[explo 629]

REC looks very interesting to me. Many plus like lower leverage than best of solar 11 and low module tariff risk combined with European company ASP premium with close to China cost levels for modules and best cost leve for poly. Negatives are poly tariff risk, huge amount of bond debt due next year and no cash or plan for how to not default on that yet, very bad timing for long position relavtive to solar11 (they went 50% down to market cap levels of 100-200m while REC doubled to market cap of 500m). Almost look like REC is a short solar11 EFT: http://finance.yahoo.com/q/bc?s=SOL&t=3m&l=on&z=l&q=l&c=REC.OL Good hegding and rebalance opportunities here, but now is the time to rebalance from REC to solar11.

[Guest eysteinh]

While it is true that they gained recently they are very low priced compared with peers on all metrics. For example solarworld with less capacity currently is valued at more than REC compared on many value metrics. Solarworld is brinking on bankrupcies and hoping for white knights from arabia...And they are valued more than REC. I think that is very strange.

[Guest Klothilde]

now is the time to rebalance from REC to solar11

Great piece of advice. If it has China written on it just buy it. Buy STP, LDK, CSUN, DQ and have a ride with it.

[explo 629]

Solar 11 is still valued lower I think (the valid names, STP and LDK valuations for example make no sense), but given the better REC balance sheet higher valuation is motivated. Still REC will ship half of the modules and have twice the market cap plus the short-term moves makes the rebalance case from REC to solar11 in this point in time for me. When REC was at 0.76 and SOL was at 2.30 the SOL->REC choice looked good now that REC is 1.35 and SOL 1.60 the REC->SOL choice looks comparatively better. This is looking at things from an relative perspective and pure money making objective for short-term rebalancing with the assumption that you think both names are valid investments for the long-term. Anyway I think REC risk scenario is good except for the bond. They should be able to sell their poly despite China curb attempts and balance sheet and ebitda looks good to survive the cold PV winter. They need to get that bond refinance solution in place (do you know anything about that?), since 2014 is approaching and shorts are going to play this over and over until REC presented a solution.

[Guest Klothilde]

So you really think rebalancing from REC to CSUN and DQ is a wise move for a long-term investor?

[explo 629]

CSUN and DQ are not on my list. If you have REC and some solar11s on your list then early to mid February was a good time to rebalance from the solar 11 names to REC, while now (or a week ago) it is better to rebalance from REC to solar11 names.

[Guest eysteinh]

They need to get that bond refinance solution in place (do you know anything about)

Yes for the AGM there is proposed allowance of the following actions in the future if needed: 10% dilution due to bond conversion. 10% capital raising. Finaly a 20-1 split to increase share price. So about 20% dilution if you dont participate in share increase and also dont have bonds. More than that and they would have to vote again at extraordinary assembly. New proposed board members are all mostly financial specialists, and one of them is a billionare investor - Spetalen. Umeo group are still hanging on to 10% and Orkla the 15% precentage. I am part of a group of stock owners with small shares that have been activly organized since 2011 and making sure we are are not screwed over in any stock raising issues etc. We have a IR meeting the day before the general assembly.

[explo 629]

Thanks. Good that they are addressing this. Good luck with your shareholder group. It's always annoying (to say the least) when a companies don't give equal rights for all existing shares to buy newly issued shares (at discounted price).

[odyd 1,304]

I just want to say 0.45 euro is a cash cost as specified in presentation but includes freight, which translates to 0.58 per watt today. They consider this objective challenging. So is it a drop of 0.02 cents from today's 0.47? I think this is still substantially higher than Chinese. Thanks

[Guest eysteinh]

