Trina (market cap of $1.56 billion) builds silicon-based solar products for commercial, residential, industrial, and electric utility applications. Customers include Conergy (CEYHF.PK), Corporación Zigor, SKR Energie, and Schüco International. The firm has a vertically integrated business model from the production of monocrystalline and multicrystalline silicon ingots, wafers and cells to the assembly of modules. The firm also has a stellar earnings record -- the stock has surpassed the consensus estimate in each of the past four quarters.
Strong results and optimistic outlooks have dominated the news from solar companies of late, and Trina's second quarter earnings call was no exception. (See our recent reports on Suntech (STP) and Yingli's (YGE) record-setting second quarterly updates.)
Here are the highlights from the call:
- Second quarter shipments were 223 megawatts (guidance of 200 to 205 megawatts), an increase of 15.7% sequentially and 248.7% year-over-year
- Second quarter revenue was $370.8 million, an increase of 10.1 percent sequentially and 147.2 percent year-over-year
- Gross margin was 32.1 percent, above the guidance of high 20s
- Net income was $38.7 million
- For the third quarter of 2010, Trina expects to ship between 250 megawatts to 260 megawatts of PV modules.
- For the full year of 2010, Trina expects total PV module shipments to be between 900 megawatts and 930 megawatts, compared to its earlier guidance of between 750 megawatts to 800 megawatts, an increase of 126 percent to 133 percent from 2009
Trina sees "increasing evidence that strong demand for our PV products will extend well into 2011."
Trina's most recent news includes:
- Signing of a sales agreement to supply solar modules to SunEdison, a subsidiary of MEMC Electronic Materials (WFR). Under the terms of the agreement, Trina Solar is expected to supply SunEdison with approximately 35 megawatts of PV modules over the remainder of 2010. The modules are expected to be utilized by SunEdison for projects in North America and Europe.
- Signing a 45-megawatt supply agreement with Southern California Edison, one of the largest electric utilities in the United States. The modules are expected to be used in SCE's large solar photovoltaic installation program.
Auriga's Mark Bachman on Trina Solar:
- Trina Solar has one of the most profitable crystalline-silicon business models and we believe our assumptions could prove conservative in the next year.
- Our model uses shipments of 863MW in 2010 and 1,011MW in 2011.
- ASPs modeled down 12 percent year-over-year. Our 2Q10 module price is $1.70/W, which declines to $1.44/W in 4Q11.
- We have modeled modest gross and operating margin declines in 2011. While we believe that several of the assumptions presented above may prove conservative, we are also trying to present a credible argument for investing in shares of TSL. In short, the solar industry continues to be subsidized, which results in constant pressure on both ASPs and cost reduction targets. Our new model has Trina's shipment forecast growing slower than the industry growth rate of 25 percent, coupled with ASP declines outpacing cost reduction efforts. The result is a declining margin structure year-over-year, but one that results in increasing profits on higher revenue. We find it reasonable to assume that margins should contract as the industry matures.