Best Chinese Solar to Invest

redsolar

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Friday, April 12th 2013, 2:37pm

Best Chinese Solar to Invest

I would like to invite a healthy discussion to list out the top four chinese solar companies for investment.

Here is my list...

1. CSIQ
2. TSL
3. SOL
4. JASO

Net Debt. (M$)
-----------------------------
CSIQ $312.619
TSL $212.447
SOL $732.977
JASO $141.615
JKS $516.557

YGE $1575.621

CSIQ
---------
+ least risk
+ great revenue visibility
+ good financial helath (relatively speacking

)
+ decent technology
+ lean business model + GCL wafers
+ great geographic diversification
+ non chinese company (ironically ...this is true)
- wafer ..market price exposure
- moderate tariff exposure

TSL
-------
+ low risk
+ good financial health
+ good brand value
+ top multi cell technology
- huge tariff exposure

SOL
-------
+ fast growing company
+ tariff free business model
+ management with balance and vision
+ all in cost leader
+ more power for your money
+ 100% utilization
- high risk
- deteriorating balance sheet

This company future depends on the ability to stay on the current path and be able to execute it consistently. As of now...they are doing a hell of a job.

JASO
---------
+ low risk
+ historically very fiscally disciplined company
+ matured production proven cell technology
+ low cost cells
- HUGE tariff exposure

feel free to comment....thank you!

Disclosure: I am long CSIQ and SOL in 1 : 0.75 ratio.

This post has been edited 2 times, last edit by "redsolar" (Apr 12th 2013, 6:02pm)

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Klothilde

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Friday, April 12th 2013, 2:54pm

First question: what is your investment horizon? 12 month or 5 years. Picks will be different based on this.

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explo

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Friday, April 12th 2013, 3:20pm

Looks like good points to me.

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ILOVEPV

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Friday, April 12th 2013, 4:02pm

Honestly JMHO: in 5 years a world economy will be in a deep azz (much deeper than in 2008-2009). Time horizon 5 years is not serious. 10 years - may be exactly what you need to succeed but there is a small question: which one out of current Chi 10 will be alive in 5 and 10 years. As always those leaders who break a wall normally break their neck or badly hurt. Take a look at thousand of .coms started in early 90s. Today only less than 0.5% of them are alive. Those who follow them but came later (GOOG, AMZN, etc.) prosper. Mobile business: there were over 30 companies developing this technique. Who were the winners? Initially RIMM (BBRY), then AAPL and GOOG. Others including Motorolla are either barely alive or dead. The same happens to any new industry and PV solar is not an exception.
Determination of winner/s is what we need. As always a distribution of risk (say PV solar index) is the best decision though you won't get a max gain).

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solarcat

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Friday, April 12th 2013, 4:23pm

Redsolar, based on explo's table here:
EXPLO and any other experts in SOL, do you (guys) believe that there

Net debt is:
CSIQ $509.2
TSL $456.4
SOL $633.7
JASO $384.3
JKS $448

Since these figures are dramatically different than yours, which ones are correct? Thanks.

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redsolar

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Friday, April 12th 2013, 5:07pm

I don't think ...we can really compare Solars with .com 's.

what happened in .com era...is totally ridiculous...phony valuations....not proven...not tangible...no added value to the human life.

Solar industry ...on the other hand....solar tech.. is totally practical and proven on the field. The problem ...we have now..is supply vs demand. And unfortunately chinese model is centered around chinese employment...not around...capitalistic idea.

My investment horizon is around 3-5 years. And I would like to accumulate 100,000 shares of top four companies. Hopefully selling at $10/avg per share...in the next 3-5 years....and call it a day and do something else.

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redsolar

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Friday, April 12th 2013, 5:18pm

My net debt. formula...is

Net Debt = Total Debt - (short debt+working capital)

Total Debt = short debt + long debt + bonds ( all interest carrying borrowing accounted for this)
Short Debt = all the interest carrying debt listed in the current liabilities section

Working Capital = Total Current Assets - Total Current Liabilities.

I know...this is not a typical Accounting 101 formula.
But..I feel...this is a more fair way to look at the financial health of the company.

After running this formula...I am actually surprised that JASO came in the top...and also figured...how under appreciated CSIQ is. And why SOL is being treated the way it is now....the numbers don't lie. I still believe...if SOL continues on the current path...it could come to the top two spots on the tier1 's.

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larryvand

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Friday, April 12th 2013, 5:38pm

Another way to look at it is Current Equity/Current valuation as it takes into account everything.

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redsolar

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Friday, April 12th 2013, 5:43pm

The problem with Equity is....Assets...

Look at LDK...until last year...they have inflated Assets on their balance sheet skewing the valuation metric.
Also..look at YGE..asset value on the balance sheet....looks like a bubble to me. This is one area...where I like CSIQ...the most...lean business model...less risk.

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so-so-solar

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Friday, April 12th 2013, 11:54pm

From liquidation point of view, the only current asset is more relevant and stakeholder could get those "asset" to fulfill commitment. The non-current asset value are recorded in cost of acquisition and certainly that it would have very low re-sale value. Non-current asset should be separated from analysis.

