The road to the U.S. stock listing of Solarmax Technology (SMXT) can be described as &#34;high opening and low going.&#34;
On February 27, 2024, Jiangsu Zhonghong Photovoltaic Engineering Technology Co., Ltd.'s parent company, SolarMax Technology, Inc. (referred to as &#34;Zhonghong Photovoltaic&#34;), successfully listed on the NASDAQ in the United States, with an issue price of $4, issuing 4.5 million shares and raising $18 million.
On the first day of trading, the company's stock price reached $9.35 at one point during the session, an increase of 133.75% from the issue price; the closing price was $8, up 100% from the issue price. However, the company's subsequent performance did not last long, as it entered a downward channel within less than a year of listing, hitting a low of $0.6 and facing delisting risks.
In October 2024, Zhonghong Photovoltaic received two warnings from NASDAQ for not meeting the minimum market capitalization requirement of $50 million and the minimum stock price requirement of $1 per share. Faced with dual challenges of stock price and performance, can Zhonghong Photovoltaic turn the tide?
<h2>Net Profit Turned to Loss After Listing, Large Goodwill Impairment Weighs on Performance</h2>
According to Zhitong Finance APP, Zhonghong Photovoltaic was established in 2008 and subsequently entered the Chinese market through two acquisitions in 2015. The company is driven by technological innovation and sustainable development, deeply engaged in the solar and renewable energy fields, accumulating rich experience in photovoltaic technology, system integration, and project management, and gradually developing into a leader in the industry.
Currently, the company conducts its U.S. business through its American subsidiary, mainly including the sale and installation of photovoltaic and backup battery systems for residential and commercial customers, as well as the sale of LED systems and services to government and commercial users; the Chinese subsidiary mainly identifies and procures solar power plant projects for resale to third parties and primarily provides engineering, procurement, and construction (&#34;EPC&#34;) services for solar power plant projects. According to the prospectus, since mid-2019, the only customer for the Chinese business has been a large state-owned enterprise.
Financial data shows that before listing, the company experienced a situation of &#34;increased revenue but no profit,&#34; as revenue grew but it incurred losses for two consecutive years, with the loss in 2022 more than doubling year-on-year.
The prospectus shows that Zhonghong Photovoltaic's revenue in 2021 and 2022 was $37.7409 million and $44.7180 million, respectively, with net losses of $3.3203 million and $6.8733 million during this period.
However, after turning a profit in 2023, it quickly turned back to decline in 2024, returning to the loss zone. The latest financial report shows that for the nine months ended September 30, 2024, the company had revenue of $16.55 million, a year-on-year decline of 60.5%; net loss of $31.059 million, compared to a net profit of $350,000 in the same period last year.
<img src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20250109/1736404836492616.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="图片 111111.png" original-src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20250109/1736404836492616.png"/>
In the first nine months of 2024, the company's revenue and gross margin both significantly declined compared to the same period in 2023. This was mainly due to the surge in installations driven by the anticipation of the NEM 3.0 policy coming into effect in April 2023, which led to a spike in revenue in 2023, while revenue in 2024 saw a sharp decline.
From the revenue structure, the solar sales business in the United States experienced the largest drop, with revenue falling from $39.354 million to $12.907 million, and its revenue share decreasing from 93.9% to 78%. In the first nine months of 2024, the gross margin for the U.S. business dropped from 19.6% in the same period last year to 8.3%.
In the three months ending September 30, 2024, the decline in solar and battery sales reflected a 56.0% reduction in the number of completed solar systems and a 71.4% decrease in deployed wattage.
At the same time, the company's operating expenses significantly increased, rising from $7.665 million to $32.689 million, primarily due to a 269% year-on-year increase in administrative expenses for the U.S. business, along with a $7.5 million goodwill impairment for the Chinese business. The increase in administrative expenses for the U.S. business was mainly due to the recognition of approximately $17.3 million in one-time stock compensation expenses.
The company stated that in the nine months ending September 30, 2024, the cost per watt of its solar systems (which accounts for about 80% of total costs) increased by approximately 47.7% compared to the same period in 2023. To address this, the company has raised the installation prices for solar systems in the U.S. market to offset the cost increases in 2024.
Due to the rising costs of retaining and attracting talent, the compensation cost per employee (excluding stock compensation) for sales, marketing, and administrative personnel in the U.S. department increased by approximately 19% compared to the same period in 2023. Additionally, inflationary pressures have continued to drive up labor costs in California, and these costs may continue to rise.
As of September 30, 2024, the company had cash and cash equivalents of $871,000, a significant decrease from $2.539 million on December 31, 2023. Given the current situation of accumulating losses, the tight cash flow is undoubtedly &#34;adding insult to injury&#34; for the company.
<h2>California's New PV Policy, Tariffs, and Multiple Profit Pressures Await Resolution</h2>
According to Zhitong Finance APP, the &#34;roller coaster&#34; fluctuations in Zhonghong's photovoltaic performance over the past two years are closely related to California's new photovoltaic policy.
As the largest market for residential photovoltaic systems in the United States, California welcomed the NEM 3.0 policy in April 2023. The Net Energy Metering (NEM) policy allows homeowners who install solar panels to receive subsidies based on the amount of electricity they feed back into the grid, thereby reducing their electricity costs. Under the previous NEM 2.0 version, the price at which residential photovoltaic systems sold excess electricity to power companies was equivalent to the purchase price of electricity, leading to explosive growth in local solar panel installations.
