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JA Solar (JASO)

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The transcript from JASO

Joe Ryan

Hi, thanks for taking the question. Can you talk a little bit about why poly prices are so high at the moment? And when you expect them to come down? Thank you.

Herman Zhao

I think this is still something related to the major maintenance schedule in Q3 caused some shortage of poly. Thus far, Chinese market and overseas, I think as you know, the fire incident happened in Tennessee for Walker annual base is 20,000 metric tons. So, that part of our room production. So that will cause the overseas price up.

For China, I think it’s just a major maintenance schedule caused some shortage. And Q4, well, probably price - as ton price is still pretty high. So when the price can come down, I think quarter-over-quarter, we believe the price will come down. Probably sometime in second quarter of next year, we believe the price probably will go back to 16 plus-minus U.S. dollars range. Just take some time quarter-over-quarter.

This means by Q3 the poly will actually lower prices per watt. That does not mean that other improvement, robotics,  a full switch to DWS on all wafers will not improve the cost in the meantime.  The pricing for modules in Q4 is flat, so in case of JASO is about 0.383 and CSIQ 0.398. CSIQ is shielded from results of poly for Q4 and Q1, by Q2 they should drop MW into the CSIF. Not concerned, yet. 

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JASO's cash reduced by $168M. Accounts receivable dropped $77M, so cash reduced by $245M. They bought $148M of inventory, built PPE and project assets. However, payables have not moved. Normally Chinese do not like to use cash unless they have no choice. 

This look like liquidity could be a problem for JASO the next two quarters and credit is tapped. I do not think they have money to expand from own cash flows. May need to borrow.

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8 minutes ago, dydo said:

The transcript from JASO

Joe Ryan

Hi, thanks for taking the question. Can you talk a little bit about why poly prices are so high at the moment? And when you expect them to come down? Thank you.

Herman Zhao

I think this is still something related to the major maintenance schedule in Q3 caused some shortage of poly. Thus far, Chinese market and overseas, I think as you know, the fire incident happened in Tennessee for Walker annual base is 20,000 metric tons. So, that part of our room production. So that will cause the overseas price up.

For China, I think it’s just a major maintenance schedule caused some shortage. And Q4, well, probably price - as ton price is still pretty high. So when the price can come down, I think quarter-over-quarter, we believe the price will come down. Probably sometime in second quarter of next year, we believe the price probably will go back to 16 plus-minus U.S. dollars range. Just take some time quarter-over-quarter.

This means by Q3 the poly will actually lower prices per watt. That does not mean that other improvement, robotics,  a full switch to DWS on all wafers will not improve the cost in the meantime.  The pricing for modules in Q4 is flat, so in case of JASO is about 0.383 and CSIQ 0.398. CSIQ is shielded from results of poly for Q4 and Q1, by Q2 they should drop MW into the CSIF. Not concerned, yet. 

CSIQ can not drop projects into CSIF for 9 months. That is Q3  for drop downs from their IPO date.

https://seekingalpha.com/article/4123186-canadian-solars-csiq-ceo-shawn-qu-q3-2017-results-earnings-call-transcript?part=single

Shawn Qu

The regulation of the J-REIT is that after 9 months we can drop in new assets, which means from Q2, Q3 next year, you should see us dropping certain additional assets into this fund if the market conditions justify.

 

I would expect they sell the large project they mentioned in the Q2 con call in Q1 or Q2.

 

https://seekingalpha.com/article/4098716-canadian-solars-csiq-ceo-shawn-qu-q2-2017-results-earnings-call-transcript?part=single

Shawn Qu

For the big project, we have some big projects, and the big project, we can go through a private sale. The evaluation is as good as J-REIT. So for the J-REIT, our current target initial portfolio is 65 megawatts.

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50 minutes ago, SCSolar said:

CSIQ can not drop projects into CSIF for 9 months. That is Q3  for drop downs from their IPO date.

https://seekingalpha.com/article/4123186-canadian-solars-csiq-ceo-shawn-qu-q3-2017-results-earnings-call-transcript?part=single

Shawn Qu

The regulation of the J-REIT is that after 9 months we can drop in new assets, which means from Q2, Q3 next year, you should see us dropping certain additional assets into this fund if the market conditions justify.

 

I would expect they sell the large project they mentioned in the Q2 con call in Q1 or Q2.

 

https://seekingalpha.com/article/4098716-canadian-solars-csiq-ceo-shawn-qu-q2-2017-results-earnings-call-transcript?part=single

Shawn Qu

For the big project, we have some big projects, and the big project, we can go through a private sale. The evaluation is as good as J-REIT. So for the J-REIT, our current target initial portfolio is 65 megawatts.

Sure, but I think there is a difference between listing and issuing shares. CSIF has cash and can borrow, I think that regulation talks about new share issue and that is what he meant. I am not going to argue over it, since September 23 was the approval for listing and IPO was filed, hence the Q2 in his reply resonates with my statement.  However yes big projects can be sold privately and there will be decompression of pressure from lower GM in mfg.

