First Solar and Solarfun May Defy Short-Term Weakness in Solar Sector

by: Kelvin Schulle November 10, 2008 | about stocks: FSLR / JASO / LDK / SOLF / SPWRA / STP / TSL / YGE    

Kelvin Schulle

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We all know China is still growing, but its GDP for 2008 was 9% in 2008 Q3, down from its previous double digit growth, citing impact from the global economy slowdown. Over the weekend, the Bank of China cut the GDP growth rate in 2009 to 8-9%, a further deduction from previous its prediction of 9.3%. The government announced a $580B stimulus package for the next two years; however, investors are still skeptical how helpful this will be when the global economy is stepping into a certain recession and China's exports will be largely wiped out if overseas demand diminishes in the coming years. It is true that this package will boost business of domestic state-run companies, such as local steel makers and construction companies, but may do little to help the world economy. Overall, China's economy is only 1/4 of the US's.

What disappointed investors is that the stimulus package does not mention any renewable energy policy, which was widely expected. Companies like Suntech Power (STP), Yingli Green (YGE), JA Solar (JASO), Trina Solar (TSL), and LDK Solar (LDK) are largely expecting a domestic boost from the government while  European demand is weakening, and the weakening Euro also cuts into profit margins of these companies. STP has been under pressure recently because the company has most of its sales from Europe, and the coming Q3 earnings are expected to be very weak.

A warning from Sunpower (SPWRA) last week is a sign that big solar companies are in trouble. US solar demand will not catch up in 2 years, even with solar tax credits in place. Overall, the solar sector may have some weakness in the short term, though I remain bullish long term.

However two companies that may deserve early attention in the coming weeks are First Solar (FSLR) and Solarfun (SOLF).

First Solar is the leader in the industry. The company is making money and projects are self funded - in other words, no external funds are needed to pay for new projects, which is not the case for most other companies. When Sunpower Corp warned of a possible loss from the forex exchange, First Solar didn't issue a warning because the company is well hedged against the Euro. Based on many predictions, the Euro may continue to slide below parity versus the Dollar. In this case, companies with good hedge strategies will win.

Another name with a good hedge against the Euro is Solarfun Power. The company talked about its strategy in hedging against the Euro in the Q2 earning conference. So forex loss is not a concern for investors. Furthermore, SOLF has consistently beat estimates with a big surprise in the last few quarters. SOLF reported 3rd quarter 2007 earnings of CNY 1.24 per share on 11/29/07. This beat the consensus of CNY 0.345 by CNY 0.90, a surprise of 260%. The management team apparently did a great job. This Q3 earning will likely surprise investors again.

I wouldn't bet on Suntech and Yingli to report a good quarter because of the forex, but Solarfun is definitely worth your attention.

Stock position: Long FSLR, STP.

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This article has 19 comments:

  •  
    Nov 10 05:44 AM
    You say: "China's exports will be largely wiped out if overseas demand diminishes in the coming years". I don't think you know what you are talking about if you are serious about that statement. Where would Walmart source their products if China stops exporting? How many countries have you been to lately and did you notice how pervasive Made in China products are even in Asia/Africa? Who will replace those products that provide the best price/value ratios? Wiping out China's export is not easily achievable even if you wish and pray for it to happen. Slowdown from recent double digit growth yes, but that will still be growth of say 7% +/-, not a reduction of GDP, not a wipe out. BTW, it is obvious that China will dominate production of PV solar products, nothing would likely stop that from happenning. The best advice would be finding the winners among the Chinese solar names and invest in them rather than bashing them with all types of excuses and analogies.

    About the stimulus package, it is new investment that will have a huge multiplier effect on the economy. This is in contrast to the US bailout - which does not add too much new investment but use billions to correct past errors. Bailout barely create any growth if at all. New investment does. Thats' a world of difference when looking at the multi-billion dollar US bailout vs China's $580B stimulus plan. Final note: one dollar buys much more in China than in the US, not only when it comes to labor hours but also on other productive factors. Therefore, the $580B in China will definitely have a much larger impact than the same dollars in the US. You can't always measure things in terms of what it means in the USA. Think international.
    Reply | Link to Comment
  •  
    Nov 10 07:34 AM
    Read the stimulus package again, it says "environmental protection"
    which certainly could be con trued as alternative energy. When you know the facts (this just came out over the weekend)...then write something... are you SURE about "What disappointed investors is that the stimulus package does not mention any renewable energy policy, which was widely expected." ?? The way China is about alt energy,
    I wouldn't be so quick to state that.

    biz.yahoo.com/ap/08110...
    Reply | Link to Comment
  •  
    Nov 10 09:12 AM
    First of all, if you had a clue, you'ld know that China already subsidizes solar chip and polly plants with energy subsidies and 50% tax subsidy, (that is for new manufacturers of four years and under), secondly a weaker Euro may mean pricing headwind, but it accretes to the bottom line as it is favorable foreign exchange for earnings, just as last quarter the Chinese solars had negative adjustments for the opposite reason, thirdly, there have not been any announcements that European subsidies have been curtailed or eliminated, and in fact, there was an announcement in Spain that they continue to proceed down the path of subsidies that has created the demand within in that country.

