Burned by Trump’s solar panel tax
Tek Seng shares fall on US import tariffs
SHARES of Tek Seng Holdings Bhd have been under pressure following the announcement by US President Donald Trump that the country will slap import tariffs on solar panels.
The Penang-based company’s share price had declined more than 17% since early January to trade at 38.5 sen a share at yesterday’s close.
On Jan 22, the US government announced that it would impose safeguard tariffs on imports of photovoltaic cells (PV) and modules over a period of four years, starting at a rate of 30% in year one, before moderating to 25% in year two, 20% in year three and 15% in year four.
Malaysia is a major producer in the solar ecosystem, behind China and Taiwan. It is the largest PV exporter to the US with a market share of 30%.
Tek Seng executive director Loh Eng Chun say the import tariff would have a “big” impact on the solar industry, given that the US is one of the world’s largest consumers of solar panels.
“We expect more price competition from China as the world’s biggest producer of solar cells since it has been imposed with new US import tariffs, which would affect the rest of the world,” he tells StarBiz via email.
Tek Seng manufactures solar cells and polyvinyl chloride, also known as PVC products.
About 45% of its revenue comes from solar cell manufacturing.
Although Tek Seng mainly ships its products to Asean countries, its solar panels will eventually find their way to end-users such as in the US, China, and Europe.
“We do not ship directly to the US, as we ship our products mainly to Asean countries,” Loh says.
Nonetheless, he points out that the company will face with price competition that will eventually lead to a consolidation in the solar industry.
Notably, the 30% import tariff on foreign-built solar cells and panels by the US government is part of Trump’s plan to protect American manufacturers against lowpriced competition from China and other countries.
The proposal is in response to petitions against unfair trade practices linked to China subsidising its PV manufacturers, leading to cheap imports to the US.
However, Loh says demand for solar cells from the US has been decreasing since Trump’s administration started. “Currently, the tariff is still very vague. “For now we would need to wait and see,” he says.
Tek Seng has been facing a softening in demand for solar products, which hit its earnings last year. For the third quarter ended Sept 30, 2017, Tek Seng slipped into the red, recording a RM1.08mil loss from net profit of RM7.43mil a year earlier due to lower sales from its solar business.
Revenue for the quarter fell 16% to RM68.96mil from RM 82.29mil previously.
Cumulatively, for the first nine months ended Sept 30, 2017, Tek Seng posted a 91% decline in net profit to RM3.57mil from RM38.74mil a year earlier.
CIMB Economic Research says PV exports to the US accounted for 1.1% of Malaysia’s total exports in 2016.
“A complete halt in PV exports to the US is unlikely but tariffs may erode Malaysia’s market share and margins and disincentive relocation of foreign PV firms to our shores,” it said in a report recently.
The solar tariffs were implemented alongside tariffs for the imports of residential washing machines.
According to a Malaysia Investment Development Authority (Mida) survey in 2016, 89% of Malaysia’s total PV production were exported.
CIMB Research says the domestic demand remains fairly small, with the Energy Commission expecting connected solar power capacity in Malaysia to rise from 357MW in 2017 to 1,250MW by 2020.
That equates to an average annual installation of 298MW, which is a fraction of the 3,789MW that Malaysia exported to the US in 2016, suggesting that Malaysian PV exporters need to find new markets abroad such as China, India, and developing economies to replace possibly-displaced demand from the US. “While we do not expect a complete halt in PV exports to the US, increased competition could erode Malaysia’s market share and margin in the interim. “We think the possible downside of PV exports could be partly offset by lower intermediate PV imports as part of the solar industry in Malaysia consists of the assembly of PV panels rather than the production of solar cells,” it says.