In the midst of a generally difficult period for news flow in the solar sector, JA Solar (JASO) has just produced solid Q1 2011 results. These results highlight the very attractive valuation now offered by a company that is the number 2 solar cell producer in China. Given its competitive position and a solid outlook ahead, the stock looks likely to rally strongly from here.
In terms of the earnings numbers themselves, both shipments and revenues were down slightly on the quarter though they were still up significantly year-on-year. Shipments reached 451 MW, down 2.6% from Q4 but still up 65.8% year-on year. That produced revenues of $556.4m for the quarter, down 5.5% from the previous quarter but still up 91.2% on the year. The revenue number managed to beat the consensus of $555m.
The end result was EPS of 41 cents for the quarter against expectations of only 33 cents and a number of only 24 cents a year ago.
Overall, these numbers beat expectations and represent a solid performance in a quarter dogged by the difficult situation in terms of European demand and Chinese New Year. For 2011 as a whole, the company maintained its view that it will achieve shipments of a full 2.2 GW.
The chart below shows the performance of JA Solar versus the Guggenheim Solar ETF (TAN) over the past year.
[Click to enlarge]
- The market continues to be dogged by worries about the outlook for European solar demand, given the concerns over the subsidy outlook. Frankly, however, this issue must surely be largely priced in.
- As a result of the developments in Japan, China has just announced that it will double its target for installed solar capacity in 2015 from 5 GW to 10 GW.
- As a low cost, very competitive provider, JA Solar is extremely well placed to benefit from that guaranteed stream of demand.
- Elsewhere, the US utility market will also be critical for any global player. JA Solar now has a deal with MEMC (WFR), which should give it greater exposure to this market also.
Finally, a look at relative valuations amongst solar players shows the clear potential of JA Solar:
|Market Cap ($bn)||PE Ratio (TTM)|
|MEMC Electronic Materials||WFR||2.61||66.98|
|Yingli Green Energy||YGE||1.77||8.14|
With a PE ratio of only 3.97%, JA Solar's valuation metrics clearly look very attractive. Of course, Chinese solar stocks have consistently been undervalued versus their western counterparts. However, even against similar Chinese players, JA Solar looks very good value.
The bottom line is that despite the concerns in Europe, the outlook for solar remains attractive. Moreover, JA Solar is a very competitive player set to continue to produce revenue growth. At current valuations it looks like a very attractive buy.
Disclosure: I am long JASO, CSIQ.