JA Solar a good investment?

Klothilde

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Saturday, March 16th 2013, 6:46am

JA Solar a good investment?

Quoted from "explo"

Quoted from "Klothilde"

I'm currently crunching the numbers of JASO and there is a lot I like. Can someone tell me what speaks against JASO?

Not transparent with cost structure. Chairman doing arms length deals with other businesses he owns (is he or minority JASO owners benefitting). Looking at balance sheet they seem to have faired well compare to peers. I think this is due to being a middle man service partner. Without carrying own branded products they have been able to navigate the pricing volatility better (now they've ventured into branded modules though, thus competing with their customers).

They signed a deal with Hefei city on Feb 26 2011 to spend 13.5 billion RMB to build 3 GW integrated wafer to module plant there. The project is supposed to be complete Sep 2013 (yeah right). Management hubris warning.

To sum up JASO. Price is decent. Balance sheet is decent. What else are you getting? They don't like to tell you.

I disagree with the service partner theory since their tolling revenue historically has been very low. I would be surprised if the Hefei deal didn't allow for some degree on timeline flexibility based on market evolution. As to the secrecy, I don't regard this necessarily as a sign of underperformance. If I remember correctly the company decided not to disclose cell conversion cost any more at at time when they were cost leaders anyhow.

Here are my working hypothesis for JA:

Pros:
- History of financial discipline
- Lowest leverage and highest liquidity among solar 11
- Very competitive cost structure
- Technology edge vs. peers
- Higher or even highest fraction of high-power products produced (60% vs. YGE 15% and CSIQ < 5%)
- Very strong traction in Japan - very high GM contribution out of Japan
- Very good market penetration in China

Cons:
- Dubious arms length deals by management
- Low Brand awareness in the module space
- Channel conflict through direct competition with with customers
- Highest exposure to US tariff (cells) and possibly higher exposure to EU tariffs than peers

Lack of cost transparency is giving me a hard time, but I'm not posting it as a Con. GOGS in Q3 are way higher than what my modeled cpw x volume would give and I don't think inventory carrying cost is enough to explain the gap. So I will wait for Q4 to hopefully get a better picture.

My model even gives me a slight chance of net profit in Q1 so I'm on the watch out...

This post has been edited 1 times, last edit by "Klothilde" (Mar 16th 2013, 6:55am)

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JulyWebb

sony1

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Saturday, March 16th 2013, 7:41am

Yea, thay had a presentation in february or whatever where the 3 GW Hefei date was moved to 2015.

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explo

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Saturday, March 16th 2013, 8:18am

Good pros and cons list Klothilde. As you saw I have some more cons maybe. For me the main problem with JA is not that the net value isn't good relative to valuation - it's the mess and non-transparency of things. I wish every one would do as SOL and clearly state ASP and selling cost and give cash flow analysis each quarter.

I'd say that JASO is a quite safe bet here on the financials side, but is it good to have 2.8 GW cell capacity in China? For some reason cell capacity in China penalized in US and might be in EU. Overall the good financial it is just not worth the operation uncertainty for me.

Btw, being industry middle man even if not doing tolling still enables nimble inventory and AR handling compared to module brands having to stock up warehouses in major end markets and give long credit terms.

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littleguyintucson

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Saturday, March 16th 2013, 9:13am

Jaso has a large convertible bond expiring. Jaso has been hoarding the cash for a year to pay for this convertible buy back. Once the buy back is done interest payments will drop significantly. Jaso will have one of the lower Operating costs with one of the lower debt payments. Jaso is also significantly increasing module sales and will be profitable on Cells. In Q2, they took a large writeoff for capacity.

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JulyWebb

explo

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Saturday, March 16th 2013, 9:30am

They also ship a lot of modules to China. Again, both good (Japan) and bad (China) from an geography impact on ASP.

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explo

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Saturday, March 16th 2013, 9:32am

Yes, their multi wafer capacity have taken two big impairment writedowns two years apart. Don't remember if it was that crap they bought from the chairman at peak wafer pricing or if it was the other wafer plant.

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JulyWebb

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Monday, March 18th 2013, 9:20am

That's good putting all that crap behind them!

JA doesn't divulge much info on their cell cost is all I can see and from what they have said in past Q&A's Conference Calls they do not want to get into that referring to it as trade secrets as they are an OEM provider and not just a manufacturer of modules.

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JulyWebb

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Thursday, April 4th 2013, 12:34pm

Yes and JASO is doing more business in Japan compared to others according to this article. From what I have read ASP's are the Highest in Japan. JA established their sales office last July or August last year so they could be closer to their customers. http://www.pv-tech.org/news/Module_shipm…mpany_were_clos

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sony1

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Thursday, April 4th 2013, 12:40pm

Quoted from "JulyWebb"

YFrom what I have read ASP's are the Highest in Japan.[/url]

Relatively speaking ASP is going down in Japan as well. Japan just launched a massive QE today, and Yen is down 3.5% vs Yuan.

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Djovanny

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Thursday, April 4th 2013, 12:43pm

Jaso is Very good speculative play with like DQ run to the upside due to low float and strong cash position Jaso is currently bottoming imho p s nice doji is forming today with higher high lower low . Good luck

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JulyWebb

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Thursday, April 4th 2013, 1:03pm

Quoted from "sony1"

Relatively speaking ASP is going down in Japan as well. Japan just launched a massive QE today, and Yen is down 3.5% vs Yuan.

I saw an article yesterday on Japan recently published and it stated the Highest ASP's were the highest of all in Japan. I didn't save it.

When you get a chance Read JA's Q&A from the 4'th Qtr. when asked about positive margins going forward and look at where they are showing shipments to be for 2013. A lot of China was in Q4 but it won't be for 1'st Qtr. of 2013 nor the remaining of the year from what Jian Xie said.