Solarfun Beats Street, Triples Profits, Tumbles Anyway

Solarfun (SOLF) shares are down sharply this morning despite better than expected Q2 results.

For the quarter, the company posted sales of $197.1 million and profits of 24 cents a share, beating the Street at $182.9 million and 23 cents. Solarfun said it shipped 43.1 MW of solar modules in the quarter, plus another 5 MW of cells “with specification levels that are different than the company’s mainstream business.” The company said its ASP improved to $4.17 from $4.07. Gross margin fell to 13.7% from 15.8% a year ago, due to higher polysilicon and wafer costs. In the quarter, the company generated 56% of revenue in Germany, 33% in Spain and 5% in France.

For all of 2008, the company now sees total shipments of 175-190 MW, up from 160-180 MW. The company expects pricing in Euros to be stable for the rest of the year. The company sees gross margin improving in the second half, but that polysilicon and wafer pricing will “continue to be high” in the third quarter.

The company said cap ex for the rest of the year will approach $90 million; it expects to make $70 million to $80 million in supplier prepayments. The company said cash on hand of $81.3 million and additional commercial debt is “viewed as adequate” to cover 2008 capital outlays.

For 2009, the company expects total shipments to rise 50% above its revised 2008 guidance, with ASPs down 5%-10% from 2008. The company said it sees the potential to improve gross margins by 500 basis points in 2009 by lower polysilicon costs and vertical integration. Solarfun expects to add a further 120 MW of capacity next year.

“Although near-term supply constraints and higher costs persist,” the company said, “we see visibility for better conditions beginning in the fourth quarter of this year and further improvements throughout 2009.”

Also this morning, the company announced a three-year agreement to sells photovoltaic cells to Q-Cells. The deal covers a minimum of 100 MW a year from 2009 through 2011.

SOLF this morning is down $1.69, or 8.93%, to $17.25.

Comments

[David White:]

I think the street actually expected much better earnings from SOLF after such high lights as LDK, CSIQ, and STP recently. Also SOLF margins were significantly down, when other solars avoided that problem for the most part. SOLF's margins are some of the worst in the industry now. I also did not see an announcement (or hint) of any SOLF plans to begin making UMG PV solar. SOLF needs to start this process to keep up with the other solars, especially with relatively poor margins. UMG solar would improve margins. All in all it seemed to show that management at SOLF is not on the ball. CSIQ and LDK had much better results, and they have a much better outlook going forward.

2008 Aug 27 12:19 PM

[kkin365:]

Would welcome a comparative analysis of various solar stocks' margin, growth potential, etc. As a long-term investor, I want to look ahead. Thanks for a good summary.

2008 Aug 28 10:16 AM