China Thin Film Solar IPO: Trony Solar Holdings

Dec. 8.09 | About: Trony Solar (TRO)

Trony Solar Holdings (TRO), China's largest manufacturer of thin film solar modules, is expected to go public this week.

Business Overview (from prospectus)

We are one of the world's leading thin film solar product and solution providers, as measured by production output in 2008, according to a report commissioned by us and prepared by Photon Consulting, a solar energy research firm and consultancy. According to this report, we were China's only thin film PV module producer ranked in the top ten globally by production output in 2008. We use amorphous silicon technology to deposit non-crystalline silicon onto a substrate to manufacture solar photovoltaic, or PV, modules that are significantly thinner than conventional crystalline solar PV modules. As of the end of August 2009, our annual manufacturing capacity reached 115 megawatts, or MW. We design, develop, manufacture and sell our PV modules based on our proprietary manufacturing process and technology.

Offering: 19.5 million shares at $9-$11 per share. Net proceeds of approximately US$134.5 million will be used to expand manufacturing facilities and manufacturing lines and to repay debt.

Lead Underwriters: J.P. Morgan (NYSE:JPM), Credit Suisse (NYSE:CS), CLSA Asia-Pacific Markets

Financial Highlights:

Our total revenues increased by 81.1% from RMB140.6 million in the three months ended September 30, 2008 to RMB254.6 million (US$37.3 million) in the three months ended September 30, 2009... Our cost of revenues increased by 94.3% from RMB78.9 million in the three months ended September 30, 2008 to RMB153.3 million (US$22.5 million) in the three months ended September 30, 2009... As a result of the foregoing, our gross profit increased by 64.2% from RMB61.7 million in the three months ended September 30, 2008 to RMB101.3 million (US$14.8 million) in the three months ended September 30, 2009, and our gross margin decreased from 43.9% in the three months ended September 30, 2008 to 39.8% in the three months ended September 30, 2009.

Competitors:

Our competitors include conventional crystalline PV cell and module manufacturers such as Suntech Power Holdings Co., Ltd. (NYSE:STP), Trina Solar Limited (NYSE:TSL), Yingli Green Energy Holding Company Limited (NYSE:YGE) and the PV product division of Sharp Corporation, a large conglomerate.

We also face competition from other thin film players such as First Solar, Inc. (NASDAQ:FSLR), United Solar Ovonic, LLC, the PV product division of Energy Conversion Devices, Inc. (NASDAQ:ENER) and Kaneka Corporation. First Solar, Inc. has announced its intention to invest in the China market, which may allow it to take advantage of lower production and labor costs in China.

We may also compete with new entrants to the PV product market, including those that may offer more advanced technological solutions or may have greater financial resources. Furthermore, the solar power industry faces competition from conventional energy and non-solar renewable energy providers. Due to relatively high manufacturing costs compared to most other energy sources, solar energy is generally not competitive without government incentive programs.

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