Chinese Solar Companies Stage Powerful Recovery


JinkoSolar return to profitability sets the tone for the industry’s comeback

It may be an issue of being asked to be patient for the last two years, but the financial market is awakening to a solar energy restart, helped by a big showing from the dominant force in the industry, Chinese companies.

On August 20th, 2013, Trina Solar Limited (ADR)(NYSE:TSL) made a tremendous showing in a double-digit recovery of gross margins of 11.6% and improved demand, boosting stock performance and causing an avalanche of upgrades from analysts. Trina boosted its guidance and confirmed gross margin expectations moving forward, signaling a large contribution from domestic market in China becoming reality.

China is no longer a low ASP environment, and in fact had an add-on effect on the ASP.  In addition, starting from August 6th, the EU market is going to provide Chinese companies with even more improved ASP.

It is becoming apparent that top tier companies will benefit from the recent agreement between China’s solar industry and the EU trade commission, as the quota of shipments for the top three, out of 7GW of modules, is estimated by SPVI to be in the area of 900MW for Yingli Green Energy Hold. Co. Ltd. (ADR)(NYSE:YGE),  Trina – 700MW and Canadian Solar Inc.(NASDAQ:CSIQ) – 560MW.

Looking forward to the coming week, four companies will be making their quarterly release. LDK Solar Co., Ltd. (ADR)(NYSE:LDK) is not seen by us as a quality investment, and had deep issues surrounding the company’s status with bankruptcy risk, but should be used as a useful catalyst.  The president of LDK Solar, Tong Xingxue, said in an interview with Bloomberg: “This is the first time in two years we witnessed obvious improvement. The market is steadily rising and our demand has exceeded supply. The basic barrier to Europe has been overcome and the domestic market is taking off.” Despite this strong statement, a survey conducted on the SolarPVInvestor Forums shows members do not expect the company to beat the loss of 0.92 per share. 

JA Solar Holdings Co., Ltd. (ADR)(NASDAQ:JASO), reporting on August 29th, is expected to beat its $0.54 loss, according to 93% of member votes.  The company’s margins are expected to rise, based on strong performance from reports already given by module makers and significant turnaround by Taiwanese cell manufacturers during Q2; both Motech and Gintech became profitable during Q2. JA’s advantage is in the cost-efficient processing improvements and being the best Chinese cell maker on the planet, with quality beating Chinese and non-Chinese manufacturers.  Japan and the US dominated export module deliveries during Q2, with a very small percentile to Europe.  The company is expected to have a large (well over 50%) contribution of shipments to the domestic market.  In June, the company reported that shipments were exceeding the combined 430MW guidance issued for the incoming quarter.

Yingli Green Energy Hold. Co., Ltd. (ADR)(NYSE:YGE)  is expected by 77% of voters to beat its loss of 0.32. The pre-announcement by the company offered a 25% increase in shipments, becoming the industry’s record highest quarterly shipment of 800-plus MW.  Yingli has been a lone contender in this category and continues to beat its own achievements. Looking out to quarterly release, the interesting part is the guidance, expected to be raised, and gross margins, which should continue.  Yingli dominates Europe and the US markets.  The company also has large contributions in all emerging markets, particularly with its strong presence in Chile and Malaysia.  Analysis of declared pricing shows that the company has increased its average selling price per watt during the second quarter.

Lastly, ReneSola Ltd. (ADR)(NYSE:SOL), which moved its reporting to August 30th, coinciding with Yingli’s, has pre-announced increases in both module shipments and gross margins.  The expectation for Renesola is to beat its loss of 0.30, as per 72% of votes cast by members.  Renesola has increased its ASP during the quarter, delivering gross margins mostly from heavy shipments to European markets.  The important factors for investors during the quarterly release are wafer pricing and polysilicon pricing.  There is evidence that both have improved, but the company’s internal production costs have only gained against the spot poly pricing during August. This is most likely the reason why the company’s gross margins are being depressed in comparison to pure module sellers. The change in this condition is expected to be highlighted in the incoming release, which should increase expectations for Q4 gross margin expansion.

While solar stocks staged a powerful recovery last week, with Trina leading the percentile gains, out of the companies expected to report this week, JA Solar – and, to a degree, Yingli – could offer the most interesting prospects for market action as well for the expectations for next quarter, staging more appreciation in the sector. Overall Q2 results are indicating solidification of the industry with top Chinese companies emerging with stronger leadership characteristics than ever before. 

Companies: TSL, CSIQ, YGE, SOL, JASO, LDK, JKS, Gintech, Motech, Japan, China

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