Suntech: The Sun's the Limit 26 comments
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With oil prices sky high, it only seems appropriate to look to the sky for an energy solution. If you are not in an office all day as I am, your gaze towards the heavens provides you an often times blinding solution... the sun (don't try the exercise at night, it won't work). No longer a creation of overactive sci-fi minds, solar power is quickly emerging as a valuable alternative to more traditional, and limited, resources. While more people are beginning to recognize and appreciate the value of alternative energy of the solar sort, it can become difficult to determine which companies investors should consider a smart buy.
For more traditional and conservative investors it can, at times, be difficult to back a sector in which the technology is completely alien. While I am neither that traditional nor conservative, I too have a difficult time actually understanding what solar companies are doing. Don't get me wrong, I completely understand that somehow energy from the sun is being converted into actual energy that can power my computer... but how this is actually done is as foreign to me as television would have been to Cleopatra. Luckily for me, it is not necessary to understand all the minute details of how the technology works; instead I can focus on which company's business model works the best.
Suntech Power Holdings Co., Ltd. (NYSE: STP), a leading manufacturer of photovoltaic [PV] cells and modules, fits the bill of a company that not only knows what needs to be done in the solar sector, they also seem to be well equipped to make things happen.
While other solar companies have been fretting over their ability to procure polysilicon (a vital component of PV cells and modules), Suntech recently announced two huge developments; the acquisition of a stake in Shunda Holdings Co. Ltd, a manufacturer of solar wafers based in China, and the finalization of an agreement with one of Shunda's subsidiaries providing Suntech with a thirteen-year silicon wafer supply. This news is noteworthy mainly because, not only does the agreement help alleviate some of the company's possible supply problems, but the massive size of the contract will help Suntech provide better pricing on its products; thereby helping Suntech with its ultimate goal of grid parity.
In addition to Suntech's sequestering of silicon supplies, the Company's first quarter total net revenues for 2008 grew 76.1% year-over-year to $434.5 million. This dramatic increase can be partially attributed to the surging demand for solar cells, which Suntech produces, in Germany and Spain. With new markets emerging in countries such as South Korea and Italy, it seems reasonable to expect future revenues to continue in a similar fashion. By the end of the first quarter Suntech's cell production capacity was 540MW, making them well on their way to reaching their year end goal of 1GW cell production capacity.
While the solar sector recently hit a minor road bump over news that Germany was planning on drastically cutting the feed-in tariff (requires utilities to purchase electricity from solar sources at a set, elevated rate for 20 years), German lawmakers a pending agreement of a much more lenient reduction in state subsidies. This news has helped to alleviate some investor fears and the solar sector, including Suntech, will surely continue to benefit from the news. Even if the original feared cuts had been implemented, Suntech's markets outside of Germany would have served to maintain Suntech's revenues.
On the whole, Suntech appears to be in a very stable position within its sector and I would expect their share price to climb significantly in the near future. They are currently trading around $41 which is slightly over 50% below STP's 52-week high of $90 back at the start of 2008. The Company looks to be well on their way to gaining back lost ground and should continue to move upwards. When considering Suntech's first quarter financials, combined with their procurement of silicon for years to come, one really can't help but feel that the Company is headed in the right direction... up. One might even say that the "Sun" is the limit!
Disclosure: Long
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This article has 26 comments:
I think they suffer in the short term because fslr is obviously the leader right now and commands the high multiple until people are willing to look at the differences in these companies. Also there are a lot of analysts pushing this stock right now calling a price target of about $64. All at the same time there is short interest of over %16. I believe this will trade at $35 sometime in the next month making a nice insertion point.
All I can say is thank goodness these comanies don't need the usa to be profitable.
growth will be much faster than people expect. volatility makes it good to short -- I don't think the large short positions are there because people think they will go to zero -- just traders making points on the swings.