Odyd cash cost target includes opex as it has sg&a at 6 eurocents so you can deduct this in my oppinion. You clearly see on the statments of chinese stocks that there are posts for sales adminstration and r&d and this is not incuded in production costs. So cost structure is: sg&a & r&d 6 eurocents (chinese owners put this in the opex costs and not in reported production cost - and that is fair enough i would prefer if also REC followed this standard so it was easier to compare.) Depriciation 2 eurocents Silicon cost 7 eurocents (Enger stated in the conference call the asumption going forward was stable asp so this is kept the same) Conversion cost 32 eurocents. So with a straight comparisson you do 41 eurocents (deprecation+silicon +conversion) cost and that is around 0.53$/watt. I dont know of any chinese companies lower than this in guidance for q4'13. Perhaps Trina is going to achive this too? I dont see why not if REC states they can do it then I think a chinese top tier 1 can do it too. And yes they state: "Q4’13 cost target is ambitious with execution risks" Another major point is the fact they have reduced production capacity to 700 MW and 100 contract manufacture due to custom building japanese modules the way the customer prefer it. This lowered volumes. So this makes it even harder to achive the goals they have set. Yet I have still to see REC fail to achieve the goals they have set historically.

[odyd 1,304]

So attached slide is wrong as I do not see Opex. but the freight cost. So cash cost call it .55 per watt, add amo to it. whcih is about 10 to 11% higher than Chinese. Are you saying they include the 6 Euro cents in the cash cost? I only took the 40 cents plus 7 poly cents and I thought this is going to 0.45 Cash conversion plus poly plus opex (freight included) is 0.53 Euro in Q1, in Q4 2013 it will be 0.45 plus 2 cents for the amo in both cases. So if 6 cent remains flat, it bring it 0.41 (including amo) which is 0.53 US got it

[Guest Klothilde]

And yes they state: "Q4’13 cost target is ambitious with execution risks"

Going from €0.40 to €0.32 conversion from Q1 to Q4 is quite something, especially if you consider this includes €0.025 in freight which they don't control. Seems to me someone may have overstretched the target a little bit...

[Guest eysteinh]

The attached slide odyd clearly shows opex. The blue bar is SG&A and R&D and this is stated on the slide.

[odyd 1,304]

I wish the broke down the gray area down for each cost so slow people like I could get this right away.

[Guest eysteinh]

Going from €0.40 to €0.32 conversion from Q1 to Q4 is quite something, especially if you consider this includes €0.025 in freight which they don't control. Seems to me someone may have overstretched the target a little bit...

Yep it is. I believe it is the new 2000kg ingot ovens that will get down a majority of these costs because it will increase effiency while reduce consumables and top/bottom loss of the ingot. But to put it very blunt I have no idea if they will make these cost targets, I am just stating the facts they are stating. All I know is REC has so far never missed a cost target they have put a target to achieve.

[Guest eysteinh]

I wish the broke down the gray area down for each cost so slow people like I could get this right away.

Your not slow at all odyd. I just wish they put the same number as chinese companies so it was easier to compare. Also since I heard the conference call I know that silicon cost is assumed the same (so still 7 eurocents) I assume deprecation stays the same, and then you get sg&a at 6. I think in the past they did this basically because they did not want to be compared with. (They had higher costs.) Also this is so very ambitious its even questionable if they will manage it. I mean 40 to 32 eurocents - 8 eurocents drop in conversion costs in just 1 year. Thats a long stretch. But you can clearly see that they use sg&a also in the ~47 number if you look at the % reduction. They see a drop of 15% in q1-q4. So this must mean sg&a is included because if not the drop would be from 51 to 47. (if it was just processing costs)

[Guest Klothilde]

...So if 6 cent remains flat, it bring it 0.41 (including amo) which is 0.53 US got it

Doesn't stop there. You have to strip freight off (presumably 3 cents) to compare with Chi, so we're talking 0.50 US in Q4 compared to 0.55 targeted by both YGE and TSL. You guys see why I'm running around like a confused chicken today? How can this be? Wasn't China 20% cheaper just by being China?

[explo 629]

You can see R&D in their reports, but just like JASO they annoyingly do not separate selling from general and administrative. It's also annoying that they give this cogs vs opex breakdown for poly and module, but not for whole group or divisions (that includes silane (in Silicon division) and systems (in Solar division)). I've added REC to my 12Q4_IncomeAndBalance sheet (not posted on SPVI forum yet), but it was an annoying excercise to get the numbers and still after hard work selling and G&A seems like wild estimates.

[odyd 1,304]

Are you implying that freight is in processing cash cost, poly or amo? because that amounts to 0.41 and results in 0.53 US?

[Guest Klothilde]

it's in processing, I think it says so in the footnotes.