Solar Modules
February deliveries slowed down as expected, down to 1.87GW from 2.2GW in January. However, in comparison to last year, the monthly volume came up by 44%. The quarter to date is running at 35% higher versus last year; almost another 1.1GW were added this year. If we extrapolate this volume over the rest of the year, we would be looking to add 6GW, exceeding the 4GW forecast we had made before 2015 started. For now, expectations are above 6GW for Q1, which is a new record for a single quarter of exports.
Global destinations continue to focus on Asia, at 55%. European volume has normalized, down to 22.7% for the quarter to date, from 30% in January. North America continues to experience a reduction in percentile of allocation. This is a direct correlation to volume to the US, which is significantly lower this quarter. The “top 10” category dedicated to the US lists only six names in February, with Trina leading the statistic with 85MW. Third on the list, Canadian delivered 20MW in February; but, with only 27MW so far this quarter, the company is the largest absentee from the US market.
The top 10 destinations category is dominated by Japan, which holds 42% of the category’s volume. Japans’ 1.4GW thus far aspires to become another quarterly volume record to a single destination. It is a tradition now for Japan to create and beat its own records. Currently, the top shipper to Japan is Canadian Solar Inc.(NASDAQ:CSIQ), followed by Yingli and JA Solar.
Second on the list of destinations, the UK experienced a dramatic drop in volume from 354MW in January to only 94MW in February. The activity confirmed our forecast, and we are assured that we are on the way to seeing a small contribution from the EU in March. We suspect that in Q1, the EU will drop below 20% and will remain at low double- or perhaps even single-digit percentiles moving forward. We still see only 11 to 12% for the EU in 2015. The top three companies delivering to the EU are Canadian, JinkoSolar and JA Solar.
We mentioned that Trina Solar Limited (ADR)(NYSE:TSL) leads in the US. The second-largest exporter is JinkoSolar, and third is Yingli.
The most notable movement on the list of top 10 destinations is India. Currently at 333MW, this is a 141% increase over last year. We expect India to take the higher spot moving forward, where we see her compete for the number two spot with the US. The condition is essentially an ailment driven by contributions from one company, Canadian Solar, which will determine the size of the US market. We do not understand Canadian Solar’s strategy in regard to the Ontario contribution yet. We assume it could be dedicated to supplying the US, along with some volume being considered for the EU. The fact that Canada is among the top 10 destinations, while minute in volume, suggests an attempt to save cost, along with idea to saturate inventory in the country prior to tariffs. This means that China can take over supplying the US once a new, lower tariff quota is announced. However, maybe it is possible to buy Taiwanese cells and incur fewer shipping costs by manufacturing in Canada? Building one’s own cell supply would possibly result in an even better outcome and remove tariffs altogether. What adds to the complexity is the supply from REC Solar for Recurrent projects. Only 500MW of projects need new supply late this year; could this therefore be an explanation for the lack of activites in the US? The first-quarter report should provide the percentage of shipments to the US, and help us to understand the company’s strategy.
A country that is not on the list this year is South Africa, which seems to be developing its supply along with JA Solar’s and JinkoSolar’s Holding Co., Ltd.(NYSE:JKS) presence in the country. Only 13MW was delivered to SA this year so far, versus 121MW in 2014. Australia participated only at 3%, yet the overall increase in delivered volume saw 63% growth year over year. The conclusion of the anti-dumping investigation repulsed the idea of tariffs; nevertheless, we do not expect a lot more volume to move to the country, as its commercial/utility program is not offering a lot to developers. Australia has now one of the lowest GADPs in world, lower than prices in China. We have reduced ROW by 46MW in February, identifying five destinations with large volumes. The more exotic ones are Iran with 12MW, Russia with 6.3MW and Nigeria at 7.5WM. It is nice to see Panama also taking a larger volume at around 7MW. Of course, the biggest presence from the region and still among top ten countries is Honduras at 124MW.
The market penetration shows CN7 (TSL, CSIQ, JAS0, JKS, YGE, HQCL, SOL) carrying 60% of module export’s volume. This is in comparison to 54% in the same period during 2013. Based on actual MWs, the CN7 group has grown by 50% in shipments, with Canadian growing at 112% and JinkoSolar at 101%.
