OCI Holdings Company Ltd. (A010060) Earnings Call Transcript & Summary

Thank you for joining OCI Holdings Q2 2025 Earnings Call. I am Sumi Lee, COO of OCI Holdings Company. I will provide you a brief overview of the presentation materials available on our website. First, let me explain the consolidated operating results on Page 5. In Q2, we recorded a sales revenue of KRW 776 billion and operating loss of KRW 77 billion (sic) [ KRW 80 billion ]. The sales revenue decreased by 18% and the operating income turned negative Q-o-Q. While all major subsidiaries faced macroeconomic headwinds, OCI TerraSus, our core polysilicon business was particularly affected by uncertainties surrounding U.S. trade policy. I will provide details on the performance of key subsidiaries in the following pages. Page 6 shows consolidated financial position as of the end of Q2. Compared to the end of Q1, both total assets and liabilities decreased. Our financial position was influenced by several factors, including foreign exchange rate movements. On the asset side, accounts receivable primarily from OCI TerraSus and OCI Company declined due to lower sales. The decrease of inventory and account payables was mainly driven by DCRE. On the liability side, debt increased due to bond issuance by OCI Company for refinancing and operational purposes, raising the net debt ratio from 5.4% to 12%. Despite this, the balance sheet and overall financial position remained quite strong and stable. Next, I will explain the performance of key subsidiaries. Page 7 provides details on the performance of OCI TerraSus, our polysilicon business unit. In Q2, OCI TerraSus sales revenue declined by 66% and operating income turned negative. Sales volume dropped 64% Q-o-Q with the operating loss reflecting plant shutdown cost for inventory adjustment and inventory valuation losses. Market uncertainty peaked during this quarter due to a shift in U.S. trade policy and revisions to the IRA, leading to operational suspensions at customer sites. Demand was virtually nonexistent, prompting us to halt operations at our facility to manage cash flow and inventory. Although the plant remains offline now, we are scheduled to restart operations in Q3. The market conditions remains uncertain. However, we have recently engaged in constructive discussions with our customers. With the enactment of the new OBBB Act, we expect demand to gradually recover. Page 8 highlights the performance of OCI Enterprises. Our U.S. business experienced a 35% decline in sales and recorded an operating loss. Operations remained normal without any project sales. MSE completed the sale of its remaining module inventory and recognized $2.7 million in AMPC. In July, OCI Energy is completing the sale of 2 projects totaling 220 megawatts, which will contribute to our third quarter earnings. MSE will be supplying ODM modules to existing customers based on confirmed orders while preparing for strategic decisions regarding cell investment. Page 9 outlines the performance of OCI SE's cogeneration power plant. OCI SE recorded an 8% decline in sales and 61% drop in operating income. Although the SMP, our key sales and profit driver increased slightly Q-o-Q supporting electricity sales, lower REC volume weighed on profitability. Operating income was further impacted by maintenance costs booked during the quarter. Looking ahead to Q3, SMP is expected to improve slightly with the onset of the peak demand season, and earnings are expected to be normalized following maintenance. Page 10 presents the performance of DCRE, our urban development project. In Q2, DCRE completed the presale of Complex 7, totaling 1,453 units. Sales and operating income was primarily recognized based on the construction progress of Complex 6. However, due to one additional land valuation loss, operating income turned negative. In Q3, both sales revenue and operating income are expected to grow, driven by continued construction progress of Complex 6 and 7. In addition, preparations are also underway for the final presale of the year, Complex 8, comprising 1,348 units. Next is regarding OCI Company's performance. For detailed explanations, please refer to OCI Company's IR materials. For both OCI Company's sales revenue and operating income were reduced due to sales sluggishness for the main chemical products and ASP declines. On a consolidated basis, OCI turned negative after fully reflecting the performance of P&O Chemicals, which continues to operate at a low utilization rate amid a broader down cycle in semiconductor materials. While overall market demand remains low for general chemical products, the improved spread in some carbon chemical products will help Q3 earnings Q-o-Q. Now let me provide the key management updates from Page 13. In Q2, One Big Beautiful Bill was finally announced and enacted into a law, which had a significant impact on the U.S. solar value chain. Our main subsidiaries, OCI TerraSus, Mission Solar Energy and OCI Energy and their businesses were directly affected by policy changes. We have highlighted the short-term implications and strategic direction under the chart below. For certain, the U.S. OBBB Act is prompting a strategic realignment of the domestic solar value chain. Its FEOC provisions create new opportunities for non-China solar manufacturers. In response to increasing non-PFE requirements, our subsidiaries are pursuing strategic initiatives to capitalize on the opportunities presented by the OBBB Act. Our primary focus is to establish a non-PFE value chain for our polysilicon and downstream businesses in the U.S. OCI Energy is well positioned under this OBBB Act with a nearly 6 gigawatt of pipeline project ready to begin construction in this year and next year. Page 15 provides updates on our urban development project. In Q2, DCRE successfully completed the presale of Complex 7 totaling 1,453 units. While some investors have raised concerns about the presale real estate market, amid this tighter real estate policies, we have completed 5 round of presale to date with unit prices consistently exceeding the initial offering price. Three more rounds of presales are scheduled by next year, and we are targeting project completion by year 2029. Pages 16 and 17 highlights the financial position of our key subsidiaries and outline upcoming project milestones. Some investors have also raised concern about our balance sheet and liquidity given our significant CapEx plans. It's important to note that our balance sheet includes project financing loans related to the urban development project. So excluding DCRE, we maintain a net cash position. OCI TerraSus recently established a joint venture with Tokuyama Corporation to produce 8,000 metric ton of electronic grade polysilicon in Malaysia. Construction will begin in Q3 with the initial production targeted for the first half of the year 2027 for qualification test by the customers. Although earnings are currently under pressure due to external factors, we anticipate improvements starting the second half of this year as market demand recovers and our investment begin to generate returns. I will conclude the presentation here. Please refer to the appendix for recent trend in the solar industry. If you have any further questions, please contact IR team. Thank you for joining the call.