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Guest Klothilde

First Solar (FSLR)

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16 minutes ago, Luz del Norte said:

Once again, you are arguing in bad faith. First Solar predicted gross margins of 20-21% on its guidance call last year. This included $20-30M in ramp costs. Last quarter the company predicted the annual margin to be 19-20% with $70-$80M to be from ramp costs. Take the ramp costs out and margin guidance has gone up.

LOL -  Why did ramp costs Triple?

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23 minutes ago, Luz del Norte said:

When you say the company has Opex and Interest of $440M it is clear you are not arguing in good faith. First Solar expects to have Opex of $320-$370M this year which includes $40-$50 in startup expenses and EPC overhead. As for interest, the only debt the company has is for foreign projects and that is more than offset by the income of the cash position. If the company has debt then it also has systems revenue you are intentionally ignoring.

Make up your mind as to what starup expenses you are using is it $20-$30M, $40-$50M or $70-$80M. As for my $440M what do you see expenses at next year when they are running a U.S. factory at full bore as well as several oversees factories and still ramping capacity?

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59 minutes ago, SCSolar said:

LOL -  Why did ramp costs Triple?

The company planned on spending $120M on startup (OPEX) and ramp (COGS) expenses. The original plan was for $95M startup and $25M ramp. When the factories went into production earlier than expected this changed to $45M startup and $75M ramp. OPEX is not used for gross margin calculations so this shift cause the GM to drop.

54 minutes ago, SCSolar said:

As for my $440M what do you see expenses at next year when they are running a U.S. factory at full bore as well as several oversees factories and still ramping capacity?

Most of the factory costs will be considered a cost of goods sold and so will have little impact on OPEX. From the 10Q, "In addition, our cost of sales includes direct labor for the manufacturing of solar modules and manufacturing overhead, ...depreciation of manufacturing plant and equipment, facility-related expenses, environmental health and safety costs, and costs associated with shipping, warranties, and solar module collection and recycling (excluding accretion). "

First Solar differs from the c-Si companies because it considers shipping, warranty and recycling a COGS rather than an operating expense.

Edited by Luz del Norte

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13 hours ago, SCSolar said:

I will use a Klothilde script. Thin film solar panels have an average price of $0.237. How profitable will FSLR be selling 5GW with $0.03 profit? That is $150M a year. Where do they get the rest to cover their $440M in Opex and Interest?

 

Oh wait they are in a protected market  unless the courts overturn the Bifacial module exemption reversal. If that happens, that protected market is gone and the $0.39 ASP they enjoy in the U.S. will quickly be negotiated down.

My script doesn't apply here because in our CSIQ discussion I was estimating likely numbers for 2020 based on my experience of the industry and what I know of the company and current market condition.  Based on that I see margins of 15% or below for their module business in 2020.

Your script on the other hand is a purely fictional "what if" exercise to show where GP would fall if FSLR's ASP was 24 cts next year.  Fun but fictional.

Don't really know what you want to accomplish with that.  FSLR would be in serious trouble in this fictional scenario.  That's a no brainer and an old hat.  It may scare people who know nothing about FSLR and who are not able to realize that an ASP of 24 cts in 2020 is fictional.  FSLR will have to compete without tariffs at global market prices one day, but that will be at a different efficiency and cost point relative to where they are right now.

I value your opinion a lot, but if you want to pick my brain and influence my opinion  you have to go beyond fuzzy fiction and get quantitative.  A key question you could help address would be the likely impact of reinstating the bifacial exception on the 2020 / 21 EPS of the company taking into account all moving parts, i.e. a.o. how fast the necessary cell lines in southeast asia will be ramped, how fast shipments to the U.S. will ramp, by when a critical volume of XGW of shipments will be reached to impact pricing significantly, what fraction of customers are likely to renegotiate, what fraction of contracts will be rescinded with penalty payments, how fast production cost will fall to counteract some of the possible ASP decline, etc. etc.  I personally think it will take many quarters for the string of prerequisites to materialize to have a significant impact on EPS.  For starters current cell capacities in SE asia are very limited and players will be hesitant to invest their scarce money to add new lines and adjust the current lines given the volatility of the tariff decisions.

