Guest Uncle Chang

Trina Solar (TSL)

2,505 posts in this topic

The depreciation cost is fixed. Once you cannot utilize all your capacity due to inability to sell products your per unit cost increases and thus drags gross margin down. If you can sell all your capacity at say above negative 10% gross margin (above cash cost), you are adding operating cash flow for each sold unit, helping you to cover your shipment independent interest and admin expenses. This is why I've been looking for companies that can still offset their products in this market. They can slow down the equity and cash bleed. Good example is SOL, bad example is LDK. The utilization also affects equity bleed from invetory writedown, if you can sell your produced inventory quickly before it lose too much value you don't risk to take big write down charges. Again bad example is LDK that lost a billion without any fixed asset charges.

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In October Trina signed with Jiangsu Yancheng a deal for 100MW solar plant for the next 5 years it is a start.

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Hi, Tried posting on the Yahoo message board but received no intelligent feedback. Figure this may be a better forum to learn from others about solar investing . Interested to get people's thoughts on where they see operating cash flow for this quarter. Seems that they could potentially be cash flow positive for the quarter with 0% - 1.5% gross margins. I am using very rough assumptions here: $25mm-$35mm in non cash inventory costs, $15mm-$20mm depreciation expense, and another $15mm-$20mm for working capital (assuming Trina is able to follow through on improving AR collections and inventory reductions). Additionally, seems that TSL had some ways to go to reduce their poly costs. I am assuming that they have been able to further reduce poly costs and take advantage of the drastic drop in spot prices. With non-si costs at or below $0.50, does it seem reasonable to assume Trina can get all in costs to $0.60 or below this year? Given the lower capacity utilization this quarter, curious what others think their inventory reduction will be as well as what their blended inventory costs would look like. Do you see gross margin expansion from here? Assuming Q4 ASPs around $0.65-$0.67 - I would think Q4 gross margins would fall somewhere between 0%-5% for Q4. Lastly, do you think Trina's business model transitions more quickly to downstream? I believe that they guided around 50% of their revenue stream to come from systems by 2015. After hearing Canadian Solar guide for 50% in 2013, I would think that the timetable for Trina may be sooner. Looking forward to hearing others thoughts on this.

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Provision impact includes the reversal for AD/CVD of 26m, so there's a negative 26m impact on the cash flow to add to the net profit that might be around 75m. So say cash flow = 100m - inv prov - depr before working capital changes. Working capital changes might not have positive effect on cash flow, since they missed shipment expectation significantly, on the other hand the utilization should have been low since inventory was already too high end of q2.

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While the earnings forecast was dissapointing, I am positively surprised by the company's balance sheet improvements over the quarter. They seem to be ahead of competitors with respect to deleveraging, and at 50% utilization over Q4, I would expect that trend to continue. Another $150mm in combined inventory reductions and account rec deductions is not out of the question for the next quarter. With Q4 margins close to 0% again, I would expect cash bleed to be less than $50mm over the quarter.

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It was very interesting to hear that they are now heavily prioritizing cash conservation over market share expansion. Seems like this is a new trend among Chinese companies. Also Canadian was very explicit about their cash conservation efforts.

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I agree on the bs improvements. However I am struggling about the reversal. Reversal should have the positive, lowering cost impact, this means that costs were a lot higher from processing. They stated inventory provisions were 13M, If we add 25M to 295M this is 320M, this is around 0.84 per watt. ASP at 0.78 seems, Jinko ASP at 0.72, all-in processing costs at 0.67 for TSL and 0.59 for JKS. So TSL costs are from 0.84 to 0.67 is .17 per watt more or 65M, I can get the 13M from inventory, what is the other 52M for ? processing costs were only 0.03 so what is the other stuff? Anyone sees this differently?

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I think you also have to factor in depreciation into their costs. Given under-utilization for this quarter, fixed costs per watt are going to be higher on a per watt basis as compared to previous quarters. $52mm does seem high though.

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I would think that under-utilization is adding 4 to 5 cents per watt in costs. Thoughts?

Module equipment has little depreciation, so we can ignore that. Wafer and cell together is 4-5 cents. Poly is 1.5-6 cents. So end to end is 6-10 cents. But Trina has only 25% upstream (poly and wafer) capacity and 100% mid stream (cell and module) so they're full utilization depreciation per watt looks like this: Poly 0% * 4 cents Wafer 50% * 2.5 cents Cell 100% * 2 cents At 50% cell utilization due to low module demand they still in theory can utilize all their wafer equipment as a rough approximation. So cell depreciation per doubles to 4 cents (1 * 2 / 0.5), but wafer depreciation stays the same (0.5 * 2.5 / 0.5). So at 2 cents per watt are lost now on underutilization.
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