LDK Solar Nearly Doubles Estimates 12 comments
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As I said in our earnings preview for the week.
LDK Solar (LDK) - complete crap shoot with any of these solar names around earnings. The sector is out of favor is the overriding theme. In the 2 years or so I've been in these stocks this is the longest I can remember absolutely no rally in the group.
You just never know with these guys - they can be up 25% or down 25% within minutes of their earnings report. In LDK Solar's case it's "up" (20%). The chart did not signal much before hand...
We don't own a major stake since we've taken a basket approach to the sector so we won't benefit much but it's nice to see news to the positive and hidden within the outstanding numbers are some other good news items. I continue to find valuations in this sector, for those of you who believe in P/E ratio to growth, as simply absurd but that has not stopped the stocks from a continued selloff and general abandonment.
LDK Solar earned 82 cents versus the Street's estimate of 42 cents. So the $1.70 2008 estimate immediately jumps to $2.12 and obviously one can argue next quarters 41 cent estimate looks silly as does the 50 centish 4th quarter. There is a good chance for $2.75 in earnings in 2008 for LDK Solar - even taking into account the $40 price tag in after hours that is under 15x forward earnings if the $2.75 is good. If you go with analysts ($1.70 + $0.40 beat) = $2.10 the forward PE ratio = 19. For triple digit growth. Instead people are flooding into retailers and restaurants (and autos and airlines and financials) for similar PE ratios... for 1/10th the growth. Because thats what the quant hedge funds say is "the truth".
- LDK Solar Co Ltd (LDK) on Monday posted quarterly earnings that blew past Wall Street estimates as a manufacturing capacity expansion allowed the company to sell more solar wafers, sending its shares up 19 percent in extended trade.
- LDK's second-quarter revenue was $441.7 million, well above the company's May forecast of $278 million to $288 million. (I'd say)
- Second-quarter net income rose to $149.5 million, or $1.29 per American Depositary Share, from $49.8 million, or 45 cents per ADS, a year ago. Excluding the change in fair value of prepaid forward contracts, the company earned 82 cents a share, according to Reuters Estimates. Wall Street analysts had been expecting earnings of about 40 cents a share. (actually .42 per Yahoo?)
- Gross profit margin for the second quarter of fiscal 2008 was 25.4% compared with 27.7% in the first quarter of fiscal 2008 and 35.2% in the second quarter of fiscal 2007. (Don't like this trend down but it should be transitory before a major expansion in 2009/2010.)
- In recent months, however, investors have shunned solar stocks due to fears that an expected pullback in Spain's generous solar subsidies could hamper demand. (As we know the whole world revolves around 1 country.) ThinkPanmure analyst Peter Peng said much of the second-quarter demand for LDK's solar wafers likely came from Spanish solar system installers who are scrambling to finish projects before a cap on subsidies goes into effect. (And here we go with the Bad News Bears.)
- "There is a pull for the Spanish integrators to get projects in by September, but even beyond that most of these solar companies are seeing very, very strong demand for 2009," Peng said. "There is a possibility that Germany, Italy and potentially France and other smaller markets could offset the loss of market size in Spain." (Nice words from an analysts - I'm floored.)
- Average selling prices on the company's products were up 10 percent from the previous quarter, as it was able to pass along the high cost of their main ingredient polysilicon. (As Paris would say "that's hot" - and surprising.)
- LDK also began selling wafers made from upgraded metallurgical silicon during the quarter, ahead of schedule. Upgraded metallurgical silicon is less pure, but also less costly, than standard electrical grade silicon. (Very positive.)
Outlook Change - the variance is laughable in magnitude
- LDK raised its full-year revenue outlook to between $1.65 billion and $1.75 billion. It had previously expected revenue of $1.08 billion to $1.18 billion for 2008.
- For the full year, LDK said wafer shipments are expected to be between 750 megawatts and 770 MW, up from a previous forecast of 560 MW to 580 MW for the year.
- The company's 2008 gross margin forecast was unchanged at between 23 percent and 28 percent.
Plant Update
- LDK said construction of its polysilicon plants remained on schedule.
- LDK said it was on track to produce between 100 tonnes and 350 tonnes of silicon in 2008, and next year plans to produce between 5,000 and 7,000 tonnes.
