SunTech Power: Three Points to Consider for Q3 Earnings

by: Chris Cather November 09, 2008 | about stocks: STP    

Chris Cather

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What should investors watch for on the China-based solar module manufacturer Suntech Power (NYSE: STP) third quarter earnings call on November 20?

Listening to earnings calls or reading the transcript afterward can be overwhelming for the individual investor. But, with the right roadmap, investors can filter out the information they need.

In his Green Investing guide, cleantech evangelist Jack Uldrich points out three things to watch when analyzing Suntech, the world’s largest producer of solar PV modules.

Increased conversion efficiency

Along with cost per watt, conversion efficiency, or the percentage of sunlight converted into power, is one of the solar industry’s key metrics. According to Suntech’s second quarter earnings call in August, “increasing conversion efficiency is one of the key elements of our cost reduction program.” Increased efficiency means being able to reduce the amount of silicon used in solar cells, all of which leads to lower cost per watt and improving gross margins.

The percentage of sunlight the industry is current converting into power is around 15% with SunPower (NSDQ: SPWRA) highest at 22% and First Solar (NSDQ: FSLR) (with its thin film less efficient solar cells) close to the bottom at 10.6%.

Suntech’s second quarter conversion efficiency was 18%. Watch closely for that number to be maintained or improve on the third quarter call.

Expansion in the US market

Until grid parity is achieved, solar players like Suntech will remain dependent on government subsidies. Recent passage of the Investment Tax Credit for eight years should facilitate Suntech’s US expansion. Not only is the 30% ITC extended on commercial projects, but there are extenders for the full credit on the residential and public utility segments as well.

Suntech currently has 25 companies in its dealer network for the residential rooftop market: watch to see if that number is growing along with other expansion plans for the commercial and utility segments.

Production capacity ramp up at Shanghai thin film plant

Along with production of monocrystalline and polycrystalline silicon cells and modules, Suntech is also building a thin film manufacturing facility in Shanghai with 50MW capacity. Refresher: Silicon solar cells comprise approximately 90% of the market with thin film cells making up the other 10%. Thin film cells are less expensive, but also less efficient than their silicon counterparts.

Watch to see if Suntech has installed equipment and expects to begin trial production by year end 2008 as they forecast in the second quarter.

At its recent price of $14, Suntech has a forward P/E (Dec. 09 Consensus) of six and is trading at 85% off its 52-week high. Assuming positive developments on the three things to watch in its Q3 call, Suntech remains a solar industry leader trading at an extremely attractive valuation.

Check back with me in a few weeks on Seeking Alpha and we’ll review the results together.

Disclosure: Contributor Chris Cather owns share in the Claymore/MAC Global Solar Energy Index ETF (TAN), which has holdings in FSLR, STP, and SPWRA.

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This article has 4 comments:

  •  
    Nov 09 08:52 AM
    these solar stocks are incredibly underpriced. i believe and hope the election stimulates interest in this group. i dont see any reason why a rally should not commence soon.
    Reply | Link to Comment
  •  
    Nov 09 01:21 PM
    The author missed a very important cost reduction factor relative to silicone - UMG Si, which has a proven eff. of 15+%, is considerably less costly than the higher grade silicone STP utilizes. The panel producers who utilize UMG Si, such as CSIQ & Q Cells, is where the advantage lies within the industry. Timminco is a producer of UMG Si and supplies to CSIQ & Q Cells.

    Reply | Link to Comment
  •  
    Nov 11 12:51 AM
    all solar stocks are very cheap now, image US will replace Germany be the number one on solar installation next year or so. Especially TSL, CSIQ at incredible low price now.
    Reply | Link to Comment
  •  
    Nov 12 11:58 AM
    Credit Crunch = lower PV demand;
    Lower Demand = Lower PV ASP
    Lower ASP = Lower C-Si Margin;

    Winner = producer with lowest production cost/watt
    Loser = the author of this article and others here who don't understand the key metric for PV which is production cost/watt

    PV MFGR's that are winners are thin film producers with production cost around $1 and install costs below $3.50/watt. If you don't know who this is, stop investing your own money.
    Reply | Link to Comment
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