I'm kind of agree redsolar's previous post on working capital. It should be additionally note that bank is very lenient to different companies. To analyse if the company is going to bankruptcy, it needs to look into its cash and deposit and operating expense. If the cash itself is not able to sustain its basic operation, it is no doubt the company need to run into bankruptcy.

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solarcat

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Saturday, April 13th 2013, 6:10pm

Quoted from "redsolar"

The problem with Equity is....Assets...

Look at LDK...until last year...they have inflated Assets on their balance sheet skewing the valuation metric.
Also..look at YGE..asset value on the balance sheet....looks like a bubble to me.

If assets can not be trusted, what are you then using for total current assets to come up with working capital? Are you looking at current company capacity and multiplying by $A for poly capacity, $B for wafer capacity, $C for cell capacity, $D for module capacity and whatever else assets they might have?

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redsolar

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Sunday, April 14th 2013, 1:21pm

By Assets...I mean Fixed Assets like plant ..buildings etc...
LDK clearly inflated these values...to keep the equity positive.

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solarcat

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Sunday, April 14th 2013, 2:22pm

Thanks redsolar. What would be a fair way to value a 2GW of cells plant, or 2GW of wafers plant or 2 GW of modules plant or 20,000MT of poly plant right now? Would you use current ASPs/per watt and $/kg or X times more? And would that help in determining if a company's fixed assets are fairly valued or overvalued?

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solarcat

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Sunday, April 14th 2013, 3:08pm

Redsolar, explo just gave me some values to use.

EXPLO and any other experts in SOL, do you (guys) believe that there

And before I forget, considering that the solar industry is a commodity and a cyclical industry, how do you think lean companies will fare at a time of more demand than supply, which could come as early as 2014? Thanks.

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redsolar

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Sunday, April 14th 2013, 7:17pm

Valuing Fixed Assets -- There is no straight forward answer for this.
Today, you can get the latest and the greatest equipment for much less price than would have been paid five or six years back. So, you can use today's brand new equipment (with similar capability) price..and apply depreciation factor to come to a reasonable valuation.

But I would not worry too much about fixed asset valuation. Debt is one thing that is not going to depreciate over time. So Net Debt would be one good indicator. And Operating Cash Flow is another good indicator to assess the health of the company.

Once you figure these two numbers....you can look at the Market CAP and decide if the PPS is over valued or under valued relative to the peers. Based on this...you can adjust the weight-age on your holdings accordingly.

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explo

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Monday, April 15th 2013, 1:52am

Good points redsolar.

For companies that invested a lot of capital (sometimes poorly) and have to live with high depreciation and interest costs going forward it can be good to look at the EV/EBITDA when comparing to peers. This looks at cashflow on a financial structure neutral basis (by looking att earnings before interest and depreciation costs). Instead the price for a bad financial structure (the debt) is incorporated in the valuation (EV = enterprise value = market cap + debt - cash).

Companies that start presenting EBITDA usually blew it in the past, but if they don't repeat past mistakes they can have cashflow values hidden in the EBT that become evident when looking at EBITDA. It is however important to be sure that the company will not use this cashflow to continue to make decision that will forever cause depreciation and interest to eat up everything before shareholders can enjoy the remains.

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Klothilde

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Monday, April 15th 2013, 3:14am

@Explo: Thanks for sharing your asset replacement value assumptions:

Quoted from "explo"

...I use the following to estimate PPE replacement value.

Poly $35
Wafer $0.25
Cell $0.18
Module $0.04

I would be interested to hear your opinion on where you see the fair value of YGE's PPE. If I use your value coefficients for YGE's 2450 MW of integrated ingot-to-module cap I get $1152M of replacement value. This is $970M less than the reported PPE of $2122M in the Q4 BS. Assuming the $1152M is a fair value of YGE's PPE this would mean the company is already well into negative equity territory and presumably in your R.I.P. category.

Do you share this view?

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explo

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Monday, April 15th 2013, 3:38am

I tried to be fair to YGE by not using fair value (since fair value means R.I.P. with my crude estimates). Formally they still have some shareholder equity left but it is melting quicker than for others. Risk of further impairment after 12Q4 should be limited in the short-term.

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odyd12

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Monday, April 15th 2013, 7:33am

In the meantime Yingli opened two new branches, one in Shenzen to produce all types of items for distributed solar, some are including street lamps etc and Heinan ETS, junction boxes, moldings etc. cooper tapes, ribbons. I am not sure if this is something from ground up or bought.

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JulyWebb

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Monday, April 15th 2013, 8:27am

RedSolar http://www.youtube.com/watch?v=WdMD8uSxZs4

JA Solar doesn't have Huge Tariff Exposure. They limited their exposure early on and as a result they have much less in US tariffs than others STP, YGE, LDK, TSL, Etc..

JA has manufacturing facilities in Mexico and Canada where they can produce cells. JA is not as much a Cell Producer as they were. They make solar modules in 2012 they came from #12 Spot as the worlds largest module producer to #8 Spot by the end of 2012. Not bad for a Company that hasn't been producing modules for that long.
I believe in 4'th Qtr. around 70% of their revenues came from modules. JA also circumvents thru Taiwan to avoid US tariffs. This issue of tariffs doesn't affect them like you would of thought. In fact because they prepared early they had very limited exposure to tariffs. Part of their Prudence.