Source: https://viceroyresearch.org/publications/
May 17, 2023 – Abalance (TYO:3856) is a Japanese corporation which purports to be a solar panel manufacturer. Approximately 90% of the company’s revenues are derived from its Vietnamese subsidiary, Vietnam Sunergy Joint Stock Corporation (VSUN).
Abalance’s golden goose, Vietnam Sunergy Joint Stock Company (VSUN), is a pass-through assembly plant for Chinese products. It serves the sole purpose of avoiding US Anti-Dumping and CounterVailing Duties (AD/CVD).
VSUN’s Vietnamese facilities manufacturing capabilities are limited to the least technically complex later stages of solar panel assembly.
VSUN import data shows that it purchases effectively all its components from Chinese suppliers, which it assembles in Vietnam to circumvent Anti-Dumping and Countervailing Duties in the USA: its major market.
Abalance’s solar panels will be subject to crippling restrictions by the USA’s Department of Commerce (DoC) set to take effect in June 2024. These restrictions are aimed at companies in Vietnam, Thailand, Malaysia, and Cambodia functioning as pass-throughs for Chinese-made solar panels and components.
VSUN was acquired by Abalance subsidiary Fuji Solar in 2019. It was previously a subsidiary of the China Sunergy Group (CSUN). CSUN was a US-listed Chinese solar panel supplier pretending to be a solar panel manufacturer. In reality, its business operations were more akin to a chop-shop.
VSUN’s supply chain includes Chinese companies linked to forced labor camps in Xinjiang widely known to use the Uyghur ethnic minority as a forced labor workforce.
Despite fully consolidating VSUN and stating it owns ~85% of VSUN, Abalance is only entitled to 43% of VSUN’s earnings (but apparently all the costs) due an opaque corporate structure.
We believe Abalance is complicit in evading US AD/CVD order and will find itself shut out from the US in June 2024, if not sooner. The links between VSUN and CSUN are well known, and we believe the DoC will act on this matter. Abalance is extremely dependent on VSUN, making up 88% of sales in FY 2022.
Even if VSUN’s cell manufacturing site is developed on-schedule and does not circumvent AD/CVD orders, production capacity will be more than halved for the medium-long term, destroying margins and shareholder value.
VSUN appears to be substantially run by former CSUN partners.
In light of these extreme risks, we believe that Abalance is not investible.
May 19, 2023 – This report will detail the corporate filings our team has pulled from Japan and Hong Kong showing numerous undisclosed related party transactions with Abalance insiders. These transactions take place with dummy shell companies and unconsolidated subsidiaries of VSUN.
Our research suggests that Abalance management and their CSUN associates have been embezzling assets and money from Abalance shareholders.
The center of this web appears to be Abalance CEO Ryu Junsei who we believe must explain his involvement to shareholders.
Fuji Solar, who accounts for over 90% of company revenues with its subsidiary VSUN, appears to be audited by a co-owner of the subsidiary, and not an independent third-party accounting firm.
This report will also break down ridiculous valuation metrics applied to Abalance’s minor economic interests in fully consolidated subsidiaries.
In our first report Viceroy highlighted the fact that despite fully consolidating VSUN, it is only entitled to ~43% of profits from its operations due to its holding structure. Abalance owns 51% of Fuji Solar which in-turn owns ~85% of VSUN.
May 18, 2023 – On May 17, 2023, Abalance issued two unsatisfactory responses to concerns Viceroy raised in its report titled “Abalance – Turning Japanese? We really don’t think so”.
Management’s rebuttal does not deserve a response, however shareholders do. We will address every management denial, point-by-point, in the report below. Viceroy have also attempted to reach out to Abalance via email yesterday morning. Abalance have not responded, and in its subsequent response, claim we have not contacted them.
Management vehemently denies that it trades with Chinese suppliers who utilize forced labor in Xinjiang. Viceroy have pulled specific and detailed VSUN import data which highlights and names its Chinese suppliers: Abalance cannot deny it conducts business with them.
VSUN’s investment certificate’s operation schedule advises that the construction permit would be applied for in December 2022 – January 2023. Despite this, we have been unable to find any approved construction permits for the facility. A site visit conducted on the week ending May 12, 2023, no copies of the construction certificates were on display as required.
Abalance was specifically identified by the USA Department of Commerce’s (DoC) solar module AD/CVD investigation as circumventing AD/CVD orders. These orders have been in place since 2012. VSUN failed to respond to the DoC’s questionnaire, and was determined to be in breach of AD/CVD orders.