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Concerns over rising costs

Lower TP to W38,000 (from W51,000); maintain Buy

We lower our target price for Hanwha Solutions to W38,000, as we revised down our earnings forecasts in light of: 1) delays in the ramp-up of new facilities; and 2) rising costs arising from supply chain diversification and tariffs. Although we expect to see a V-shaped earnings recovery from 4Q25, we recommend a cautious stance on the stock due to: 1) the potential for tighter restrictions on Chinese products following Trump’s executive orders; and 2) uncertainty over the start-up timeline for new plants. Once these issues become clearer, it will be easier to evaluate the trade-off between ASP increases and rising costs.

2Q25 review: Signs of module price increases

For 2Q25, Hanwha Solutions reported operating profit of W102.1bn, missing the consensus (W140bn) by 27%. The consensus miss was mainly caused by a weak performance from the power generation (utility and residential) segment within the renewable energy division. We believe utility customers took a wait-and-see approach amid uncertainty over legislative developments and policy changes. That said, the modules/other business saw meaningful improvement, with its operating loss shrinking to roughly W20bn (vs. -W155bn in 1Q25), mainly due to a higher solar module ASP (estimated to have risen to around US$0.3/watt in 2Q25). That said, management noted that the price spike was likely temporary, indicating a need to closely monitor price trends going forward.

2H25 outlook: Conservative approach recommended

For 3Q25, we expect the company to post an operating loss of W152.3bn (swinging to a loss QoQ), mainly due to a decline in utilization rates caused by cell quality issues, which prompted inspections at cell plants in Korea and Malaysia. Although those plants resumed normal operations at end-July, the US module plant is not expected to resume full operations until September (factoring in the time needed to export to the US). Given the 3Q25 AMPC guidance of W120bn, we estimate utilization at around 60%.

We revised down our earnings forecasts due to: 1) the possibility of stricter construction-related regulations stemming from Trump’s executive orders; 2) delays in the start of operations at the new US plant (now expected in 4Q25); and 3) cost increases resulting from the prohibited foreign entity (PFE) rule and tariffs. While tighter cell/module supply in the US could still drive up prices, it remains uncertain whether the company will be able to fully pass on increased costs to customers (with the final outcome of relevant executive orders still being unknown).