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<< Return to Part I

This article is a continuation of our previous article which dealt with 2012 EPS projections based on four module pricing assumptions. In this article we will examine the remaining five of the eleven Chinese solar companies.

The five solars discussed in this article are listed below:

  • Canadian Solar Inc. (NASDAQ:CSIQ)
  • China Sunergy Co., Ltd. (NASDAQ:CSUN)
  • Daqo New Energy Corp. (NYSE:DQ)
  • Hanwha Solarone Co., Ltd. (NASDAQ:HSOL)
  • JA Solar Holdings Co., Ltd.(NASDAQ:JASO)

Our assumptions are listed below:

  • ASP for Poly - $28
  • ASP for Wafers - 35 cents (in general)
  • ASP for Cells - 55 cents
  • ASP for Modules (Best Case) - $1.10
  • ASP for Modules (Most Likely Case) - $1.05
  • ASP for Modules (Worst Case) - $0.95

Just to keep the modeling simple, poly, wafer and cell ASPs will remain static. Naturally, one could argue that the poly, wafer and cell ASPs should be adjusted for each module ASP change. However the metrics chosen will simply illustrate sensitivity to module ASP price points for 2012.

Best Case - 2012 EPS Estimates Versus the Street Estimates

Our

Street

%

Stock

Estimate

Estimate

Difference

CSIQ

4.13

0.05

8160.5

CSUN

1.13

-0.09

1353.5

DQ

1.85

1.2

53.8

HSOL

1.96

-0.06

3371.8

JASO

0.63

0.29

117.6

Most Likely Case I - 2012 EPS Estimates Versus the Street Estimates

Our

Street

%

Stock

Estimate

Estimate

Difference

CSIQ

2.01

0.05

3910.5

CSUN

- 0.14

-0.09

-51.3

DQ

1.36

1.2

13.4

HSOL

1.20

-0.06

2106.9

JASO

0.46

0.29

58.0

Most Likely Case II - 2012 EPS Estimates Versus the Street Estimates

Our

Street

%

Stock

Estimate

Estimate

Difference

CSIQ

- 0.12

0.05

-339.5

CSUN

- 1.40

-0.09

-1456.1

DQ

0.88

1.2

-26.9

HSOL

0.45

-0.06

842.1

JASO

0.29

0.29

-1.7

Worst Case - 2012 EPS Estimates Versus the Street Estimates

Our

Street

%

Stock

Estimate

Estimate

Difference

CSIQ

- 2.24

0.05

-4589.5

CSUN

- 2.66

-0.09

-2860.8

DQ

0.39

1.2

-67.3

HSOL

- 0.31

-0.06

-422.8

JASO

0.11

0.29

-61.3

CSIQ - Although CSIQ provides excellent potential for 2012, they do have a history of failing to execute. As well, they encountered some accounting issues in 2010. My main concern is that CSIQ will remain primarily a two vertical company (cells and modules).

CSUN - If one spends time looking at CSUN, one could make arguments for interesting profits for this company. Since they could lose money in our most likely case I and II, other solars might be better choices than CSUN.

DQ - Like JKS, DQ is fairly resistant to losses under the four pricing scenarios. However, since they are primarily a poly producer, a better test for them would be to vary the spot price of poly. As a side note, for 2013, DQ shipments of poly will rise dramatically.

HSOL - This is a tough company to gauge since the acquisition of shares by Hanwha from Korea. Originally, I thought the Hanwha strategy was to dilute existing shareholders to finance expansion but that does not appear to be the case. From the tables above, it appears that HSOL should to fairly well under module ASPs of $1.05 or better.

JASO - This is primarily a cell producer with some wafer and modules thrown in. As a separate cost center, the wafer section could lose money next year. Rather than expand cells for 2012, it seems that a better strategy might be to start filling in the integration holes with a view to full integration by 2013.

A Few Notes on First Solar (NASDAQ:FSLR)

For the lower cost Chinese solar producers, the total processing cost excluding poly will range between 66 cents for JKS and 69 cents for TSL by YE 2011. If we assume $30 poly, then total costs will range from 81.5 cents to 85.5 cents. Total processing costs for FSLR will be 72 cents by YE 2011. So the FSLR lead over JKS is about 9.5 cents. By the end of 2012, this lead could be reduced to about seven cents.

This could be a big problem for FSLR since even if they reach 14% efficiency for 2012. It will still be difficult for them to compete on rooftops. But the bigger looming problem will be the fact that solar farms require extra expenses for FSLR products. I believe the extra costs are around ten to twelve cents per watt. Perhaps some FSLR readers could update me on this number if my numbers are incorrect.

Large scale projects could become an interesting horse race between FSLR and the Chinese solars in 2012 and 2013.

Summary

Although I am hopeful that module ASPs will remain close to $1.05, no one really knows what will happen to module ASPs for 2012. The two articles have demonstrated that 15 cents separate a bull market from a bear market. It is possible to go even further and argue that 10 cents separates a bull market from a bear market.

Of course ASPs are just part of the picture. Forex gains and losses could impact EPS numbers dramatically. The cost of silver could strongly impact profits and losses.

Notes to the Tables

As we go further out from the current quarter estimates, the chance for greater variations from the actuals could increase greatly and the variations could be magnified by unexpected events. One example would be changes in the Euro versus the US dollar. Using the latest information, these are our best estimates to date. We will update these numbers each quarter with new information impacting our solars.

Due to the extreme module pricing volatility, our results could vary greatly with changes in the module pricing.

Estimates may or may not be based on company guidance. We approach each quarter based on many factors including guidance, company history of sandbagging, maximum quarterly production and general supply and demand environment for solar products.

Our general approach is to start from scratch and build up the estimates. We do not start from company guided gross margin numbers and revenue or shipment numbers. We may crosscheck on those metrics. This is analogous to a chef purchasing a soup stock versus making soup stock from scratch.

Our estimates do not include one-time entries such as forex gains or losses.

Source: 2012 Solar EPS Forecasts Under 4 Pricing Scenarios - Part II