THE uncertainty over US President Donald Trump’s trade policies has claimed a casualty in Tek Seng Holdings Bhd, a solar cell and polyvinyl chloride (PVC) manufacturer.

Tek Seng was among the solar stocks that saw their prices soar last year due to a number of positive catalysts, including the boom in the global market for solar ­panels and favourable trade policies in the US and China.

However, Trump’s comments on cutting off any new federal support for clean energy development and shifting interest to coal and oil and gas, have sent Tek Seng’s shares tumbling 54% from a record peak of RM1.40 on Aug 15, last year to close at 64 sen last Thursday. Year to date, Tek Seng’s share price has fallen 6.6% since Dec 30, last year.

Slower-than-expected solar ­installations in China so far this year is not helping the counter.

The sudden turn in global demand saw Tek Seng swing to a net loss of RM7.55 million in the fourth quarter ended Dec 31, 2016 (4QFY2016) from a net profit of RM10.41 million a year ago due to lower revenue and unrealised foreign exchange losses.

Tek Seng’s operating expenses for 4QFY2016 also doubled to RM8.7 million from RM4.3 million in 4QFY2015. All the group’s segments — PVC sheeting, PP non-woven products, PVC leather and solar cells — posted losses before taxes due to lower sales volume and forex losses.

Tek Seng executive chairman Loh Kok Beng says its solar segment is facing a challenging time as the global solar market is undergoing a downturn.

“We don’t see our solar segment improving anytime soon, mainly because of Trump’s policies,” he tells The Edge.

The group is awaiting more details on Trump’s energy policy.

Nevertheless, Loh believes the good times for solar panels have yet to end. “In any business, there will always be ups and downs. The management sees the long-term sustainability and that’s why we ventured into the solar business. We believe that in the longer term, it will be beneficial to the community,” he says.

Despite slipping into the red in 4QFY2016, Loh says the solar business remains an important segment, accounting for 58% of the group’s ­revenue in FY2016.

The price of solar cells has dropped to 21 sen per watt currently, which is close to the group’s cost, from 38 sen during peak times.

The group’s solar cell production capacity has also decreased to 70% from an average of 97% last year. The utilisation rate is expected to remain at current levels this year, Loh says.

“We are always improving our performance to produce higher efficiency solar products, including exploring the possibility of manufacturing passivated emitter rear contact [PERC] solar cells,” he says.

PERC technology adds an extra layer to the rear-side of a solar cell.

For the full year ending Dec 31, 2017 (FY2017), Loh expects the group to remain profitable, driven by its PVC sheeting segment. He sees Tek Seng posting flat growth in net profit this year. Its net profit for FY2016 rose to RM31.19 million from RM21.27 million in FY2015.

“We expect demand for PVC to rise during the upcoming [general] election. The group is also looking for new markets, for instance, producing more environmental friendly PVC products to enter the US and European Union markets,” he adds.

To improve its financial performance, Tek Seng has also introduced measures to reduce operational costs to compete with its Chinese and Taiwanese counterparts.

However, Loh does not expect the group to undertake another retrenchment exercise this year. In September last year, it was reported that 180 workers were laid off from the Penang-based company. The group currently employs 400 workers each at its solar and PVC divisions, according to Loh. He hopes to maintain the current staff size.

On the group’s forex ­losses in FY2016, he attributes it to contracted purchases but did not elaborate, noting that the forex loss in FY2017 is expected to be smaller.

Despite the sharp fall in Tek Seng’s share price, fund managers and analysts contacted by The Edge ­believe the timing is not quite right to ­accumulate its shares as its earnings performance remains weak.

They do not see any near-term catalysts until global energy policies become more positive and earnings stabilise.

“It is a cyclical industry [solar panels]. Although it may not prolong loss [in 4QFY2016], I expect the group to register a weak quarter in 1QFY2017 due to the poor solar cell selling price,” an analyst says, adding that the group’s earnings in FY2017 will largely depend on the PVC segment.

She says the rally in the second quarter last year was due to the positive outlook for the solar panel market. She sees a fair value for the stock at 64 sen.

According to a fund manager, who recommended the stock last year, Tek Seng’s net loss in 4QFY2016 was unexpected.

“I still see potential for solar panels, but I think the group may need to resolve its cost structure issue,” says the fund manager, who relinquished his interest in the stock when its valuation was still high last year.

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