Solar Stocks: Good News from Spain, Bad News from China

The solar and polysilicon stocks are in for a wild ride this morning as we have two firms out with pretty significant comments (opposing views):

- Citigroup notes Spain is the world's second-largest solar market, and strong Spanish solar growth has been driven by generous solar feed-in tariffs from the Socialist-led government. Firm expects that reelection of the Socialist Party will result in more favorable solar tariff policies post the current policy's expiration on 30 September 2008. The new Spanish solar tariff and installation cap will be announced in May timeframe.

Given the significant share price declines of the solar sector in the last several weeks, they would not be surprised to see a relief rally for the group over coming sessions. Sees Suntech (NYSE:STP) and Yingli (NYSE:YGE) as main beneficiaries due to their exposure to Spanish market.

- Piper Jaffray notes a very damaging article (and pictures) appeared in the Washington Post on Sunday March 9 which highlighted one of the problems with poorly designed Chinese poly plants. Some plants in China, like Luoyang Zhonggui (a supplier to STP, LDK and CSIQ) cannot recycle the byproducts back into the process (toxic silicon tetrachloride) and the article claims the company has been dumping the unrecyclable chemicals back into the land.

Firm speculates it could poise some supply risk if the plant production is scaled back. They believe the primary customer of Luoyang is STP (over half of Luoyang output) and to a lesser extent LDK and CSIQ. We have confirmed that the local supplier to Yingli (Xinguang) is recycling its byproduct (thus it does not pollute) and additionally YGE relies on mostly foreign poly suppliers (Wacker and MEMC). JA Solar (JASO) does not rely on Chinese poly suppliers currently.

Notablecalls: Oh well, this sure is a complex situation. But let's analyze it for a minute:

- STP is the #1 player in the Spanish solar market, and YGE gets around 50% of its revenues from there. So the exposure is surely there.

- Take a look at the Washington Post article. It's ugly. There has been a lot of talk of Chinese poly supply coming online in 2nd half of 2008, putting some downside pressure on pricing (good for solars). Some of the smartest solar watchers have expressed their doubts regarding the Chinese supply, so the expectations may not be THAT high. More of a sentiment negative.

I think that following the initial knee-jerk in reaction to Washington Post article, both STP and YGE become nice bounce plays. Spain trumps China.

I also like MEMC (NYSE:WFR) for a trade here. As one of the major producers of poly, they would definitely benefit from increased demand in Spain. Also, problems at Chinese competitors is good news for the company.

Comments

[smooth]

Yingli is down 60.5% for the year 2008 so far. Only one company has fallen worse this year...SolarFun.

YGE's forward 2008 p/e is only 16.7x earnings
YGE's fowrard 2009 p/e is only 8 x earnings

YGE's pe/growth ratio is incredibly low at around 0.37

Here's a company expected to do almost $1 BILLION in revenues in 2008 and $1.5-$1.7 Billion in 2009, a two year revenue growth rate of around 70-75%.

Current Market cap as of Friday's close is $1.9B.

YGE a "nice bounce play?" That is the understatement of the day.

YGE has a rock solid management team. They are a vertical play in the sector (less dependence on suppliers). They aren't polluting the environment! They have an excellent reputation in Europe and elsewhere. And they are definately undervalued at the current share price!

I see YGE as a $35 stock by years end, a 140% return from current levels. We all knew orders in Spain were slowing down, due to the uncertainties of the feed in tarriff's in Spain. Now, we have all but certain confirmation that Spain is going to continue to support the solar energy movement!

Excellent news for long term investors in YGE.

[tessant]

smooth,
totally agree with your take on yge. some of the other solars have been slaughtered beyond belief. time to start adding to my positions.
check out growthportfolio for solar reports and discussions.

-scott

[[e-mail]]

ENER a solar company that does not use silicon to make their solar panels is in Spain. What do you thinK.

[smooth]

YGE down 13% today! And they are environmentally RESPONSIBLE!

LDK, STP, CSIQ all down today too, but not nearly as bad as YGE!

Go figure! This market is punishing YGE the most, yet they've done the least to harm the environment.

[tessant]

this market is beyond nuts

-scott
growthportfolio

[REBEL]

Looks like it is time to invest in YGE!!!

[User 162911]

Isn't there a general overemphasis here on the unfortunate environmental impacts of Chinese polysilicon manufacturers. Granted, there are serious environmental considerations that need to be evaluated, however, solar companies are by no means China's only polluters--countless other industries remain largely unregulated and regularly engage in dubious environmental activities, yet the assessment of their environmental impact has been neglected in this recent discussion of the solar industry. I question the ability of a WP article to influence the production of the plant or the coax a response out of the Chinese government. Chinese mining, chemical production, and other industries have all received negative overseas press for their irresponsible environmental practices, yet little has been done to limit/regulate their production. Jaffray's assessment of the situation, and the markets recent sell-off, appear to be largely unwarranted.

[gebby]

buy yge and stp, nibbling at solf, waiting for csiq to trade off buy below 15?