Trade actions – more hyperbole than hardship


In the New York solar equities market this summer, it turned out the expected blood in the water – as companies hemorrhaged losses and countries contested trade policies – was actually mostly chum. After initial jitters, investors refused to take the bait, and the industry outlook remained strong.

Bloomberg New Energy Finance's head of solar analysis Jenny Chase is dismissive, of the industry grandstanding and said: "There is strong global demand for the PV products of the largest manufacturers despite uncertainty and the flow of bad news from the global solar market. Consolidation continues, but 2013 will still be a year of growth for the industry."

Pavel Molchanov, senior vice president and equity research analyst at Raymond James & Associates in Houston, echoed that sentiment and told pv magazine the anti-dumping trade action by China against U.S. and South Korean polysilicon producers, is ‘no more than a pinprick in the scheme of things. Polysilicon is still selling at all-time lows and this will not greatly affect pricing or trade.'

Angelo Zino, equity analyst at S&P Capital IQ in New York City, said that wherever trade restrictions have been imposed worldwide major companies are finding a way round them.

Referring to penalties imposed by the U.S. on China's module manufacturers, as well as to the trade cap agreed by the EU and China, Zino told pv magazine: "Chinese PV suppliers have discovered loopholes to circumvent anti-dumping and anti-subsidy duties and we are still seeing them making big wins."

Trina and Yingli rally

Among the Asian frontrunners, Zino named Trina Solar (TSL) of Changzhou, which rallied 28.1% in August having gained business in China as well as a deal to supply 345 MW of modules to the Copper Mountain Solar 3 development in Nevada.

Despite the tariffs, Zino said: "Trina is doing great. This is a name our firm made a ‘buy' recommendation on. During August, Trina was one of the best performers in the solar space. They have one of the best balance sheets among the Chinese and are among the top brand names. That's a big reason why they won the Nevada project."

Looking ahead, Zino added: "Trina is one of the best-managed companies. They are ramping up their project development business, which will allow them reach break-even by 2014, our firm projects. Trina is poised to do well."

Of the other Chinese contenders, Yingli Green Energy (YGE). the world's largest solar manufacturer, rallied at the end of the month, rising 44.8% on news it had shipped a record number of panels in the second quarter as demand from Asian and U.S. customers increased.

Shipments rose 24% from the previous quarter, boosting revenue and helping cut Yingli's net loss by almost half to US$52.3 million, the Baoding-based company revealed. Higher selling prices also contributed to wider gross profit margins, Yingli said.

SunPower rises in rankings

And in the U.S., SunPower (SPWR) – a perennial also-ran – has been on a hot streak; ending August sharing a 115 MW contract with Mitsubishi for a new solar plant in the Aomori prefecture in northern Japan being developed by Eurus Energy Holdings Corp.

The Silicon Valley-based manufacturer of high-efficiency crystalline silicon PV cells has seen its shares rise 300% since the beginning of the year.

Zino told pv magazine: "S&P Capital IQ has been very positive on this name since May 2012 when it was trading at about $5 (compared to the current $21.49). It is probably one of the best performers in the space. We still have a ‘buy' recommendation on the stock.

The reasons for his firm's confidence? "SunPower is doing everything right," Zino added. "It has the most efficient solar panels out there – and they are really starting to drive the cost down. What's more, the company's geographic exposure is probably the best in the industry, with shipments tied to both the U.S. and Japan – the two most profitable regions of the solar space. When you look at what SunPower is doing right now, they are growing in all the right areas. This company's estimates are due to be revised up by The Street over the next two quarters."

First Solar squeezed at the margins

As for Tempe, Arizona-based First Solar (FSLR), a thin-film producer that started the U.S. solar development transition, they still have what Molchanov described to pv magazine as ‘a multi-GW pipeline' of projects but, he said: "the issue is not so much top-line; it's margins."

Although the spot price for crystalline silicon modules is about $0.70 and the average manufacturing cost is $0.63 to $0.66 per module this year, First Solar has an efficiency shortfall so it cannot charge competitively.

"That puts First Solar in a zero-margin business," said Molchanov. "The reality is crystalline module prices will almost certainly decline from current levels and that's going to make it difficult for First Solar to make money as a solar manufacturer."

Zino agrees with Molchanov on the fundamentals, adding: "First Solar must go outside the U.S. to win a few more big projects and we are a little concerned about whether it can grow its pipeline in places like South Africa and the Middle East. We think they can, but it's going to take time. Penetrating Asia also will be difficult but First Solar should be there to benefit from the growth coming out of that region."

A reality check for SolarCity

Meanwhile, SolarCity Corp. (SCTY), a U.S. leader in financing and installing solar, announced on August 29 it will seek to raise as much as $223.5 million by offering shares and selling convertible notes.

The company plans to offer 2.8 million shares at US$33.69 each and underwriters Goldman Sachs Group Inc., Credit Suisse Group AG (CSGN) and Bank of America Corp. (BAC) have an option to purchase an additional 420,000 shares within 30 days, the San Mateo, California-based company stated in a filing with the U.S. Securities and Exchange Commission.

This comes as no surprise to Molchanov or Zino, both of whom think SolarCity's shares have been over-valued for months. According to the former: "SolarCity does not have any kind of broad-based macro pressures, the stock got ahead of itself [with a 52-week high of $52.77] and it's already down about a third [to US$31.34] since then.

"The reality is it's a pricey stock. The only thing SolarCity and [the successful electric vehicle company] Tesla have in common is the fact Elon Musk has his name on both press releases. SolarCity has missed estimates the last two quarters."

Zino said: "On the SolarCity front, the stock has outperformed most this year. I think a lot of its investors don't see much upside left in the share, given the valuation of the stock. The stock got ahead of itself and now the fundamentals need to catch up with the stock price. This is a better long-term opportunity than it looks like right now."

SunEdison's new strategy

Another good opportunity that may not be on most investors' radar at the moment is SunEdison (SUNE), according to Zino.

The Beltsville, Maryland-based semiconductor material and solar energy provider announced plans at the end of August to sell its chip division. By shedding the semiconductor business, the company expects to generate more shareholder value.

Zino told pv magazine: "SunEdison is our top pick in the solar space. We believe The Street is not accounting for the value of their two businesses and the potential IPO will be the catalyst the stock needs to reach the next level.

"It will fund and grow the solar business. In addition to utility, SunEdison is going to get more traction on the residential and commercial front. We're thinking that they are going to take off in Q4. This inflection in SunEdison is going to result in a new normal for them in 2014."

Guardedly optimistic for 2014

So what lies ahead? Zino added: "Orders are picking up and the industry is stabilizing. We're very positive on the fundamentals. We think you've already seen the inflection – a huge jump in orders in Q2, as opposed to Q1. The orders are going to be dominated by Japan and China – and we are very bullish on Chinese solar firms, because they are significantly more undervalued than other stocks.

"We see the overall supply-demand situation improving, with better pricing, profitability, margins, and revenues. All of that will set up the solar space pretty nicely for 2014."

Molchanov is more guardedly optimistic, adding: "Shipments this year are trending higher, but they were also higher at this point a year ago. I predict this year, installations will be up 10 to 15%. I see nothing transformative versus a year ago – but that's not necessarily a negative."

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