Do you find reluctance on the capacity conversation of JASO with the evaporation of cash as something to be concerned about in the matter of accessible liquidity and lacking credit availability?  How do you see this for JKS?

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13 hours ago, Klothilde said:

I recommend reading the DQ transcript, they are quite bullish on poly prices in 2018.

I have, they could not stop talking about mono poly shortage, and that is a different ball game. CSIQ is going to be 80% poly with their PERC black silicon, they can once again position themselves for the best outcome. JKS could get really weird. The other thing polysilicon infrastructure must have come down a lot in few years. PPE for DQ is in $500M range for 20K MT, CSIQ with its cash can buy into GCL expansion, anything is possible I suppose.

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9 hours ago, dydo said:

Do you find reluctance on the capacity conversation of JASO with the evaporation of cash as something to be concerned about in the matter of accessible liquidity and lacking credit availability?  How do you see this for JKS?

I  think they gave pretty good color on the industry and their prosposal to be open to add capacity. They would be adding 500MW of module capacity as their fire damaged facility will be back on line. They have the cash to add  a GW vertical or 2GW cell and module. They have low debt compared to some peers and should easily get a line of credit for more capacity if needed.

The question is do you add 30% capacity when the market segment is forcast to be flat?.  Jaso indicated flat demand was their expectations in 2018.   They broke down the government volumes from the traditional ground mount, poverty alleviation and  top runner placing demand at 20-25GW. They suggested DG could pick up another 15GW  and suggested volumes for 2018 at 40GW+.  That is flat to slightly down for China. China basically drove the demand growth in 2017 far above forcast. 

 

Jaso indicated ingot and cell capacity is expanding 20-30GW or at a 20-30% volume increase. If Jaso is correct and there is flat to minimal growth, then once again there is over capacity. If they are not correct, they can always add the capacity as they see the demand needs. The time frame of adding a GW can be done in 3 to 4 months.

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Interesting. And I thought dropping 25% cash reserves quarter to quarter would raise an eyebrow.  There is a difference between recovery of 500MW damaged by fire. Yes, I read the same stories and which span between now till 2020, they expanded anyway in 2011 to 2013.  

Their strategy to buy inventory, during the most expensive period for poly is quite weird unless they are buying mono wafers to hold for bad times. Still, this seems very aggressive cash management.   

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1 hour ago, dydo said:

Interesting. And I thought dropping 25% cash reserves quarter to quarter would raise an eyebrow.  There is a difference between recovery of 500MW damaged by fire. Yes, I read the same stories and which span between now till 2020, they expanded anyway in 2011 to 2013.  

Their strategy to buy inventory, during the most expensive period for poly is quite weird unless they are buying mono wafers to hold for bad times. Still, this seems very aggressive cash management.   

I do not own Jaso, I own CSIQ. CSIQ has presented a solid argument for their capacity expansion for lowering costs. CSIQ is expecting good savings of up to $0.02/watt from the new sawing technology. They are adding wafering capacity due to that as well as cell and module. This is part of their cost reduction efforts to maintain leading edge.

 

Jaso has for the most part bought wafers throughout history to make their cells. Their upgrades are minor as PERC is an additive technology to legacy.  

 

Do you know when JKS is going to announce their ER date? 

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I just had a creepy idea. Subsidiaries of Jinglong supply wafers and Jinglong is the parent company and home of the Chairman. Nobody has paid enough attention to the fact that JASO invested $148M in inventory, but I continue to muse over it.  Why would JASO dedicate to sink 26% of its cash into inventory this time a year?

Well, if Jinglong is the seller, JASO just handed half of its capitalization in cash for the market cap of $330M.

Jinglong owns 16% and Baofang owns 16% himself, so 32% will vote yes. 

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What a timing! They bring down the price to 6.86 from 8+++ in 2 days then announce the definite agreement for all cash offer @ 7.55

If this is not manipulation what is?

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10 hours ago, dydo said:

I just had a creepy idea. Subsidiaries of Jinglong supply wafers and Jinglong is the parent company and home of the Chairman. Nobody has paid enough attention to the fact that JASO invested $148M in inventory, but I continue to muse over it.  Why would JASO dedicate to sink 26% of its cash into inventory this time a year?

Well, if Jinglong is the seller, JASO just handed half of its capitalization in cash for the market cap of $330M.

Jinglong owns 16% and Baofang owns 16% himself, so 32% will vote yes. 

Unbelievable I was right JASO used own money to get off the exchange. 

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10 minutes ago, dydo said:

Unbelievable I was right JASO used own money to get off the exchange. 

BTW that is 10% gain in my estimates for JKS and CSIQ. 