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47 minutes ago, Klothilde said:

Your script on the other hand is a purely fictional "what if" exercise to show where GP would fall if FSLR's ASP was 24 cts next year.  Fun but fictional.

 

My comment was not purely fictional but is a near term risk assessment based on factual process going on.

 

It is  based on  near term legal wranglings in the U.S. courts today for the protected market that FSLR is completely dependent on.

 

https://www.greentechmedia.com/articles/read/court-temporarily-halts-withdrawal-of-bifacial-exclusion 

 

FSLR has acknowledged that Bifacial modules has some advantages in certain market segments vs their products. These  market segments are in fact First solar core market of Commercial Rooftop and Ground mount.

 

There was a recent court ruling staying the  revocation of the exemption for Bifacial modules.  A court stay, generally suggests that there may be merit to the lawsuit. The Trump administration has a habit of taking actions with little science behind the reason. That is why they are loosing many fights in court.  Precedence was set by allowing Bifacial modules into the U.S. tariff exempt.. Reversing that requires justifications built on data.  If the courts rule that the reversal of the exemption was not based on any hard data  then it may overturn the tariff. If that happens  then that opens up FSLR protected market to price collapse next year as most Bifacial products will flood into the U.S. wiping out  the $0.34 pricing that FSLR seems to imply they have. 

 

You/I  also do not know what is being negotiated as far as a trade deal with  U.S. China. China could be demanding a removal of all tariffs including solar tariffs as part of that. We just do not know that as of now(speculation). Trust me Trump wants a trade deal he can claim victory on for the election coming up. That means something will happen by April/May if not sooner. If(specualtion) that includes removal of solar tariffs, watch out.

 

FSLR is fine saying they have contracts, but if customers see a significant market shift of up to 15% in their cost to build they will be asking FSLR for price adjustments that may actually be written into the contracts. Just ask LDK how well take or pay contracts worked.

 

Those are the risks that I am basing my comments on. They are real and in the courts today as well as being negotiated in trade deals. Whether that impacts 2020 is yet to be seen but the comments of mine was with respect to the 11.4GW of contracts suggested through 2021 and into 2022.

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OK so for CSIQ you see $2-$4 in EPS next year.  What do you see for FSLR with and without bifacial tariff?

Greatly appreciated. 

 

 

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22 minutes ago, Klothilde said:

OK so for CSIQ you see $2-$4 in EPS next year.  What do you see for FSLR with and without bifacial tariff?

Greatly appreciated. 

 

 

2020 - FSLR with tariffs in place $3.3

2020 - Bifacial exemption lifted - $3.3

Impacts on earnings come 2021 if bifacial is removed $2 in EPS

Impacts on earnings come 2021 if solar tariffs are removed $3 in EPS. 

 

As I have noted, the impact is over 3 years. An immediate removal will not cause an immediate impact. It's impact would be gradual over the next 2 years. 

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3 hours ago, SCSolar said:

As I have noted, the impact is over 3 years. An immediate removal will not cause an immediate impact. It's impact would be gradual over the next 2 years. 

This timeline is true for the impact on the business.  The question is, what would be the impact on the stock price?  Given historical precedent, any such announcement will have an immediate, possibly dramatically negative effect.  That is the ultimate risk to an investor.

Now again if history is any indicator, any such selloff may turn out to be overdone, and offer a good ENTRY point into the stock.  But that would be at a significantly lower price than today.  So for now, there is a good argument to be made to stay on the sidelines with FSLR until we get a clearer picture of what their future will actually be.

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9 minutes ago, solarpete said:

This timeline is true for the impact on the business.  The question is, what would be the impact on the stock price?  Given historical precedent, any such announcement will have an immediate, possibly dramatically negative effect.  That is the ultimate risk to an investor.

