Trina Solar Retains The Crown As The Top Global Solar Panel Company

| About: Trina Solar (TSL)

Summary

Leading Chinese solar company by shipments in 2015 with a growing global solar project development business.

Q4’15 EPS jumped 200% to $0.43 from the same time last year.

Trina acquired Solland’s manufacturing facility in the Netherlands; this will help the company avoid anti-dumping tariffs and increase the US and European market share.

Trina Solar (NYSE:TSL) continues to give good results, and has once again emerged as the No.1 solar company by shipments in 2015. The company announced its Q4'15 results lately and showed an improvement on all major fronts as compared to the previous year. The company is amongst my favorite picks in the solar sector. The solar industry is poised to grow strongly over the long term. With manufacturing facilities in strategic locations and large capacities, TSL is one of the best positioned players in the highly competitive solar industry. The company's cheap valuation made its CEO offer to take the company private last year. This has caused the stock price to stagnate near the $11 level. The stock jumped up, after the company declared better-than-expected earnings. Given the company's good performance and strategic advantage, I remain positive on the stock.

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Mr. Gao said "2015 was in many ways a strong year for Trina Solar as we achieved record results on both a sequential and year-over-year basis in each quarter." - Trina Solar

Why is TSL a good stock

1) Capacity expansion will help in gaining market share - The company is planning to increase the production capacity for both cells and modules. The annual cell capacity will increase to 5 GW from 3.5 GW, and module capacity will increase to 6 GW from 5 GW by 2016 end. The wafer capacity remains same at 1.8GW. Trina Solar will thus be in a good position to supply large-sized orders to the market. Other peers like Canadian Solar (NASDAQ:CSIQ) and JinkoSolar (NYSE:JKS) are also expanding capacity to take advantage of the growing industry.

Capacity (in GW)

Existing as on Dec. '15

Expected by Dec. '16

Ingots

Wafer

Cells

Modules

Ingots

Wafer

Cells

Modules

Trina Solar

2.3

1.8

3.5

5

2.3

1.8

5

6

Canadian Solar

0.4

2.7

4.3

1

3.9

5.73

JinkoSolar

3

2.5

4.3

3.5

3.5

6.3

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2) Manufacturing in non-Chinese locations to circumvent duties - USA, China, Japan and EU are the top markets for Trina Solar. Japan is a relatively bigger market for TSL when compared to peers like JKS and CSIQ. USA and Europe have imposed anti-dumping duties and price restrictions on Chinese companies to safeguard their local solar companies. The company's solar module facility in Thailand has also become operational recently. In addition, it is setting up various manufacturing units in India and has also acquired 200 MW of solar cell manufacturing assets in the Netherlands. These facilities will help the company to export to Western markets without facing duties. This will make TSL more competitive going forward.

3) Stellar Q4'15 results with net profit of more than $40 million compared to a loss in Q3'15 - Trina Solar has been posting better results quarter after quarter. During its most recent quarter, the company beat both revenue and EPS estimates. Its higher revenues during Q4'15 were due to better downstream business revenues. Total revenues for the quarter at ~$962 million were up 36% on an annual basis. Gross profits at $183 million also increased 66% from the same time last year. The in-house manufacturing cost declined by over 20% to $0.36 per watt in Q4'15. This has made Trina Solar the lowest cost solar panel manufacturer in the world.

Revenues (in million $)

Net Profit (in million $)

Gross Margin (in %)

Net Margin (in %)

Q4'15

FY'15

Q4'15

FY'15

Q4'15

FY'15

Q4'15

FY'15

Trina Solar

961.9

3035.5

41.7

76.5

19.1

18.7

4.3

2.5

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Data from TSL PR

4) Shipment king - Trina Solar remains the undisputed leader globally for solar panel shipments. The company experienced higher demand from USA and Japan, along with the rest of Asian countries. Total module shipments reached a record level of 1.78GW, exceeding the higher end of its guidance. Trina Solar has projected FY'16 total module shipments to reach 6.3-6.55 GW, which should again make it the largest in terms of shipments this year.

5) Geographic diversification will be the key to success - Trina Solar has been increasing shipments to USA, which is a high ASP market. The company was also one of the top suppliers in India. It made successful inroads into emerging markets such as Thailand, Philippines and other Southeast Asian countries. The company has achieved an excellent geographic diversification as compared to a year ago, as can be seen from the table below:

External Shipments (as a % of total)

FY'15

FY'14

USA

33.1

19

China

29.9

48

Japan

11.4

14

EU

8.4

9

ROA

16.1

ROW

1.1

10

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6) Downstream project business is also growing in places other than China - The company's downstream business also gained strength, as the it connected ~133MW of utility projects and 126MW of distributed generation projects in China during Q4'15.

Trina Solar is also growing its presence in the downstream utility project business in USA and Europe.

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Risks

a) Chinese market weakness

The weakness in the Chinese stock market has raised concerns for the entire energy sector. The decline in crude oil price has increased risk aversion. Any further decline in the Chinese economy might adversely affect the performance of Trina Solar since China is the largest market for TSL. China's weakness has also impacted other economies. The renminbi fell ~5% against the dollar last year, and according to analysts, it might fall further during the second half of 2016.

b) Pending buyout decision

I was not happy about Trina Solar's decision to go private because of the buyout price. The purchase price of $11.6/ADS did not seem to justify its potential. However, the volatility seen in the Chinese stock markets means that Trina Solar should remain listed on the US stock exchange. The buyout proposal was made in December 2015 and almost three months have passed without any movement.

c) Debt level under control but could face funding pressure with the rise in risk aversion

The financial position of the company remains stable with ~$660 million in cash balance while long-term and short-term debt at $522 million and $916 million, respectively. Though the company has a credible position in the market, it might suffer if risk aversion in the market increases.

Stock performance & valuation

The stock gained 30% in 2015 and is currently trading near its last 52-week price average. The market capitalization is ~$899 million and the valuation is cheap with a forward P/E of ~8x. Other large players like First Solar (NASDAQ:FSLR) has a much higher P/E multiple at 16.4x. I think the management buyout proposal has capped the stock from going up further.

Conclusion

The company was named the most bankable PV module manufacturer globally by Bloomberg New Energy Finance. Trina Solar was the largest module supplier as per PV-Tech's Top 10 PV Manufacturers listing for 2015. The company is well positioned to take advantage of the growing global solar industry. It is poised to become the industry leader once again in 2016 as it is increasing its module capacity to 6 GW. The company is expanding capacity, reducing costs and is increasing its downstream project pipeline. The stock returned ~30% in the last one year (Jan.-Dec. 2015) and is trading quite cheaply. It was amongst the top performers during FY'15 and one of my top picks in the solar industry.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.