Chinese Solar Manufacturer Pick

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Includes: CSIQ, JASO, JKS, LDK, TSL, YGE
by: Siddharth Dalal

After my article on American solar stocks, I received many questions about my thoughts on individual Chinese solar companies. With this article I will look at the growth of several of the major Chinese solar panel manufacturers that are traded on the US markets.

Revenues

I'll start with revenues. Here is a 5 year revenue growth chart:

YGE Revenue (Quarterly) Chart
(Click to enlarge)

From this chart, all of the companies look like their revenues are in the same ballpark. But looking at them on a percentage basis makes this chart look very different:

YGE Revenue (Quarterly) Chart
(Click to enlarge)

In the above chart, there is Canadian Solar (NASDAQ:CSIQ) and then there is everyone else. However, 5 years is a long time in the Solar Industry. What could once have been the largest manufacturer could have easily been leapfrogged by someone else or just plain vanished. What I hope to do is find which of these is the most likely to survive and be successful. Let's look at just the last one year:

YGE Revenue (Quarterly) Chart
(Click to enlarge)

Here Trina Solar (NYSE:TSL), Canadian Solar, Jinko Solar (NYSE:JKS), LDK Solar (NYSE:LDK) and Yingli Green Energy (NYSE:YGE), all stand above JA Solar (NASDAQ:JASO).

Earnings

None of these companies are reliably profitable as there is and has been for a while, a glut of solar panel supply. Looking at quarterly EPS:

YGE EPS Diluted (Quarterly) Chart
(Click to enlarge)

Looking at this chart, it looks like 2011 and 2012 were really bad years for all the solar manufacturers and 2013 looks like the year where, maybe, things are turning around.

The Numbers

Market Cap Debt Debt/Equity
Yingli $812M $2.5B 5.4
Jinko $789M $875M 2.9
Trina $985M $1.1B 1.3
Canadian $1.47B $992M 2.5
JA $369M $613M 0.87
LDK $265M $2.9B

LDK Solar was recently unable to pay noteholders interest on its debt. That is the smallest of the lot and one company I would avoid as an investment.

Stock Performance

YGE Chart
(Click to enlarge)

Canadian Solar has had a spectacular year. In fact, all the solar companies have had a good year. Here are their P/S ratios:

P/S
Yingli 0.39
Jinko 0.81
Trina 0.61
Canadian 0.99
JA 0.34
LDK 0.5

Panels

Max Rated 60 Cell Mono Max Rated 60 Cell Poly
Yingli 270W 260W
Jinko 270W 265W
Trina 250W
Canadian 260W 255W
JA 280W 265W
LDK 260W 250W

As far as panels go, the companies produce similar efficiency panels with JA solar leading the pack and LDK lagging. Price wise most Chinese panels can be bought online in the US for about 1$/W and the price of larger 72 cell panels has fallen to under $1/W and often can be found for 75c/W.

Economics and Future of Solar

As the total installed cost of a residential solar system falls to under $3/W, the economics of solar make sense for home owners, regardless of the presence of subsidies. For example a 5kW system produces 7500kWh of electricity annually here in Virginia. At a cost of $15,000 and power costing $11c/kWh, panels would be a 5.5% return on your investment before considering any subsidies. If your power costs more and/or you get more sun, the returns are even better. Adding in the federal subsidy brings the ROI to 7.1%. Solar panels degrade on average 0.7%/year. Power prices on the other hand are going up 3%/year. Taking that into account, you can consider panels to be similar to dividend growth stocks where your dividend grows more than 2% annually.

Considering the economics, the future of solar power is bright and considering that the Chinese government is supporting all these solar companies, it is likely that most of them are here to stay.

Picking The Ones To Buy

If I were to pick favorites amongst the Chinese Solar Manufacturers, I would pick these:

Canadian Solar - Growing fast, less volatile earnings. I would be wary that the stock has had a great year already though and trades at the highest P/S amongst the companies. If buying, I would wait for dips.

Trina - Growing fast, less volatile earnings. Needs to catch up in panel efficiency but offers a better, lower degradation (only 0.5%/year) linear warranty. Stock has appreciated a lot but not as much as Canadian Solar or Jinko. Trades at a lower P/S than Canadian Solar and Jinko Solar and can potentially catch up.

The Others

I already mentioned avoiding LDK Solar. JA Solar is the next smallest on the list and seems to have the highest power panels but its revenue growth over the last one year has been dismal. Yingli also carries a very high debt load and I would avoid it. Jinko EPS has shown very wide swings and that volatility would keep me away from the stock until earnings are a little more stable.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.