Polysilicon Costs
- LDK Chief Financial Officer Jack Lai said on a conference call with analysts that the company's silicon costs should improve in the fourth quarter. (That's very positive since it weights on these stocks like a piano.)
Look, if restaurant stocks and clothing stores deserve forward P/Es of 16-19, I don't care if oil goes to $60 - much of the rest of the world moves to alternative energy because they don't want to be in the same pickle the U.S. has now twice put itself through (1970s, late 2000s). This company is (with no growth from this quarter) going to put up a $2.75 year - so let's call it $3. By simply putting a "clothing store" P/E ratio on it you are talking mid 50s. But companies growing triple digits generally get higher P/E ratios than companies selling sandwiches, at least in the 
market I grew up in. But maybe not in this era. If you dared give a company which can grow 30-50% year over year for the next 3-5 years a PE ratio in the mid 20s, you'd dare to dream of $75. I know, it sounds crazy - I come from the old school where earnings actually drove stock prices. Maybe one day humans will win out over computers again.
The most direct parallel to LDK Solar is ReneSola (SOL) which should benefit directly from such fantastic results. SOL is trading at a whopping 11x forward estimates. But this whole sector tends to trade together so perhaps its just a moot point - throw a dart. That's what the market does.
Disclosure: Author is long LDK Solar in fund; no personal position.
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This article has 12 comments:
Nobody is paying attention to this, but there are half a dozen countries that could take Spain's place, if Spanish demand craters, which it probably will not (I project Spanish demand next year to be 30% less than this year, but that's still very strong). Other countries coming on strong are Italy (TSL is leading supplier there), Czech Republic (with other eastern European countries probably not far behand), France, Luxembourg, Korea, Japan and Australia. Germany will continue to remain strong.
Don't forget China itself--I think we will see very substantial demand for Chinese solar panels coming from China itself in 2009.
Finally, don't forget the US, where potential demand will ramp up very quickly when renewable energy subsidy legislation is finally passed here, which it will.
I predict that even if Spain remains strong next year, it will account for less than 20% of global demand next year, and possibly far less than that.
Jack
Thin film companies do not use their matkerials and leading poly based solars like SPWR, YGE, ESLR, and STP do not use their materials.
LDK has no technology, they buy all their manufacturing tech from GT Solar.
All they have is debt as they race to build out before the market collpases. Over the next three years, there will be a major solar shakeout. Thin film players will win and new leaders like Nanosolar and Heliovolt will emerge.
Today's action tells us that. A company that has 90% QoQ growth and blows the numbers out only rises to where it was a couple months back.
Maybe the stock goes higher in the very near term, but 3 years from now it will be in single digitville on its way to nowhere.
Good luck
Tell me, where will oil and gas prices be in 3 years?
Jack
Regards
A disruptive technology (eg, Nanosolar, if it can do what it says it can) will change this landscape tremendously in 3 years.
Jack
GT solar will not be supplying to LDK which is why many law suits are being presented against GT solar, but i guess facts don't bother people as they want to say something.
as for customers they have one like Qimonda, but i guess the fact that they have more than 4 times the sales of these giants like SPWR, YGE....., is problematic to what alpha wants to say, so he calls them 3rd and 4th tier. :) it would have been funny if it wasn't so sad that people are posting from the imagination and not the facts. it would have been good red flag on LDK if the facts were correct.
nanosolar was a favorite of mine as a real winner, which thin film will probably won't be, but after almost a year waiting for them to go with big projects after they said they are starting to go commercial, i'm starting to be a little sceptic about them. something is wrong there, since they really don't have any problem with financing (just like many others i tried to check with them about investing, but they declined and in the end they posted in thier site that they don't plan to raise money soon). if they will be able to do what they say, they will rock.
regarding thin film - the funny thing is that if polysi will drop to the levels people are talking, it will destroy the competitive advantage of thin film against PV.
EMKR might be the black horse if they will leverage thier technology by licensing it to others instead of going solo.
disruptive technologies may win the market or not, but the time isn't near. for the next 2-3 years, no matter what technologies will emerge, the PV industry will still be the biggest in this area (financing and actual time to build these kind of plants take a long time).
btw, the fact that wafer pricing was high this quarter is good for SOL, if they controlled the costs side.
jegan ;-)
Solar is an alternative energy play and many new solar companies have hit the markets. Competition will show up on the bottom line. As oil goes so will these.