Now again if history is any indicator, any such selloff may turn out to be overdone, and offer a good ENTRY point into the stock.  But that would be at a significantly lower price than today.  So for now, there is a good argument to be made to stay on the sidelines with FSLR until we get a clearer picture of what their future will actually be.

If the exemption is removed the drop will be minimal short term. If the tariffs are removed, the stock could drop 50% in a week or 2. Pure speculation but looking at them with $1  to $1.50 a share in earnings in 2021/2022 and a PE of 20, you have a $20-$30 price range. That would be the near term downside risk. That is much more than the upside  to $80 a share in stock.

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4 hours ago, SCSolar said:

...you have a $20-$30 price range...

They will have around $23/share in net cash at the end of 2020 with your numbers.  How do we account for that.  Or is the company worth only its net cash balance and the rest (technology/ops) is worthless?

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57 minutes ago, Klothilde said:

They will have around $23/share in net cash at the end of 2020 with your numbers.  How do we account for that.  Or is the company worth only its net cash balance and the rest (technology/ops) is worthless?

Net cash right now is $16 a share. I doubt I forcast them making $7 a share. They actually had a negative cash of $500M in Q3  and a  net negative cash of $300M+. With more manufacturing ramps, more cash burn.

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4 minutes ago, SCSolar said:

Net cash right now is $16 a share. I doubt I forcast them making $7 a share. They actually had a negative cash of $500M in Q3  and a  net negative cash of $300M+. With more manufacturing ramps, more cash burn.

The company has over $1B in project assets. When these sell the revenue will add to the net cash position, whether as cash or by removing debt from the books. In addition, the $2B spent on factories is starting to depreciate, leading to a rather sizable positive cash flow boost.

After this quarter FSLR has only around $100M left to spend on building the factories. Cash flow will grow significantly over the next two years.

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1 hour ago, SCSolar said:

Net cash right now is $16 a share. I doubt I forcast them making $7 a share. They actually had a negative cash of $500M in Q3  and a  net negative cash of $300M+. With more manufacturing ramps, more cash burn.

They have big qoq cash swings because of the project nature of the business, specifically in Q3 they spent a lot of cash on the build out of the SCE projects which they plan to get paid for in Q4.  End of year net cash guidance is 1.7-1.9BN:
https://s2.q4cdn.com/646275317/files/doc_financials/2019/q3/Q3-2019-Earnings-Call-Presentation-FINAL.pdf

But I figure you know all that already 😉

1800M + 350M (2020 earnings) + 250M depreciation = 2400M = $23/share

A fair valuation at the end of 2020 imho would require adding the above net cash to whatever valuation you assume from earnings.  You may deduct some to account for capex but you would have to raise your valuation of operations by at least the same amount assuming they only expand capacity at positive NPV. Also whatever is left of project assets end of 2020 needs to be added assuming this monetizes 1:1 as cash at 0 margin.

As you can see it's not as simple as coming up with an EPS figure and slapping a PE of X on it.  This is also the reason why FSLR has been trading at relatively high valuations relative to peers, the market values the net cash on balance sheet.

 

 

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2 hours ago, Klothilde said:

Looks like I was right on FSLR heading down bankruptcy lane.  They started with the first round of layoffs.  Hate to say "I told you so" but you guys just wouldn't listen to me.
https://www.bizjournals.com/phoenix/news/2019/11/13/first-solar-lays-off-valley-employees-after.html

I thought you were long this stock?

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JinkoSolar’s ‘Tiger’ module can generate up to 460Wp of power output

https://www.pv-tech.org/products/jinkosolars-tiger-module-can-generate-up-to-460wp-of-power-output

Where is S6 in this picture? That's right - lost in transition.... :-))))) S7 is already too late. S8 will be next savior? Right? Wait another 2 years for transition from S6 to S8 with negative ESP on the way to promised land...

I think FSLR investors have to jump ship ASAP, since we see here the beginning of SunEdison story....

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