Hanergy Holding Group Ltd promotes its house-roof solar panels at a trade fair in Fuzhou, Fujian province. The company's unit Hanergy Thin Film Power said on Aug 16 that its profit from related-party transactions is expected to decline to HK$200 million for the first half of the year, a drop of more than 90 percent from a year ago. [Photo provided to China Daily]

Solar equipment maker says profit during first-half may fall by 90% from a year ago

Hanergy Thin Film Power Group Ltd, the Hong Kong-listed solar-equipment manufacturer at the center of a regulatory probe, warned it could record a loss for the first six months of the year, after the cancellation of deals worth billions of dollars with its parent company.

Hanergy said in a statement to the Hong Kong Stock Exchange on Sunday that its profit from related-party transactions is expected to decline to HK$200 million for the first half of 2015, a drop of more than 90 percent from a year ago.

Its unlisted Beijing-based parent, Hanergy Holding Group, buys solar panel-making machines from the Hong Kong-listed subsidiary and then makes solar panels for sale to third parties. For its 2014 financial year, 62 percent of Hanergy Thin Film's sales came via dealings with its parent.

Cancellations of the connected transactions include a $586 million contract to provide equipment and services to its parent company.

Hanergy Thin Film did not project the size of any loss and will disclose the company's interim results at the end of this month. For the first half of 2014, it reported net profit of HK$1.7 billion on revenue of HK$3.2 billion.

Trading of Hanergy's shares has been suspended since May 20 when a 47 percent plunge in its price wiped out HK$144.3 billion of its market capitalization value in minutes.

Prior to the drop, Hanergy had surged more than sixfold in a year, making Chairman Li Hejun in less than two years leapfrog entrepreneurs such as Alibaba Group Holding Ltd's Jack Ma to the top of China's rich lists.

The Chinese maker of solar products, which is being investigated by Hong Kong's Securities & Futures Commission, is still awaiting regulatory approval for its reorganization proposal presented to the special administrative region's stock market regulator last month, it said in the statement warning of the loss.

"Some investors and analysts had questioned Hanergy's relationship with its parent. Having suspended contracts with its parent company and affiliates, it is no surprise that the Hong Kong-listed unit might swing to a first-half net loss this year," said Hanna Li Waihan, a strategist at UOB Kay Hian (Hong Kong) Ltd.

In a bid to resume the stock trading, Li said the company may release more financial documents and meet other requirements from the SFC.

However, Li said he believed the company is likely to see further losses in the short term even if its trading is resumed, since the subsidiary may find it difficult to find a client who can buy most of its gear and contribute to the majority of its revenue as its parent company did.

Despite sounding a note of caution over the possible loss, the solar company said in the statement "the board is of the opinion that the group's overall business operation is still functioning normally, and the group's financial conditions are sound."

The company said last month it may launch a judicial challenge to a decision by the SFC to suspend its share trading indefinitely. In a statement on July 16 signed by Li Hejun, it refused to hand over the additional documents on the financial health of the parent, which is one of the requirements for the stock to resume trading.