On the last day of 2024, a significant transaction took place in the photovoltaic silver paste sector, marking a pivotal moment for companies involved in solar energy technologyGerman corporation Heraeus announced a comprehensive sale of its photovoltaic business in China and Singapore to Haitea Co., a publicly listed company on the A-share marketThis transaction enables Haitea to step into the photovoltaic materials business, positioning itself as a new player in the solar energy industry.

Haitea Cois primarily engaged in water supply, drainage, and waste-to-energy projects, whereas Heraeus has established itself as a key supplier in the photovoltaic silver paste marketSources from the 21st Century Business Herald revealed that fierce market competition led Heraeus to make the strategic decision to exit the photovoltaic silver paste sectorThe deal is anticipated to conclude in the first half of 2025.

Why would a leading global supplier like Heraeus choose to exit the photovoltaic silver paste market, and what motivated Haitea to take over at this particular juncture?

Information suggests that the profit margins for foreign companies manufacturing domestically produced silver paste have pressured Heraeus into a retreat

With traditional business profitability declining, Haitea is currently searching for new growth opportunities.

Photovoltaic silver paste is a crucial material in the manufacturing of solar panels, primarily composed of high-purity silver powder, glass oxides, and organic carriersThe implications of this material are profound, as solar energy technologies innovate rapidly to meet global energy demands.

Shocking many in the industry, Heraeus China, which had recently celebrated its 50th anniversary in the Chinese market on October 30, 2024, will soon announce the divestiture of its entire photovoltaic business across both China and SingaporeAe Zhou Ping, president of Heraeus Greater China, stated, “In recent years, the photovoltaic industry has undergone significant changes, with new players entering and altering the competitive landscapeConsequently, we no longer see photovoltaic business as a strategic pathway for our development.”

This statement clearly indicates a strategic pivot for Heraeus, a multinational corporation renowned in precious metals and new materials

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On the last day of 2024, they opted to make a strategic reduction.

A look at Heraeus China’s official website reveals that the company's operations are divided into four platforms: precious metals and recycling, medical health, semiconductor and electronics, and industrial applicationsHeraeus' photovoltaic business falls under the industrial applications umbrellaWithin Shanghai, it houses a global innovation research and development center, and Singapore hosts a technology service center dedicated to R&D.

In an interview at the 2022 China International Import Expo, the president of Heraeus Photovoltaic Global Business, Gao Changlu, emphasized that the Chinese market is a primary focus for its photovoltaic operationsWith the launch of new production facilities, Heraeus was projected to have a photovoltaic silver paste annual production capacity of 3,000 tons.

At that time, Heraeus's strategy for expanding silver paste capacity was proactive, driven by industry-wide confidence in increased market demand over the subsequent three years

According to a report by Shenwan Hongyuan Securities from early 2021, global demand for silver paste was forecasted to reach 4,249 tons, 4,947 tons, and 5,354 tons in 2022, 2023, and 2024, respectively, reflecting continuous growthHowever, by 2023, the actual demand for global photovoltaic silver paste outstripped expectations, with the China Photovoltaic Industry Association reporting a demand of approximately 6,080 tons, and projections suggesting it could reach 8,031 tons in 2024.

Despite this demand spike, Heraeus did not experience a corresponding increase in profitability.

Financial records indicated that in 2023, Heraeus's photovoltaic silver paste department generated revenues of €299 million (approximately 226 million RMB at the current exchange rate), marking a 9.94% decline year-over-year and resulting in a loss of €6.11 million (about 46 million RMB). In the first half of 2024, this trend persisted with revenues of €125 million (approximately 94.5 million RMB) being met with a loss of €6.86 million (around 51.8 million RMB).

On the other hand, Haitea Co

is confronting stagnation in its developmentKey factors influencing their market are the significant reduction in newly added water and drainage projects, shifts in market competition dynamics, dependencies on special debt for funding new projects, and soaring operational capital demands.

According to their financial results, for the first three quarters of 2024, Haitea Coreported revenues of 1.04 billion RMB, up 13.55% compared to the previous year but a net profit decline to 145 million RMB, down by 16.89%. By the end of this reporting period, Haitea reported cash reserves of 281 million RMB and total liquid assets of 579 million RMB.

Haitea views the silver paste venture as a second growth curve.

In this acquisition, Haitea aims to establish a fully owned subsidiary and pay cash to acquire Heraeus's photovoltaic silver paste division, which encompasses the total equity of Heraeus Photovoltaics and its debts along with its Singaporean subsidiary.

The base price for this transaction stands at 502 million RMB, though the final price will be adjusted based on predetermined agreements

When comparing this transaction price with Haitea's remaining cash reserves, it resembles a major gamble on the photovoltaic sector.

To sustain the acquisition of Heraeus's photovoltaic silver paste assets, Haitea's newly created subsidiary is ambitiously capitalizedThe preliminary name for the subsidiary is "Haitea Photovoltaics Limited," with a registered capital of 400 million RMB, based in the Tianfu New Area of Chengdu, Sichuan Province.

Despite the substantial investment into Heraeus's unprofitable assets, Haitea is poised for challenges.

Initially, Heraeus indicated that following the transaction, Haitea would take over all operations and production bases of Heraeus Photovoltaics in China and Singapore, with plans to retain all employees.

Secondly, competition in the photovoltaic silver paste market is intense, and there are uncertainties regarding Haitea's ability to turn this business profitable by 2025.

Analysts from the 21st Century Business Herald have identified three concerns regarding the profitability prospects of photovoltaic silver paste

First, advancements in technology, such as the “dead metal” (0BB) technique, are anticipated to lower silver consumptionSecondly, with rapid output increases and price drops for N-type batteries, there is potential for further reductions in silver paste prices driven by cost-cuttingThirdly, an influx of domestic manufacturers entering the silver paste market could trigger destructive price competition.

Currently, there are already three listed companies producing photovoltaic silver paste on the A-share market: Juhua Materials, Dike Corp, and Suzhou GoodwellIn the first three quarters of 2024, these firms also experienced revenue growth without corresponding profits, with only Dike Corp reporting increased revenue and net profits, albeit with a marked slowdown in profit growth.

After this transformation into a photovoltaic silver paste company, Haitea will find itself in direct competition with Juhua Materials, Dike Corp, and Suzhou Goodwell, navigating a market characterized by increasing pressures.

However, judging by financial performances in the first half of 2024, the profitability of the assets that Haitea seeks to acquire from Heraeus falls significantly short compared to the aforementioned three companies.

As of January 2, 2025, Haitea's stock was trading at 8.54 RMB per share, a decrease of 4.37%, with a market capitalization of 3.9 billion RMB.