Trina Solar revenues (NYSE:TSL) increased 26.3% to $641.8 million in the fourth quarter of 2010 compared to a 37.1% increase to $508.3 million for the third quarter. Net income margin improved to 22.6% for the fourth quarter the second consecutive quarterly increase. Trina Solar trades at seven times 2012 earnings estimates a 57% discount to peers. The company’s improving financial metrics have not yet overcome its significant share price discount to peers. We believe limited quarterly disclosures and vague pricing and lack of key performance discussions contribute to the discount. Trina Solar continued its improved financial performance with four consecutive quarters of increases in revenues and megawatts shipped, strong gross and net income margins and operating cash flow. The company’s stated cost per watt decreased for eight of the past nine consecutive quarters. The company’s short interest has risen over the past two quarters and is comparable to the industry average.
In our solar industry rankings operating cash flow-to-net income dropped five places to 22nd and free cash flow-to-net income improved two places to eighth. The cash conversion cycle increased five places to 19th. Peer cash conversion cycle improved more than the company’s as the the company’s cash conversion cycle improved two days. The company ranks near the top in one metric: gross margin where it stayed at seventh. The company increased seven places to 18th on selling general and administrative (SG&A) expenses. While the company moved down one places to 13th in cash-to-debt and up one on debt-to-equity to 20th. Continual decline in cost per watt puts Trina Solar near the top in gross margin. The company’s superior inventory management has put it near the top in the cash conversion cycle. Trina Solar has more than doubled its amount of debt in two years, putting it in the middle of its peer group in terms of debt-to-equity. However, additional debt and follow-on offerings have increased the company’s cash, leading to a higher cash-to-debt ranking.
The company provided some forecast data and seemed to be more comfortable with vague explanations and limited specifics. The company expects silicon prices to remain flat in the first quarter of 2011 and then continue to decline during 2011 as additional industry wide capacity comes on line during the year. The company says it non-silicon manufacturing cost was $0.74 per watt for the fourth quarter of 2010 up from $0.73 per watt for the third quarter. The fourth quarter increase was due to price increases in non-silicon raw materials. In the fourth quarter of 2010 earnings release the company says it expects to reduce non-silicon cost to $0.70 per watt by the end of 2011. During 2010 the company said it expected to reduce its non-silicon manufacturing cost to $.70 per watt by the end of 2010. On the fourth quarter of 2010 earnings conference call the company said average selling prices were up for the quarter but did not disclose the percentage increase or price change.
The company expects the first quarter of 2011 gross margin to be "in the mid to high 20s in percentage terms." First quarter of 2011 shipments are expected to be slightly higher than the fourth quarter of 2010. The company expect to ship between 1.75 and 1.8 GW in 2011. Cell and module capacity is expected to increase to 1.9 GW in the second half of 2011 and wafer and ingot capacity is expected to increase to 1.2 GW in the second half of 2011.
Additional analysis of Trina Solar and its peer group can be found here.
Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.