    I presume from all the foregoing that you either did no research, failed to think critically before opening your mouth, or you have another agenda.
    Reply | Link to Comment
  •  
    Nov 10 09:17 AM
    goldman sachs recommends yge. one of the few they are recommending. the market will start discounting growth in this sector again soon. the values are too compelling. global warming is real and every government worldwide is addressing it. except of course the bush administration which as we know is over.
    Reply | Link to Comment
  •  
    Nov 10 09:47 AM
    This hopping on the FSLR bandwagon is absurd. It is truly one of the most exspensive stocks out there STILL, yet everyone seems to think it deserves to be bought when the majority of their business is tied to the US which is in negative GDP growth mode while China/Asia continues to grow. Not to single out a company, but LDK is far superior on all fundamental metrics as well as valuation.
    Reply | Link to Comment
  •  
    Nov 10 10:27 AM
    i just want to reiterate that all analysis continues to ignore the life threatening impact of global warming. gdp growth , etc means very little
    Reply | Link to Comment
  •  
    Nov 10 10:33 AM
    China has a Solar policy. Which is why I support both of the Chinese vertically integrated producers: YGE and TSL. I feel they have a better chance to survive and grow because of that policy, IMHO.
    Reply | Link to Comment
  •  
    Nov 10 10:44 AM
    Gebby, whose lives are being threatened by Global warming? Are you talking about human life in the next 50 years or present animal life?

    If lower CO2 levels result from an economic recovery plan which bolsters GDP, would you be against it because it bolstered GDP?

    Reply | Link to Comment
  •  
    Nov 10 11:59 AM

    FSLR's main customers are in Germany, Spain, and (just recently announced) Italy. They do very little business in the US, except for the latest announcement of a partnership with a solar rental company that does business in AZ CA and Oregon.


    On Nov 10 09:47 AM Daryan wrote:

    > This hopping on the FSLR bandwagon is absurd. It is truly one of
    > the most exspensive stocks out there STILL, yet everyone seems to
    > think it deserves to be bought when the majority of their business
    > is tied to the US which is in negative GDP growth mode while China/Asia
    > continues to grow. Not to single out a company, but LDK is far superior
    > on all fundamental metrics as well as valuation.
    Reply | Link to Comment
  •  
    Nov 10 12:57 PM
    paultaut

    Are you among the ignorant, who still don't get that human life is 100% dependent on healthy earth econsystems?
    You cannot separate what happens to wildlife from what happens to man. Don't you watch those National Geographic shows? Only someone who lives in a cave still doesn't understand that all life is interconnected in an interdependent way.
    Our survival as a species is completely dependent on the suvival of other species. Period.
    Maybe you missed the state of the world report last week from the World Wildlife Federation, which stated that at present consumption rates we would need two planets to sustain us.
    It said we will be in deep trouble as early as 2030. The earth is finite. What we are doing in not sustainable by the earth. Period.
    I'll take survival of the species over a strong GDP any day. If we wake up and start doing things in a sustainable way, especially when it comes to energy, we can continue to live well with a healthy economy. If we don't wake up, the economy will fail and that will be the least of our worries. Oh you don't believe in global warming. Ok, but beliefs are irrelevent when it comes to science. You might want to visit my blog at energysolutionswecanbe...
    You will learn a few things about the so called scientific debate over global warming, and see that we do have the solutions. We just need the Ludites to wake up so we can get down to the business of fixing the problem.




    Reply | Link to Comment
  •  
    Nov 10 03:52 PM
    I believe in global warming. I believe it happens periodically every 500 years or so. Take Greenland which was named because of what it looks like now? or what it looked like 1000 years ago. Or go to any large art museum, you will see paintings from 500 years ago depicting tropical settings in Italy. So don't give me that blank about This Is New and we are DOOMED.

