We estimate 2013 demand to be around 35GW. There is a slight improvement in pricing for Q1, and supply stabilizing against demand will lead to ASP increases in the coming quarters. On April 24, 2013, Comtec Solar Systems Group Limited (HKG:0712), wafer manufacturer and supplier to SunPower Corporation(NASDAQ:SPWR), after many periods of loss, reported their first positive net income for Q1 2013. While 2013 is going to continue with consolidation and debt and lack of liquidity will derail companies, profitability potential for at least four companies within the reviewed group will become a focal point for investors in solar.
They are: Canadian Solar Inc. (NASDAQ: CSIQ), ReneSola Ltd. (ADR)(NYSE: SOL), Trina Solar Limited (NYSE: TSL), JinkoSolar Holding Co., Ltd. (NYSE:JKS)
Out of some 400 enterprises in China in 2011/2012, we identified around 160 with significant levels of capacity remaining active. However, out of this group, in our expectations we see only 16GW of module capacity as bankable. Considering reductions executed by Chinese companies listed in the US during Q4 2012, this amount adds up to a total capacity of around 30GW.
Over a year ago, in the first installment, we identified 20 companies and their debt levels .Since that original publication, SolarWorld AG(ETR:SWV) successfully delivered political victory in the US as the country implemented tariffs on Chinese solar cell imports. Currently, the EU is on the verge of making a decision on a similar case.
Unfortunately, the US restrictions and maybe even the EU outcome will not help SolarWorld with sales or to gain financial strength. The company is on the brink of collapse, renegotiating its debt and calling distress with shareholders. Incredibly, the impoverished company is apparently interested in the capacity of Bosch Solar, since that company announced its exit from the solar business after years of accumulated losses.
Certainly, SolarWorld is just another proof of the burden of debt impacts, which may bring insolvency. The one company that collapsed underneath its debt already is Wuxi Suntech, a principal Chinese subsidiary of Suntech Power Holdings Co., Ltd. (ADR)(NYSE:STP). Chinese creditors took the matter into their own hands by taking assets under control after the company did not pay for half a billion in convertible bonds to Western creditors. The fate of other subsidiaries remains unknown, but whispers about the reorganization mentioned European assets of the company to be sold to cover liabilities. No other details emerge at this time.
LDK Solar Co., Ltd (ADR)(NYSE:LDK) is still fighting, but recently it defaulted on a small convertible bond. In the near future, the company is faced with paying more short-term loans to its largest benefactor, CDB. Many observers see this as a good enough reason for the company to fold. Reports from China stated LDK owed at least an average of three months in salaries and benefits to its workers. Remarkably, the company is hiring, expanding its organization and receiving orders during the same period. Somewhere between reality and fantasy another credit facility is being prepared, this time worth 2B RMB, to keep the business alive for a little longer.
While LDK sold its capacities to the city of its residency, for the time being its poly plant is not functional, and wafer capacity runs at 20% utilization. We believe that assets sold to the city of Hefei are also inert. Rumors about Suntech see only 600MW from 2.4GW working. Including disposal of legacy equipment by JA Solar Holdings Co., Ltd. (ADR)(NASDAQ: JASO), reduction in capacity is around 3GW in this quarter. While various capacities fall off, demand seems to be moving up due to Japan exploding from 6GW to – some quotations say – 12GW in 2013. China, SE Asia and the US are expected to have the best year for installations.
Moving to shipments, the collective total of shipped products by Chinese companies was 3.47GW, which is a 43% increase from the number of shipments in Q3, 2012. Taiwanese cell companies (Motech, Gintech and Neo Solar Power) shipped 763MW, 32MW higher than Q3; still, their revenues declined in the area of 20 to 23% versus Q3 2012. Mean ASP for solar modules sold by the Chinese in Q4 was at $0.62 per watt versus $0.70 per watt in Q3, or 12% lower. The mean processing cost average per watt based on reporting was at $0.60 versus $0.65 in Q3, or an 8% reduction. Internal gross margin average for Q3 was 7.1%, and for Q4 was 3.2%.
Collectively, all discussed companies have paid off net $1.2B of debt. The top three companies that paid off debt in Q4 are GCL Poly with $880M, LDK with $372M and Motech with $73M. In order to achieve this, GCL spent $1.07B of its cash, LDK lost $187M, and Motech reduced cash by $55M
Companies adding cash this quarter included: First Solar, Inc.(NASDAQ:FSLR)with $287M, Trina Solar with $215M and SunPower with $102M. In order to add cash, Trina borrowed $165M; Sunpower increased borrowing only by $1.5M while First Solar increased borrowing by $32M.
Traditionally, with last year Q4 became a time of mopping up write offs, non-cash adjustments and final provisions before the new fiscal year. While generally those would be beneficial activities to follow, the amount of detail and the sheer number of adjustments is beyond the scope of this article. Moreover, at this point the greater priority is in understanding the way to profit. While tables provide information on various aspects of the financial position during Q4, moving forward with Q1 results, we should focus more on this feature rather than just elements of debt.