For more information, visit www.REFFWallStreet.com.
please read the following articlehttp://reuters.com/article/Gl...
there are big concerns regarding fslr cadmium/tellurium toxicity and there has been huge insider selling recently. there stock is plummeting over past few days.
i have no doubt suntech will be A leader alongside LDK AND/TRINASOLAR... over next few years
One USGS (US Geological Service) estimate I saw said that the maximum production of Tellurium a year is 200 metric tons. That may be a low number, but new thermoelectric devices also use Te so this may be a good number for FSLR to use. FSLR produces 1 Watt of solar module for .25 grams of Te. There are 1 million grams in a metric ton. So, 200 metric tons translates in to 800 MW of output a year.
Correct me if I am wrong with my numbers.
Thin film is not as efficient but is cheaper to produce. It works best where square footage is not a big issue. Silicon based cells are more efficient and are a better bet where square footage is limited, like on home rooftops. FSLR therefore is not the standard that all others are measured by.
Sunpower gets nearly twice the efficience as FSLR for instance.
Basically, if one intends to evaluate companies in a certain space, one cannot do it by looking at just one company--nor even two. STP is not that distinguishable from the other PV panel purveyors. Yes, it has a nice BIPV position, and yes, it has AKNS's Andalay. And, it is the second largest (I believe) panel-maker in the world.
But none of the above have translated into better profit margins, greater backlogs or faster growth than its competitors, so in my view, it isn't worth a PE of 25 versus 11 for TSL or 13 for CSIQ.
Next, I believe that although poly acquisition was an issue two quarters ago, and even one quarter ago--it is no longer an issue. I know you haven't heard that before, so remember you heard it here first.
ALL the solars have annouced poly acquisitions in the past few months. Almost all of them have most of their poly needs for 2008, and many have much of their poly needs for 2009.
So the fact that STP has poly til 2016 is irrelevant. What IS important is to know at what price the poly is being acquired, and the nature of the terms (prepayment, take-or-pay terms, etc)--but none of the companies announce this.
Next, within 2-3 years, poly will be (a) readily available without any need for long-term contracts, and (b) cheap enough that it won't constitute a significant portion (ie, more than 10-15%) of a panel's cost (poly these days probably accounts for 40% of PV panels' cost).
Finally, the biggest reason that having a poly contract out to 2013 is irrelevant is that I believe that there is a decent chance that by then, other disruptive PV technologies (whether thinfilm, or concentrating PV, or whatever) will be commercialized that will give poly a run for its money. The landscape will have changed by then.
Therefore, I like to compare the solar companies that essentially do the same thing on the basis of valuation. Therefore, I like TSL and CSIQ the best. If you need convincing, look at their charts over the past month.
If you want more convincing, check out TSL this Fri, when they announce earnings. I'n guessing 87 cents this quarter (and over $4 guidance for this year) versus consensus of about 70 cents and $3.39.
If I am right, look for TSL to move above $50, and probably over $55.
Jack
Always enjoyed your analysis!! What do you think about ENER?
Tao
wow 87 cents for tsl, thats nearly double the expectation. I hope it happens, that will give the whole sector momentum. As always I hold what you say in high regard, and still cannot find a better argument that solar is already at grid parity when all costs are added, than your analysis posted a while back.
xz1
Why don't you dazzle us with your vast knowledge of the sector, or are you part of the %13.67 benefitting from downward movement of this one.
I have small long holding of STP, exploring other alt. energy buys.
Recently made nice gain on the run-up of ENER, if it dips again, may return.
ENER had a breakout quarter when folks expected a loss and they made decent money. Cool. But one quarter does not make a $65 stock, in my book. Could ENER become the next FSLR? Maybe, but my fundamental analysis skills (whatever they be) won't help me determine that. To me, picking the next FSLR is far more luck than skill. My abilities in that venture are no better than anyone else's.
I think downside risk on ENER is substantial.
I still TSL is the most underpriced of the solars--unless a big negative surprise happens tomorrow, and I have no data to suggest that will happen. Remember, their business is not that diferent than CSIQ's, except that TSL's gross and operating margins have historically been better than CSIQ's (although the latter is catching up).
