Earnings Call: Q1 2024

Apr 30, 2024

Slides

My name is Jaeyong Lee, I am the CSO of OCI Holdings Company Ltd. Thank you for joining our earnings call for the first quarter of 2024. I will present with the IR materials posted on our website. Page 5, this is the first quarter consolidated financial result. In the first quarter, the consolidated revenue was approximately KRW 855 billion, and the operating profit was approximately KRW 99.5 billion. The revenue for the first quarter decreased compared to the previous quarter due to maintenance at OCI TerraSus, our Malaysian subsidiary. With the inclusion of OCI Company Ltd. as a consolidated subsidiary starting in February, it was newly reflected in the Holdings consolidated result, increasing the total revenue by about 34% compared to the previous quarter. The operating profit was KRW 99.5 billion, a 53% increase from KRW 64.8 billion in the previous quarter. Like revenue, the inclusion of OCI contributed to the increase in operating income. Net income for the period recorded KRW 192 billion, turning from a deficit due to one-time cost in the previous quarter to a profit. The biggest factor in the increase in net income compared to operating income was the gain due to the fair value assessment of OCI shares, as OCI was included as a consolidated subsidiary on January 26. In page 6, you can see the summary of our consolidated balance sheet. As of the end of March 2024, the total assets are KRW 7.59 trillion, and liabilities are KRW 3.2 trillion. The increase compared to the end of last year is due to the consolidation effect of the OCI Company. While the debt ratio has slightly increased compared to last year due to the inclusion of OCI Company, the financial structure remains very stable at 68% on a consolidated basis. From page 7, I will explain the performances and outlook for major subsidiaries. First, let me begin by the performance of OCI M, our polysilicon business in Malaysia. For the first quarter of 2024, OCI M's revenue was KRW 161.2 billion, and operating income was KRW 37.4 billion, both showing a decrease compared to the previous quarter. As I mentioned during the fourth quarter IR call, the main reason for this decrease is that the operational rate dropped to around 70% from December last year through the first quarter of this year due to plant maintenance. However, the average selling price for the first quarter continued to remain at around $20, reflecting a non-China premium despite fluctuations in Chinese polysilicon prices. With the maintenance completed, we expect both revenue and profit to increase from the second quarter as operations return to normal rates. Next is the operating result of OCI Enterprise. For the first quarter of 2024, revenue was KRW 53.2 billion, a 46% increase from the previous quarter's KRW 36.5 billion, and operating profit turned positive. Despite ongoing challenges for module business in Mission Solar Energy, driven by high inventory and low demand in the residential solar market, OCI Solar Power, which operates the solar power project business, contributed to an improvement compared to the previous quarter by reflecting the remaining revenue from a project sold in 2023. For the second quarter outlook, an additional sale of 200 megawatts is scheduled for OCI Solar Power, which is expected to offset the downturn in the Mission Solar Energy module business. Page 9 shows the result of the OCI SE, our cogeneration business. For the first quarter of 2024, OCI SE's revenue was KRW 90.5 billion, and operating income was KRW 15.7 billion, both showing an increase compared to the previous quarter. The increase in revenue was driven by higher REC sales volumes and prices. In the second quarter, we plan to invest in installing heat transmission pipe-pipelines to supply steam to our new customers. Page 10, you can see the operating result of DCRE, a subsidiary for urban development. For the first quarter of 2024, revenue was recorded at KRW 150.6 billion and operating income at KRW 20.1 billion. The decrease in revenue is due to the completion of construction and the commencement of move-ins of the pre-sold complex one. As for operating income, although loss was recorded in the last quarter of the previous year due to year-end recognition of increased construction costs, it has returned to a profit this quarter. Despite the ongoing downturn in the overall real estate market. Some new sales in Seoul and metropolitan area has resumed. I'd like to inform you that DCRE is also planning new sales of additional complexes. Last is the OCI performance details. Assuming you have already received the detailed explanation from OCI earnings presentation last week, I will briefly mention only the key points as a last item. For your information, please note that the consolidated profit and loss for OCI Holdings for the first quarter only reflects the earnings for the months of February and March. For the first quarter of 2024, OCI's revenue was KRW 5,403 billion, and operating income was KRW 388 billion, both showing an increase compared to the previous quarter. The main reasons for this increase include the base effect of the regular maintenance of carbon chemical products in the first quarter and the recovery of market conditions and the consolidation of OCI China. Moving on to business update. First, in page 13, let me provide an overview of the solar market trend. During the first quarter, the entire solar value chain, including polysilicon, continued to experience a decline in product prices due to oversupply, and it is expected to continue into the second quarter as well. Particularly, the price of polysilicon in China has recently dropped to around $6 due to issues such as oversupply within China, and we see it may have fallen below the average cash cost of Chinese polysilicon manufacturers. This has reached the lowest point since 2020. On the other hand, as you can see from the data, the price of non-Chinese polysilicon has remained relatively stable at around $20 due to limited supply and further widening the price gap with Chinese polysilicon. We cautiously anticipate that this trend will continue for the time being. Moving to page 14, let me briefly talk about trends in the U.S. solar market. In 2023, despite the reduction in premiums of solar projects due to high interest rates, the U.S. solar market had a significant increase in investment in 2023, driven by guidance of IRA tax incentives, lower module prices, et cetera. This trend is expected to continue into 2024, and market demand for OCI Solar Power's project is anticipated to remain robust. Particularly due to high demand, there is a trend of acquiring and developing projects at an early stage. Following this trend from 2023, we plan to continue pushing for early-stage project sale in 2024 as well, thereby securing high premiums through these transactions. The following page, 15, details the current project pipeline under development by OCI Solar Power. It maintains a total pipeline of 4.1 gigawatts, which consists of 2.3 gigawatt in solar and 1.7 gigawatt in ESS. OCI Solar Power has also secured solar projects in MISO area for the first time. Following the sales of 430 megawatts project in the last year, two late-stage project sales are anticipated in 2024. It means 460 megawatts. We expect this business to grow continuously along with secured pipelines and contribute to the earnings of enterprise on a regular basis. Page 16 is the update on our polysilicon business. As released on March 18th, OCI M signed a long-term supply contract worth KRW 700 million by 2030 with Trina Solar, a global solar company. The two companies are key players in the non-China solar value chain industry. Polysilicon produced in Malaysia will be supplied to Trina Solar's Vietnam wafer production base. In addition, as we disclosed during fourth quarter IR call on February 7th, OCI M is expanding its solar grade polysilicon capacity to 56,600 metric tons by 2027. As shown in the table below on page 16, a large part of the 35,000 metric tons capacity is currently kept by long and short-term contracts by existing customers. Through additional expansion, OCI M will do its best to expand sales to capture the new demands in the U.S. and Europe and maintain the high profit. Lastly, I'd like to talk briefly about the trust contract for the acquisition of treasury stock. On March 29th, our board decided on a medium to long-term plan for the acquisition and cancellation of treasury stocks. From 2024 to 2026, we have resolved to buy back and cancel 5% of the total issued stock. As a first step, we have entered a trust contract worth KRW 40 billion in 2024, and the purchases are currently underway. Upon completion of the purchases, we plan to cancel the shares. Along with cash dividends, we will continue this policy of buyback and cancel shares to enhance shareholder value and expand return to shareholders. This is the end of presentation. I will conclude this presentation. If you have any questions, please reach our IR team. Thank you.