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Summary

  • Rapidly growing demand for clean energy should allow the company to benefit over the next few quarters.
  • Import duties by the U.S. might hinder the growth of the Chinese manufacturers.
  • Year-over-year growth in the fundamentals has been impressive for the company.

Trina Solar (NYSE:TSL) is one of China's largest solar companies - the company is an integrated solar power products manufacturer providing solutions to residential, commercial and industrial customers globally. The company is ranked as the third-largest solar module company in China, and produces standard mono-crystalline photovoltaic [PV] units with different power outputs. Trina Solar has been growing its production at an impressive rate locally and across the borders, and the long-term growth prospects of the company are intact. Further, the Chinese government is also anticipating installing up to 14 Gigawatts [GW] of new solar capacity by the end of this year.

Business Model

Trina Solar primarily earns its revenues by designing, developing, manufacturing and selling high-efficiency PV modules to a wide range of residential, commercial and industrial customers locally as well as in the international markets. The company is vertically integrated and is capable of manufacturing the supplies used in making PV modules, such as solar ingots, wafers, cells and modules. Moreover, the company has spent several years researching and developing its final available product in the market, which has increased the efficiency of its manufacturing procedures and operational yield. Hence, the company is on track to considerably increase its production levels in the current year.

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Source: SEC Filings

Growth & Fundamentals

Growth in the renewable energy sector has increased tremendously in China, and the region recorded installations of 12 GW of photovoltaic projects in the last year. The region has also surpassed the previous records of highest solar conversions globally during the last two years, as no country has ever added more than 8 GW of solar power in a single year. Moreover, as mentioned earlier, the Chinese government has planned to increase the PV capacity to 14 GW by the end of 2014. With such robust growth in the market, Trina Solar has strong future growth prospects in the region. The company has been exploiting the growth opportunity in the market, and it has been reporting impressive growth in fundamentals.

During the first quarter of the current year, the company reported increased gross margins at 20.6%, which is up almost 36% compared to the last quarter. However, the revenues have decreased by 15.4% to $444.8 million compared to the last quarter - year-over-year revenues, however, have shown an improvement of approximately 70%. This decrease is mainly due to the temporary demand decline in the Chinese market. However, the company has reported substantial growth of 73.5% in the net income compared to the last quarter. The first quarter net income stood at $26.5 million, compared to a loss of $63.7 million year-over-year. Despite slower local market demand in the first quarter, Trina Solar managed to maintain its profitability during the period, which ensures its growth sustainability in the long run.

Moreover, Trina Solar is very confident about its performance in the second quarter, and reported its second-quarter guidance to deliver 950-1,010 MW of PV modules, out of which approximately 150-170 MW will be delivered to its downstream PV module projects. However, gross margins will tend to decline in the second quarter due to higher Polysilicon prices. Further, the company reinstated its full-year shipments between 3.6-3.8 GW, out of which, 400-500 MW modules of PV will be delivered to company's downstream solar projects.

Risks

Over the last few quarters, Chinese solar power companies are facing severe trade barriers to deliver their products in the U.S. Moreover, the U.S. Commerce Department recently imposed new set of duties ranging between 18-35% on several Chinese solar power companies. These duties will eventually help the American solar companies and upset the Chinese solar companies, as most of the Chinese companies derive a major portion of their international revenues from the region. Trina Solar, which derived almost 33.3% of its sales from U.S. in the last year, also felt the heat and is finding other revenue sources to fill the gap. Despite the increased import duties in the U.S., Trina Solar has a substantial share in the market due to its solar panels' efficiency rate. Moreover, Trina Solar has developed high-efficiency cells, named Honey Ultra Module, which reached an efficiency of 24.4% in lab conditions. The ability of the company to come up with high-efficiency cells should give it an advantage over its competitors.

Conclusion

Trina Solar has been falling over the last three months, and the stock is down about 7% year-to-date. We believe the long-term growth prospects of the company are intact - import duties by the U.S. might prove to be a negative for the company and impact its sales in the region; however, the superior efficiency rates should give it an advantage over its competitors. The focus on the clean energy will result in increased investment in solar energy projects, which will push the sector higher. We believe Trina Solar is well-positioned to take advantage of the growth opportunity in the sector.

Disclosure: The author has no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. The author wrote this article themselves, and it expresses their own opinions. The author is not receiving compensation for it (other than from Seeking Alpha). The author has no business relationship with any company whose stock is mentioned in this article. This article is for educational purposes only and it should not be taken as an investment recommendation. Investing in stock markets involves a number of risks and readers/investors are encouraged to do their own due diligence and familiarize themselves with the risks involved.