For whatever it is worth, I have modeled the following for TSL this quarter (conf call is 8AM EDT tomorrow):
34 MW sold
$138 million revenues
$22 million earnings
$0.87 per ADS
Note I have not modeled any income taxes because they did not pay any last quarter--but if there are taxess to be paid, they will decrease this number. Also note that Schwab shows consensus for this quarter at 50 cents, but another source I read said consensus was 70 cents. I'm not sure what First Call says.
To svosavy who said:
Why don't you dazzle us with your vast knowledge of the sector, or are you part of the %13.67 benefitting from downward movement of this one.
I'm not sure what you are asking! I did pick up a ton of options in the past week or so when TSL was at $44, and then at upper $43's.
Disclosure--very long TSL + options.
Jack
that last shot was at user "xz1" who makes broad negative statement and offers nothing to conversation. The %13.67 is the short interest on stp which was over %16 a couple of days ago so some bears must have cashed out yesterday.
Yeah the consensus I saw for tsl was $0.48 for tomorrow, but, as a sector bull I hope they knock the skin off the ball tomorrow.
======================...
There are three "Kings" in three different categories of the measuring yard-sticks that we can use in the solar sector:
STP: The King of Revenue. Its annual revenue is greater than any other solar companies. Lots of people talk about it.
FSLR: The King of Market Cap. Bigger than any other solar stock. Even more people talk about it.
CSIQ: The King of Performance (% return). Few people talk about it - even when it is the only measurement that means something to the investors - affecting their financial well-being.
At the time when I bought CSIQ, I bought STP as well. As STP is the "King of Revenue", which many analysts have touted, long and hard, that in this solar industry - size matters. Yes, indeed it matters. Actually it mattered a whole lot more than I have bargained for - very very painful for me as a STP stock-holder.
======================...
As any investor who has played stock market for a decent amount of time must have observed, more frequently than not, that the strong stocks are usually getting stronger while weak ones are usually getting weaker.
======================...
The following performance chart is generated by a friend of mine (hope it works here, if not, please accept my apology):
stockcharts.com/charts...
But my articles have focused on companies that HAVE PE's, rather than companies that MIGHT have PE's (because they have will have E's in 2009 or 2010).
ASTI, ESLR (using much less poly than competitors) and even ENER all qualify as potential superstars going forward, but it is hard for me to decide which one will succeed and which one will not. Remember that even superior technology poorly executed still does not bring home the bacon.
I will say that I believe (1) poly will drop by at least 20% within 12 months, (2) efficiencies will approach 20%, and wafer thicknesses will be in the 150 micron range, lowering poly amt-per-watt by 30%, (3) thus lowering poly-COST-per watt by 30-40% within 12 months.
On the other hand, I think aluminum and other panel component costs will INCREASE, which will make FSLR's (and other thin-films') costs higher because they have to build two panels to match wattage of single poly-based panels.
Jack
"While you have a point--development companies are all hype until they begin commercial production, two CIGS companies have begun commercial production -- Nanosolar and Global Solar. Both will have substantially cheaper production costs than FSLR. CIGS is no longer development stage, its commercial."
STEVE, can you give the source of the above information? Where can I read their specs as commercially produced? Where can I put my hands on a Nanosolar or Global Solar panel?
Where can I look up the AMAT-produced 380-watt panel you discussed above?
Are any of the panels of Nanosolar, Global Solar or ASTI CEC/NEC/UL certified? Where can I confirm that?
What testing has been done on longevity of the panels? Do they carry 25-year warranties offered by a significant entity, not these companies?
Jack
1. The fate of superior automobiles which were squashed by GM and Ford: Tucker, Hudson, Packard, to name a few. Likewise, Microsoft's buying up superior products and shelving them, just to be rid of the potential competition.
Superior products do not always prevail.
2. The stock market's inability to deal with such fine analysis. That awful saying, "perception equals reality"; stock market success is not always logical from the standpoint of value.
Silly rumors can have major impact. Inept analysts can have major impact. Manipulatos, likewise.