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4 hours ago, solarhope said:

What a timing! They bring down the price to 6.86 from 8+++ in 2 days then announce the definite agreement for all cash offer @ 7.55

If this is not manipulation what is?

PB 0.35. Way below paid-in capital. The chairman knows how to make a shameful offer. I hope he doesn’t get away with it.

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4 hours ago, dydo said:

Unbelievable I was right JASO used own money to get off the exchange. 

Even worse. I hope he doesn’t get away with it.

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15 hours ago, dydo said:

I just had a creepy idea. Subsidiaries of Jinglong supply wafers and Jinglong is the parent company and home of the Chairman. Nobody has paid enough attention to the fact that JASO invested $148M in inventory, but I continue to muse over it.  Why would JASO dedicate to sink 26% of its cash into inventory this time a year?

Well, if Jinglong is the seller, JASO just handed half of its capitalization in cash for the market cap of $330M.

Jinglong owns 16% and Baofang owns 16% himself, so 32% will vote yes. 

You had a very good hunch there.  I wish you had bought some.

Anyway, I saw that it opens at $7.11 when the offer of $7.55 was out.  I almost bought more.  Why would someone sell at $7.11 when an offer of $7.55 was announced?

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4 hours ago, Jetmoney said:

You had a very good hunch there.  I wish you had bought some.

Anyway, I saw that it opens at $7.11 when the offer of $7.55 was out.  I almost bought more.  Why would someone sell at $7.11 when an offer of $7.55 was announced?

I have been trading mostly not making higher prices but not losing. Never was interested in JASO. This is a done deal. 32% of voting shares are on buyers' side. They can buy shares on the open market. 

I look at this as good for the JKS and CSIQ, they are trading higher than when TSL was here. It somewhat a selection reduction hence more will own the shares. That cannot be bad. 

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I am moving this thread to M&A. Not sure how many believe this is not happening. When is the vote? I assume it will be quick.

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On 2017-11-18 at 1:34 AM, dydo said:

I have been trading mostly not making higher prices but not losing. Never was interested in JASO. This is a done deal. 32% of voting shares are on buyers' side. They can buy shares on the open market. 

I look at this as good for the JKS and CSIQ, they are trading higher than when TSL was here. It somewhat a selection reduction hence more will own the shares. That cannot be bad. 

The PR says the buyers group controls 25.7% of the votes and that 66.7% affirmative votes are needed, which means an additional 41.0% votes are needed.

https://finance.yahoo.com/news/ja-solar-holdings-co-ltd-142126486.html

 

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7 hours ago, MVA said:

So, 10% can block the deal? 

"if at the time when the shareholders' approval is obtained, the holders of more than 10% of ordinary shares have validly served notices of objection, and within 10 business days the Parent Parties have not granted an irrevocable waiver of this condition, either the Company or the Parent Parties may terminate the Merger Agreement."

 

It reads that the company or the parent parties have the right to cancel the buyout. I doubt that happens as you know who runs the company.

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5 minutes ago, Klothilde said:

JASO CFO getting the ax for cooking the books.

Oh, comon, Klothilde.  You know that humor will be unwelcomed here!  :)

I'm trying to time a share purchase that gets me the max % gain with least time holding.  Looking to buy some shares starting next week.

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22 minutes ago, Klothilde said:

JASO CFO getting the ax for cooking the books.

You may not be far off.  In order to get a low price I felt positive news wasn't released regularly and the possibility existed that profits were lowballed wherever they could.  I think this company may have pent up profits to report (or not report publicly when buyout happens).

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17 hours ago, Klothilde said:

JASO CFO getting the ax for cooking the books.

That sounds like a creative way to interpret their statement:

Herman Zhao has resigned as Chief Financial Officer effective March 27, 2018 to pursue other interests.

"We thank Herman for his many years of service to JA Solar.  We respect his decision and wish him the very best in his future endeavors." 

The Company noted that there are no issues involving the Company’s financial statements, internal controls or financial reporting procedures that led to Mr. Zhao’s departure.

https://finance.yahoo.com/news/ja-solar-announces-resignation-chief-123000469.html

Edited by explo

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Buy at $6.20 and sell at $7.55.  22% return in no time.  Sounds delicious.  What am I missing?

Or is the deal falling apart?

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7 minutes ago, Klothilde said:

Buy at $6.20 and sell at $7.55.  22% return in no time.  Sounds delicious.  What am I missing?

Or is the deal falling apart?

I agree. Lots of uncertainty causing price to erode. But I do not see that much risk at these level even if the deal fails. I contacted IR and finally got a reply. Here is it for those of you who are interested.

"Hi Joe-
Sorry for the delay in getting back to you.
The transaction is now going through the process of getting approval from the government, which could take a few weeks to a month or so. Note that it’s completely beyond our control, and it’s just difficult to predict the timing at this point.
For the waiver, we don’t have any update on that front. Please stay tuned, and we will update the market once the information is available.
Regards,
Ralph"

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