Will Chinese Companies Bask In Buffett's Solar Buy?

Includes: HQCL, JASO, LDK
by: Emerging Money

By Jonathan Yates

Despite Warren Buffett recently buying two solar power companies, Chinese companies in the industry such as LDK Solar Co. (NYSE:LDK), JA Solar Holdings Ltd (NASDAQ:JASO), and Hanwha Solar One Ltd (HSOL) have not come close to recovering losses for the year.

Solar power in China is huge. As detailed in a recent article in the Financial Times by Leslie Hook and Ed Crooks, “The way the world turns,” in just a decade the solar industry in China has become the world’s largest.

According to the piece in the Financial Times by Hook and Crooks, “China has remade a global industry that is estimated last year to have attracted $243 billion in finance and investment.”

This has not shown up in the stock performance of Chinese solar power companies. LDK Solar Power is off more than 50% for the year. JA Solar Holdings is down about 80% for 2011. Hanwha SolarOne Ltd is lower for the year by more than 80%.

The balance sheets of each of these companies are now very impressive with low price-to-earnings ratios, single digit price-to-book ratios and single digit price-to-sales margin.

These are Warren Buffett-type financials.

Admittedly, growth in the Chinese solar industry has been driven by cheap labor, low rate financing, a huge home market and government support.

But the income statements will have to be augmented to match the balance sheets in attractiveness before investors like Warren Buffett take notice.