliance on credit sales, which may not be sustainable. Ni Kailu's trip abroad to collect receivables reflects the broader crisis in the industry. On one hand, it shows the strained capital chain for PV companies. On the other, it reveals how boosting short-term performance through expanding receivables is like drinking water when thirsty — a temporary solution that can lead to long-term problems. If these receivables remain unredeemed, cash flow will deteriorate, and the provision for bad debts could become a major burden. Performance Promises Are All Empty Backdoor listings in the A-share market once made PV companies a hot topic, with performance targets promising bright futures. However, as time passed, many companies struggled to meet these expectations. In 2012, the pressure on the reorganization parties intensified, with huge compensation liabilities looming. Based on the annualized calculation of the third-quarter results, the expected compensation amount from performance commitments could reach as high as 1.866 billion yuan. In February, Hairun Solar, which was listed through the backdoor of ST Shenlong, announced that the target assets would achieve net profits of 498 million, 510 million, and 530 million yuan in 2011, 2012, and 2013 respectively. If the forecast wasn't met, the original shareholders would compensate in cash. In 2011, Hairun Solar reported a net profit of 401 million yuan, forcing the original shareholders to pay nearly 100 million yuan in compensation. In the first three quarters of this year, the company suffered a loss of 199 million yuan, and the expected compensation was projected to exceed 700 million yuan. To avoid massive losses, Hairun issued four consecutive announcements between December 18 and 25, securing nearly 500 million yuan in government subsidies. Still, more than 200 million yuan in performance gaps remained unmet. Other companies, such as Optoelectronics and Zhongli Science and Technology, also faced performance-related compensation pressures. In September 2011, Zhongli Technology acquired 51% of Tenghui Solar for 482 million yuan. Tenghui PV promised net profits of 264 million and 366 million yuan in 2012 and 2013. However, in the first half of this year, Tenghui PV generated sales of 965 million yuan but only 28.39 million yuan in net profit, far below the target. Yijing Optoelectronics also played a tricky game with performance compensation. In 2011, the company earned 110 million yuan, while its forecast was 349 million yuan. The gap was 238 million yuan, with an achievement rate of just 31.74%. Yet, the compensation agreement was based on cumulative net profit. In 2010, Yijing achieved 750 million yuan in profit, exceeding the forecast by 446 million yuan. However, despite this, the reorganization party might still face compensation this year. In the first three quarters of 2012, Yijing lost 427 million yuan, while it had promised a net profit of 367 million yuan. Market analysts believe that the rumors about Chaori Sun’s chairman are just the tip of the iceberg. With the impact of anti-dumping measures in the U.S. and Europe, and weak demand, the practice of inflating profits through receivables is unsustainable. Once the industrial capital chain breaks, more PV companies facing debt crises will emerge.

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