Asensio Still Skeptical About LDK Solar

Asensio issued two press releases outlining what they view as issues with LDK Solar Panels (LDK). Regular readers will know that Asensio has long been critical of LDK. LDK has been controversial with one Charles Situ leaving the company under strained circumstances last year. As a result of allegations made by Charles Situ regarding inventory levels and valuations, an independent committee was struck to investigate.

Let’s read a quote from Asensio’s press release which I received before market open Feb 28, 2008:

It appears that LDK's most recent financial filing betrays the findings of the committee led by two of its own independent directors. On February 25, 2008, LDK reported its financial results for the fourth quarter of fiscal 2007. On the unaudited balance sheet released with this earnings report, LDK now classifies $29.98 million of its $380 million inventory as "Inventories to be processed beyond one year."

During the earnings call, LDK CFO Jack Lai commented on the inclusion of the mysterious line item:

...based on the manufacturing recipe, we have a limit percentage of polysilicon powder that can be used in the production process. So we work on our formula, work on our production anticipation this year, and some of the inventory will be going beyond this year.

Asensio is calling into question LDK’s financial reporting in this quote:

Asensio.com believes the findings of LDK's independent audit committee are questionable. In fact, Asensio.com recently contacted Simpson, Thatcher and Bartlett LLP in connection with LDK's long term inventory. The company continues to file earnings reports without including any notes or discussion. Until LDK's disclosures improve, it is impossible to properly evaluate the condition of the company's inventories or the level of earnings it reports.

On March 3, 2008 Asensio issued another press release regarding LDK which included this comment:

In addition to these disclosure issues, LDK now appears to have suffered serious damages to equipment and property, resulting from a winter storm in late February. According to a translation of an article published in the Jiangxi Daily on February 25, the "snow disasters" damaged a material sum of "15,000 tons silicon material." In addition, LDK suffered "some machinery and equipment damage."

So far the company has made no announcement in connection with these damages. LDK is a tough story to buy into. In the past I have suggested to LDK to upgrade their disclosure so as to avoid the doubts that some investors have. LDK you have a long way to go. My sense is that Asensio’s judgement needs to be paid attention to.

Comments

[TommyC:]

This is what happens when analysts and armchair journalists try to pretend that they understand manufacturing. If I needed a raw material that was going up in price, I'd buy as much of it at today's prices as possible. And the connotation that old poly is worthless is just idiotic. It's mixed in proportions based upon its quality, which means that it will be used. Whoever prints this stuff is just fear mongering.

2008 Mar 04 08:53 AM

[Jack Yetiv:]

I thought the poster raised some serious issues, but TommyC did not really address the specific issues.

I would love to hear TommyC's specific responses to: (1) Clarity on inventory issues, (2) financials without notes, and (3) potential damage to the inventory as a result of the storms.

Jack Yetiv

2008 Mar 04 11:47 AM

[tk:]

Sorry Gys,
so much people give there best on LDK, assumptions, valuations and allegation.
Total Net Income $0.27/2005, $30/2006, $144/2007, esatimate approx. 500 / 2008. Sales $0.00/2005, $105/2006, $ 144 /2007 esatimate approx. 1000 / 2008 and so on.
The company went at the Stockmarket last year withe a assigned value. Dit the investmanbank make a big mistake with the fair value for bookbilding. Was the Price to high. Were is the misstake? Ok, given that she didnt and do we beleave the numbers are right. How can it be that the shareprice is the same, but lower if the Sales is fivefold and the Total Net Income did the same. That is what you can read, you can touch, all other is only stupid blether, sorry.
It is also to be sayed, the chart dont lye, right he doesnt.
He shows us like the markt ignore the facts.
What shows the history? Mistakes will be corrected.

Best Whishes

2008 Mar 04 11:50 AM

[TommyC:]

Jack,

The company has been clear and will be commenting more at the upcoming conference. It's not so much a question of clarity, but in people trying to cast doubt upon what the company executives have stated and what 2 auditing firms have confirmed. They don't include notes in their financials. I don't see that as a problem. The article quotes that until LDK includes notes on their financials, they (the financial analysts) can't evaluate the condition of the company. Let me help them.... that's what the financials are for. And as for the issue of possible losses due to the storms... this is an "article" quoting another "press release" quoting a Chinese news paper. That is what normal people call a rumor. Mr. Gutowski wants us to believe that since they haven't issued a press release to refute this rumor, they are hiding something. That... is fear mongering.

2008 Mar 04 12:29 PM

[wsigler:]

If you go to the Asensio.com website, the first thing you encounter is the requirement to sign an agreement before viewing its content. In that agreement, it's clearly stated that Mr. Asensio has had no relationship with Asensio.com since Oct 2003. None of the content on this particular issue can be attributed to Mr. Asensio, himself. So - I don't know who owns/runs Asensio.com and therefore can't determine if perhaps their objective with this article is simply to create doubt. Historically, such articles are often written to discredit a company with the hope this will drive the stock down and thus support a SHORT POSITION in the stock....

2008 Mar 04 01:31 PM

[conors:]

Please do your research before publishing such stupid stories. Its a basic ask.
You suggest that 15,000 tons of silicon material has been damaged in the storm yet LDK are only hold 856 tons in thier possesion at the moment.
In fact thier entire requirement for the while of 2008 is only 4400 tons.
Why would you write such a story without checking the basic facts??

2008 Mar 04 05:03 PM

[TommyC:]

"Libel is injury to reputation. Words, pictures or cartoons that expose a person to public hatred, shame, disgrace or ridicule, or induce an ill opinion of a person are libelous. Actions for civil libel result mainly from news stories that allege crime, fraud, dishonesty, immoral or dishonorable conduct, or stories that defame the subject professionally, causing financial loss either personally or to a business." - Associated Press

I include this just in case Seeking Alpha has forgotten...