Statistics point out that Canadian and Trina Solar own 13% each of the global module exports based on the first two months of the year. Canadian moved from 8% and Trina from 11% for the same period of last year. Yingli is number three, having 9% of volume versus 10% last year. Jinko and JA Solar share 8% of the exports. Top 10 companies own 68% of the overall volume. For the first time, this quarter Kyocera has been pushed out from the list by Talesun. The CEDR report, in addition to 11 companies listed in the US, identified 43 other entities by name, having 961MW delivered globally. While the participation of those companies in the market share is not as consistent as the CN7, 10 names on the list, or 23% of named companies, own 75% of the volume mentioned. Of the remaining US listed, Suntech is in 12th place and China Sunergy in 15th with 79 and 61MW among the top 20. We suspect that the industry will continue to consolidate around 30 companies, while experiencing further growth.
The price of imported polysilicon dropped by 7% from January and now averages around $19.49 per kg. Domestic poly averages around $18.54 per kg; this is 10.2% drop from the beginning of the year. We are looking for a potential one-cent reduction in COGS due to the poly pricing, mostly for companies with a relatively low inventory of poly in combination with lowered average poly content per watt.
CN7 GADP (Global Average Declaration Price)
Prices continue to drop, as expected, due to the local currency depreciation against the US dollar. Referring to our currency table, we see no particular change in prices of modules sent to Japan. In the UK, Canadian Solar’s prices seem to be higher, while others experience drops relative to the Euro movement against the US dollar. In GADP for volume destined to Holland, Canadian and JA Solar experience the least amount of deterioration, with some dramatic pricing shifts for Jinko. Considering that JinkoSolar is the second-largest shipper to the EU, it may be concerning to see those gaps. Still, the superiority of the company’s gross margins appears to overcome those declarations, allowing for 20% GM when using value chain in China.
Currency movement for the period from December 31st to February 28th saw the Yen at a 0.12% rise, the Euro at a 7.79% drop, and the Canadian dollar dropping 7.1%. RMB saw a drop of around 1% against the US dollar. Manufacturing costs in Canada and China would drop when measured in the US dollar.
It appears that Chinese domestic quotes are higher now than many global locations. Companies with larger exposure to China could benefit the most, saving on operating costs and improving gross margins.
We expect one cent to be saved on poly, and on balance we expect gross margin to see a compression equal to one cent versus Q4 2014 for CN4.
Thank you
SPVInvestor Research - Robert Dydo, Jason Tsai
Selective opinion on Q1 estimates
JA Solar Holdings Co., Ltd. (ADR)(NASDAQ: JASO) Q1 2015 Estimate
CEDR notes JA Solar two months of the quarter
JA has slowed down significantly in comparison to the prior quarter, while operating at a 63% volume increase in the quarter to date versus last year. The gap in expectations has widened, but it is still a comfortable 200MW, which can be dedicated to Mainland China helping, perhaps with operating costs as well as with gross margins due to stable domestic ASP. Fifty-three percent of shipments are to Japan and are paid in US dollars, and should help with the gross margin. JA will benefit as much as all companies from polysilicon one-cent-per-watt reduction. The difference for JA is also found in the efficiency tables (power rating in Excel presentation) averaging 15% of shipments in the 60-cell configuration at 270W or above. The company shipped 64% of modules in the “260W or above” category in the 60-cell configuration. The 60-cell configuration was 69% of all shipments.
CEDR notes JA Solar full quarter
JA Solar has 470MW in Q1 against 750MW of mix of products guided. We could possibly expect 100MW of cells as part of the guidance, with the company delivering around 180MW of modules domestically. Based on the described volume, guidance should be met, with a potentially larger volume of shipments to China. We suspect, based on GADP, a 1% fluctuation in gross margin.
Top three Module destinations:
Japan: 234MW
UK: 52MW
Australia: 38MW
Global Allocation:
Asia: 63.79%
EU: 22.26%
Australia: 8.24%
North America 5.63% (Guatemala and Canada, no USA)
South America 0.07%
We expect, based on the volume of sales, to see approximately 2 cents reduction in average selling prices for the modules. This will be offset by potentially one cent in the cost of the poly reduction in a combination of internal cost reductions and full utilization of production lines. We expect similar dynamic for other manufacturers, with the exception of JinkoSolar. We see Jinko reduce ASP by 3 cents and improve its costs by $0.015.
We expect JA to reach $438M in revenue and have lower GM than Q4, within 1% drop. Income from operations or operating profit we see to be in the range of $27M. Forex and other expenses are a deduction of about $10M. We see large volumes to Japan, which did not experience much fluctuation in Yen since JA Solar is selling to Japan in the US dollars. Based on SPVInvestor Research, we expect Japanese sales dominate JA shipments, with expectations over 50% of volume. UK will also become significant contributor to the bottom line. We are expecting JA to have a fairly large contribution in sales to China with relatively no impact to ASP in comparison of Q4. We estimate net income for the company at $12M to 15M and around $0.24 to $0.30 per share based on 50M shares outstanding.
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