    This happens periodically, However, I also believe that while it does happen on a cyclical basis, it is being exacerbated at this time by an unprecedented expansion of population and industry and something has to be done sooner than later.

    Put it into perspective, everything is being geared towards reviving the GDP. The sooner this is accomplished the sooner attention can move back to addressing the CO2 issue. The US Government is not known for its ability to address multiple issues simultaneously. Its not a Republican or Democratic thing, its just the way things have been and will continue to be.

    In 2 years, there will be another election which will undo the current balance unless the Democrats can restore economic growth within that timeframe. Your choice, economic prosperity sooner than later and with it a new resolve to address the environment or a reversion of power and an end to that process.

    BTW:
    Our survival as a species has been its ability to be the Dominant species on the planet. Malthusian principles did not accomodate innovations in either science or agriculture, neither do you apparently.
    Reply | Link to Comment
  •  
    Nov 11 12:04 AM
    Go back a few years, I wager you applauded Corn Ethanol's use. Did you stop to consider the As Bad As CO2 emmision caused by corn ethanol's use? Try Nitrous Oxide.

    Or that The Nitrogen Fertilizer which is used to accelerate the growth of corn saps oxygen from the water table to such an extent that it is Incapable of Sustaining Life.

    If it doesn't fit the pap you are exposed to, it must be bad, bad, bad. Do some research, think for yourselves.

    The Ozone Layer, there are holes in the Ozone layer and they are growing, oh woe, oh woe, was a early 80's mantra. Lets stop using what was it? Freon?

    Guess what replaced it, and continues to grow in use? Hydrofluorocarbons which are much stronger Greenhouse gas producers.

    What would our planet be without Greenhouse gases?
    An Ice Ball incapable of supporting any type of life. Wiki it.

    Reply | Link to Comment
  •  
    Nov 11 01:36 AM
    STP never fell below $20, and it has the technology. CSIQ, TSL also looking good to me.
    Reply | Link to Comment
  •  
    Nov 11 09:57 AM
    I believe in Solar, but give the Bears a chance to finish.

    STP? if thats the symbol, you haven't look at it recently. Try $12.50 today...11/11/08.

    CSIQ = $7.50, TSL $10
    Reply | Link to Comment
  •  
    Nov 11 10:09 AM
    Paultaut, you make some good points, but what negative implications do you see of addressing the global warming problem using alternative energy solutions such as solar and wind? Even with so many in the scientific community deeming this problem a priority that has to be addressed today, you seem to downplay and even question its validity. I don't like to think of a doomsday also but I also like to err on the side of caution, and for me the possible catastrophic consequences of global warming is way too serious for me to ignore. I'm sorry but if it means paying a little more to have solar and wind solutions, it is well worth it to me.

    For too long, people have been living in the here and now without regard whatsoever for the future. That mode of thinking brought about the mortgage meltdown when you come to think of it. Let's not let it happen to something as important as the world we live in because how we live our lives today will affect the lives of our children and future generations to come.
    Reply | Link to Comment
  •  
    Nov 11 12:53 PM
    I have always felt FSLR is one of the strongest solar power companies. A lot of people jumped on the alternative energy bandwagon awhile ago which really drug FSLR down, but I think it will be making a comeback. The business is too strong not too. FSLR has an UP forecast today (www.predictwallstreet....) and I too have predicted them to close up. Sentiment is becoming increasingly bullish.
    Reply | Link to Comment
  •  
    Nov 11 02:06 PM
    You mistake my goal. I am not interested in downplaying either Wind or Solar as Alt. Energy solutions. I think both are fine examples of technology whose time has definitely come.

    But This is Seeking Alpha, its not about whether a technology is good or not. All I'm trying to do is make everyone understand that in a Bear Market, it is not wise to stand in front of a freight train regardless of its speed.

    Preservation of Capital, Buy Low... That sort of thing.

    I've invested through some really bad Bear Markets, I've shot myself many times by getting in too early. Hell, I'm in both TSL and YGE in the mid-teens on their way down, they are down much more.

    Now I'm on the sidelines watching for possible entry points. Believe me, its not about the Need for what they offer. Its all about getting in as cheaply as possible without getting reamed, like the investors in VeraSun did, VSE.
    Reply | Link to Comment
  •  
    Nov 13 09:25 AM
    Obama's moves towards solar would also help these stocks rise

    www.marketwatch.com/ne...={195F3767-AE48-4695-B...


    dhantube.com
    Reply | Link to Comment
  •  
    Nov 18 08:12 PM
    why do you promote FSLR and SOLF if you are still positioned in STP?
    Reply | Link to Comment
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