2008 Mar 04 09:08 PM

[RhodeIslandRed:]

Here is the link and a complete English translation of the original news report in Chinese. This is not the type of elegant translation, but I have made all efforts in providing an honest and faithful translation. Unlike the author of this article who tries to spread totally untrue lies, readers can get the information yourselves:




= The complete translation of the original Chinese source:

big5.xinhuanet.com/gat.......

======================...
February 25, Xinyu's economic development district was inundated with the humming sound of machinery all around. Due to the recent snow and ice storm, electric power lines were damaged by ice in the area. Kang-Le-Mei, a food factory suffered fire damages during the storm. Workers of the company were clearing the sites, electric utility workers were installing new transformers nearby.

The snow and ice storm brought damage to 258 companies in the city. Total 179,000 square meters of the factory buildings were damaged due to some forms of structure collapse, which resulted in a loss of 120 million (Renminbi). Xinyu City is concentrating on keeping the industrial production target set for the first quarter (2008), and striving to achieve the goal of "Forceful protection, adequate remedial measure, and on-target achievement." The city is strengthening the resources allocation in order to secure the support for major industrial projects such as Xin-Steel Corporation's third-phase technology upgrade, LDK Solar 15,000-ton polysilicon plant, and Jiang-Li's Electrolytic Nickel plant. The effort is to make sure the problems encountered in each company's manufacturing can be resolved on the spot. When the problem of coal supply for Xin-Steel Corp. surfaced during the storm, the city government immediately dispatched a team to seek emergency delivery from Pinxiang Coal Mine Company directly. LDK Solar Co. suffered some damages in its factory buildings and mechanical equipments, the city immediately dispatched a task force to the site so that all emergency resources/supplies requirements and electricity supply issues were resolved. Due to the effective measures undertaken by the city's emergency management teams, the electric power supply and rescue work were able to securely protect all the major industrial companies' need for electric power.

======================...

Note: Once you have read the article, you immediately understand that nothing in it implied any damage to LDK's 15,000-ton plant, let alone the 15,000 ton silicon raw material! In fact, the plant was still in the building construction phase, I cannot imagine any substantial damage at all. But we must congratulate Gutowski for his effort in spreading the rumor. What a genius! Even if you make money by doing this, how are you able to really enjoy your dirty bucks?

2008 Mar 04 09:26 PM

[RhodeIslandRed:]

Yes, I also want to second the keen observations by conors and TommyC. LDK does not have 15,000 ton raw materials, how can they be damaged? Gutowski must make corrections and an apology immediately. A demoncratic society simply cannot function properly if this kind of manipulation is allowed to continue without any checks.

2008 Mar 04 09:31 PM

[RhodeIslandRed:]

Sorry the above link to the Chinese news report was incomplete. Here is the correct link:

www.jx.xinhua.org/news...

2008 Mar 04 09:42 PM

[TommyC:]

Thanks for that translation RhodeIslandRed.

Mr. Gutowski, in reference to your comment, "LDK is a tough story to buy into.", I think this leaves no doubt in anyone's mind whose story has been found lacking.

2008 Mar 04 09:47 PM

[kartey:]

I was about to post a comment ripping into this SOB Gutowski for this garbage..it looks more like he just took a dump on his keyboard, rather than writing an article..anyways, I decided to read the user agreement that you have to agree with in order to post, and I found this:

"We also respectfully ask that you not engage in any:

Stock touting.
Personal attacks.
Profanity, vulgarity or offensive conduct of any kind.
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Inappropriate, unethical or misleading behavior.

These standards are designed to ensure that the dialogue on the Site is credible, responsible, intelligent and informative. We cannot guarantee that users will tell the truth, and we will not monitor the veracity of names and positions or the content of any posts. However, by setting out the above guidelines, we hope to raise the credibility of the discussion and foster a spirit of open, honest exchanges of information."

Credible? Responsible? Intelligent? Give me a break SA! Look at the people writing your articles! I thought it was funny...

2008 Mar 04 11:34 PM

[ytterbius:]

Gutowski is Asensio's tool, and neither have any credibility when it comes to LDK. While they whine about irrelevancies, LDK continues to move forward in achieving their plan. LDK is in great shape; in the end, they're untouchable by these crooks.

2008 Mar 05 04:02 AM

[fxtrader07:]

Very well summed up, D. Pickard. Sadly enough, seeking alpha becomes more and more the playground of either uninformed or outright lying people who obviously have no hesitation to write up ANY story, as crappy as it might be, to foster their own or some related parties' agenda. In this case, it is obviously another bashing attempt at LDK. Now, i am not a big fan of conspiracy theories, but it makes me wonder whether this strange alliance of Barron's-WSJ-Goldman-P... and others just formed by accident.
Anybody willing to check for himself - and several people replying to this "Asensio-Advertorial" have done a superb job doing this - can see that the real case against LDK is weak to nonexistant.
And funny, while simply repeating Asensio's nonsense without even bordering to check it first, the self-proclaimed saviour of investors , Mr. Gutowski, obviously has zero problems with the poor quality and less than questionable credibility of Asensio in the first place.
Maybe that digging all the time in the mudd trying to uncover corporate mischief has simply led Mr Gutowsky to see each and every "critical" source as a reliable ally - even the likes of Asensio & Co. This however, tells all i need to know about the credibility of Mr Gutowsky himself.

2008 Mar 05 05:12 AM

[jpkgo:]

It's sad that Seeking Alpha is now publishing blatant sophistry such as Gutowski's but sadder still that the editors don't monitor for shills like him (for Asensio) who erode SA's credibility and eventually will render the site irrelevant if left unchecked.

2008 Mar 09 09:41 PM