However, under NEM 3.0, the feed-in tariff for excess electricity from residential photovoltaic systems in California is no longer equal to the purchase price of electricity. Users will receive subsidies for feeding electricity back to the grid at a fluctuating feed-in tariff. Data shows that after the implementation of the new policy, the average feed-in tariff for residential photovoltaic systems will drop from an average of 30 cents per kilowatt-hour to 8 cents per kilowatt-hour, a reduction of over 70%, extending the payback period for solar system investments from 5-6 years to approximately 9-10 years
In response to the slowdown in demand following the implementation of NEM 3.0, Zhonghong Photovoltaic laid off some employees related to the design and installation of residential solar systems in January 2024, accounting for approximately 25% of the company's residential solar system design and installation team.
In its financial report, the company indicated that it may need to lower prices in the future to enhance product attractiveness to users, but this could lead to a decline in the company's revenue and profits.
Looking ahead, Zhonghong Photovoltaic expects residential sales revenue to continue decreasing in 2024. To address this, the company will start selling to residential customers through third-party leasing companies from the second quarter of 2024, which will provide customers with more favorable conditions.
On the other hand, the potential tariff risks following Trump's administration will also cast a shadow over the prospects of the U.S. solar industry. In December 2024, Washington -- the Office of the United States Trade Representative (USTR) announced that under Section 301, the tariff rate on solar wafers and polysilicon imported from China will increase to 50%, and the tariff rate on certain tungsten products will rise to 25%. The tariff increase will take effect on January 1, 2025.
Polysilicon is an essential raw material for producing solar products (mainly solar panels). The costs of wafers and other silicon-based raw materials account for a significant portion of the costs associated with solar panels. Inflation and rising raw material costs will put more profit pressure on the company.
According to the &#34;Q4 2024 U.S. Solar Market Insight Report&#34; released by the Solar Energy Industries Association (SEIA) and Wood Mackenzie, the installed capacity in the U.S. residential solar sector in Q3 2024 was 1.1 GW, a year-on-year decrease of 4%, continuing the downward trend since the end of 2023. SEIA expects the residential market to shrink by 26% in 2024 compared to 2023.
The U.S. business is under pressure, and the Chinese business is also struggling. The ongoing situation of oversupply and excess capacity has led to a decline in product prices and inventory buildup in the domestic photovoltaic industry in 2024, with various segments of the photovoltaic industry experiencing varying degrees of losses.
According to Dongxing Securities Co., Ltd., in the first three quarters of 2024, the total revenue of the photovoltaic sector was 761.1 billion yuan, a year-on-year decrease of 21%; the net profit attributable to the parent company was 4.44 billion yuan, a year-on-year decrease of 96%. In the third quarter, the photovoltaic sector's revenue was 253.6 billion yuan, a year-on-year decrease of 24% and a quarter-on-quarter decrease of 7%; the net profit attributable to the parent company was 320 million yuan, a year-on-year decrease of 99% but a quarter-on-quarter increase of 113%.
<img src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20250109/1736404877759452.png?x-oss-process=image/auto-orient,1/interlace,1/resize,w_1440,h_1440/quality,q_95/format,jpg" alt="图片 222222.png" original-src="https://imageproxy.pbkrs.com/https://img.zhitongcaijing.com/image/20250109/1736404877759452.png"/>
However, since the second half of 2024, thanks to favorable factors such as the relaxation of consumption red lines, accelerated construction of ultra-high voltage projects, and the continuous advancement of large-scale wind and solar bases, along with calls to prevent internal competition, various segments are expected to voluntarily achieve industry production cuts through production quotas, leading to a potential upward correction in industry profitability in the future.
Returning to the level of Zhonghong Photovoltaic, it can be observed that the company's performance improved in 2023 mainly due to the preemptive demand surge before the implementation of NEM 3.0, so it is reasonable that the performance will return to losses in 2024
Despite the impact of one-time goodwill impairment and stock compensation expenses on the losses in 2024, the company's weak self-sustaining ability is a foregone conclusion. In this situation, the company's stock price in the secondary market is also unlikely to have upward momentum

Solarmax Technology (SMXT) experienced significant fluctuations in its stock price after going public in the U.S. On its first day of trading, the stock price surged by 133.75%, but less than a year later, it fell to $0.6, facing delisting risks. The company is facing dual challenges due to declining performance and substantial goodwill impairment, with net profit turning into a loss after going public. Additionally, its business in China relies on a single customer, and whether it can reverse the downturn remains to be seen

- SolarMax Technology, Inc. went public on NASDAQ on February 27, 2024, raising $18 million at an initial price of $4 per share, but its stock price fell significantly within a year, reaching a low of $0.6.  
- The company faced challenges including a decline in revenue and net losses, with a 60.5% drop in revenue in the first nine months of 2024 compared to the previous year, largely due to the impact of California's NEM 3.0 policy.  
- Additionally, rising operational costs and potential tariffs on solar materials from China further complicate the company's financial outlook, making recovery difficult.

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With declining performance and significant goodwill impairment, how can Solarmax Technology find relief?