Anyway, thanks for the analysis, we can hope that this part of the market will be logical and such information will be rewarded. This field is growing and changing rapidly and keeping up with it is a big job. Your help is greatly appreciated.
Your "facts" are not entirely accurate. First of all, ENER uses a-silicon, NOT c-silicon. Secondly, with regard to your claim of AMAT's dominance in PV production technology, ENER has ITS OWN manufacturing process (described below) that I estimate is AT LEAST equal to if not superior to AMAT's. And, finally, WRT to your claim of Signet Solar's 9.5 to 11 efficiency, I note their technology is dual junction whereas ENER's is triple junction. I'd appreciate a reference to that claimed efficiency - and especiallly one that includes the specific environmental conditions under which it was measured. Here's a snippet describing some of the characteristics of ENER's technolgy and manufacturing process:
"Amorphous materials with different light absorption properties can be deposited continuously, one on top of another, to capture the broad solar spectrum more effectively. This increases the energy conversion efficiency of the multi-cell device and improves performance stability. Our unique multi-junction approach has resulted in world record efficiencies for our a-Si technology. We hold the current world records for conversion efficiency for both a-Si solar cells and modules, as measured by the U.S. Department of Energy’s National Renewable Energy Laboratory (NREL.)
To further reduce the manufacturing cost of PV modules, we have pioneered the development of and have the fundamental patents on a unique approach utilizing proprietary continuous roll-to-roll solar cell deposition process. In our high-volume manufacturing plant in Auburn Hills, Michigan, solar cells are deposited on rolls of stainless steel that are a mile-and-a half long using automated manufacturing machines. The a-Si alloy processor deposits the nine thin-film layers of the triple-junction cell on six rolls of stainless steel at a time.
The rolls of solar cell material are processed further for use in a variety of photovoltaic products for different applications ranging from battery charging to large-scale grid-connected systems."
Wayne
Hey, all kidding aside, this site is to share information, so if you feel what you have done is "do my homework," you and I have different views of what a site like this is meant to do.
No, my questions to you were mean to tease out when REAL earnings could be anticipated from these companies. I think you and I define "commercial" differently. To me it means the prospect of sales in the current quarter (annualized) that are at least 1/10th the company's market cap (P/S of 10) and there are no barriers to additional sales.
Lack of certification (which takes 6 months on the average) precludes substantial sales. I still believe the money to be made more safely now is in low-PE poly-based panel producers like TSL and CSIQ.
I might well feel differently as soon as I believe that a company is closer to true commercial production as I define it. I think that may well be at least a quarter or two away for me.
Jack
Frankly, the difference between you and me is probably a couple of quarters, maybe three. The market is forward-looking, but I don't think as forward-looking as you are. To me, there is still money to be made in si-based panels. I have been keeping my eyes on the disruptive technologies for well over a year, but continue to believe it is too early.
It ain't soup yet, and the fat lady is warming up, but her singing performance isn't til Xmas.
Jack
Is AMAT only player in both c-Si & Thin Film tech? Is AMAT threat to both c-Si & TF competitors? Amat has acquired many c-Si players too. Not sure how competative their c-Si business.
AMAT got the Abu Dhabi project. I thought first solar also bid for this? Is there any info as to who all bid the project?
If in terms of technology there is not much difference in AMAT & FSLR then Who has the money power(Cash) to execute gigawatt turnkey projects AMAT or FSLR?
I heard that for AMAT, Solar business is kind of a low technology business compared to their conventional Semiconductor technologies like Chip, Transistor, Nano scale research...so it is just a matter of time they establish monopoly in solar like they have done in Semiconductor equipment business. (they claim behind every chip produced in the world there is amat techology and equip behind it).
Before buying AMAT you should remember at present it is not a Solar stock ...I mean 100% of their current $10b revenue is from the semiconductor business and almost zero from solar. Need to understand the semiconductor business too before investing.
I know you are kind enough to throw some insights to me..thanks in advance.
One clarification to your statement above : Signet Solar is not the first turnkey contract for amat , it is Moser baer in India which is first .... of course Signet was the third but first to get completed. Thats very fast.