Comments on Eric Rulmont's articles RSS Syndication from SeekingAlpha.com http://seekingalpha.com/author/eric-rulmont/articles http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-215812 215812 Sun, 27 Jul 2008 14:40:46 -0400 http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-215231 215231 Sat, 26 Jul 2008 17:12:54 -0400 http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-208182 208182 Thu, 17 Jul 2008 19:34:00 -0400 http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-208181 208181 Thu, 17 Jul 2008 19:32:52 -0400
S&P MAINTAINS BUY RECOMMENDATION OF TRINA SOLAR ADSS Updating selected Q2 guidance, TSL now expects revenues of $200M-$205M, gross margin of 22.5%-23.5%, and operating margins of 14%-15.2%. These metrics are notably above our model and previous guidance. Consequently, we are raising our '08 earnings per ADS estimate by $0.54 to $3.72, supported by our confidence that management will continue to execute growth plans. ]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-208140 208140 Thu, 17 Jul 2008 18:03:45 -0400
For anyone interested: There is an interesting article called "Inside The Solar Gold Rush" in the July 21, 2008 issue of Fortune Magazine.]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-207449 207449 Thu, 17 Jul 2008 02:53:10 -0400 if we take low conversion price of 40$ per ADS we get 3.5M additional shares. if we add this to the current count we have around 28.6M shares.
if we had this count in this Q the current estimated EPS for Q2 2008 would have been (under the assumption of the mid range, which i agree with jack that it's more likely we'll be at the higher end, but we always prefer being conservative):
73-74
this means we have a 12-13% reduction in the EPS.
the important thing is that the cloud of financing will be lifted (at least for the short term).
margins are still a problem, but it goes to all the industry and the higher growth might compensate for that partially.
regarding the stock price - if we take the new dilution into account and assume 10% EPS growth for each coming Q and use the mediam assumption for the current Q - we get EPS around 3$ (this is super conservative if we assume no more margin erosion). we have 2008 PE around 11 and 2009 is under 8.5 assuming EPS of 4$ for 2009 (33% EPS growth for 2009).
i like the numbers, but off course everyone needs to make thier own decisions regarding price vs. risk and there are clouds out there in the futureas we don't have a clue regarding which technology will be the big winner, or how silicon prices will be in the future (some new companies that are building new silicon plants may not be able to raise enough money to complete the new plants, see HOKU as an example) and so many other uncertainties that with the current environment of risk aversion is impacting the prices of risky assets.
]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-207429 207429 Thu, 17 Jul 2008 01:40:15 -0400
Regarding Rana's EPS estimates for TSL--you and I are in the same ballpark. However, TSL's tax rate this year is 4.92%, not 10%. On the other hand, interest expense and exchange loss will probably amount to more than $6 million, IMO. So we're OK there.

However, I think both revenues and margins will come in at the UPPER end of the range that was indicated today--ie, closer to $205 million and 15.2%. It's bad form to pre-announce 2 weeks AFTER the quarter ended and then come in at the LOW end of your pre-announcement range. So I think upper 80's to low 90-cent range is a reasonable EPS projection for Q2.

If we go with 90 cents and figure only 10% qoq increases (VERY CONSERVATIVE), we have full-year EPS of 51+90+100+110 cents=$3.51, meaning that AFTER today's 13% run, TSL is still trading at a 2008 PE of under 10. And EPS of $3.51 is substantially more than double 2007's $1.54. And my projection for TSL EPS in 2008, which I posted a couple of months ago, is about $3.85 to $3.90. So TSL has $5 more to run before it gets to a PE of 10 against my EPS projection.

A PE of a little over 9 for a company that is more than doubling income this year, and will tack on another 30-40% next year? Call me stupid, but to me, that is a screaming buy.

Also, details about the convertible have emerged. TSL will pay 3.5 to 4% interest on the $120 million ($138 million if fully oversubscribed). The conversion price has not been announced but I am guessing it will be between $42 and $45--to make it attractive enough to the bond buyers but not dilutional unless that target is met. Even once the target is met, this represents only a 10% or so dilution.

Given its cheap cost of capital (3.5 to 4%) I do expect TSL to do a follow-on offering when its stock is in the $40's or maybe later, but basically, the market's response today despite this offering is very encouraging in that it shows that the "lack of capital" overhang may no longer be much of an issue for the market.

Further thoughts in a future post.

Jack]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-207349 207349 Wed, 16 Jul 2008 21:47:48 -0400
There are different ways to measure the cost of solar electricity, but cents per KWH is a common one because each one of us can look at our electric bill and calculate what we are paying. In Houston, Texas, I am currently paying about 17 cents/KWH.

To calculate "payback," different people calculate it differently, but a much better thing to calculate is whether it is economic for you to install a PV system at your house. One way to do that is this: Imagine you pay 17 cents per KWH and you use 1000 KWH/month, or 12,000/year. Your electric bill is $170/month. Let's say that a $30,000 PV system could generate 1000 KWH/month and therefore eliminate your electric bill (with incentives in sunny locales, eg, Calif, this is a realistic example).

Let's say you don't have a dollar to spare on the PV system, but let's further suppose the PV company will install it for free (the installing company will actually borrow the money to pay the full $30,000 to cover the equipment as well as installation). Instead of paying money to your current utility, you will make monthly payments to the installing company (or to its lender) for say, 20 years. The first year, you will pay $170/month--no more than you would have paid for electric. Each year, you will pay 2% more.

If structured correctly, you will be guaranteed relatively low electric bills for 20 years, the installing company gets an installation job, and the lender can earn a return well in excess of 10%.

What's really cool is that after 20 years, YOU become the owner of the system, and since PV panels will probably live well over 30 years, you will get FREE (minus maintenance costs, which should be no more than a few pennies per KWH) electricity for quite a few years after 20 years. The deal would be transferable to subsequent owners of the house.

I predict you will see the above transaction become quite common in the next 1-2 years.

Further responses to other comments a bit later.

Jack]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-207238 207238 Wed, 16 Jul 2008 17:33:59 -0400
I haven't been able to find an answer to this question, so I wondered if someone here might be able to help me.

I often see the price of solar energy listed in price per kilowatt hour. I don't understand the time frame used for this. If solar pays for itself 15 years down the road, then over 15 years, solar's price/kwh must be better than conventional energy (15-25 cents/kwh), right? So for what time frame is the price of solar calculated? One year? Five years?

Thanks,
Ryan]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-207151 207151 Wed, 16 Jul 2008 15:39:37 -0400 the stock created a falling wedge formation with bullish divergence on the RSI on 3 points and the same with the money flow.
i'm long SPIR and adding.]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-207133 207133 Wed, 16 Jul 2008 15:26:19 -0400 as i posted before regarding pricing of wafers in taiwan, the prices moved up in June which brings more pressure to the market.]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-207127 207127 Wed, 16 Jul 2008 15:14:56 -0400 i looked at each news item in the Q to get the bookings number and the estimated shipments from the 1st Q report, the guidance for Q2.
i didn't calculate the exact average period of the bookings, but if it's for 5-6 years, or 24 quarters, the average addition per Q is over 40MW. do the math.]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-207022 207022 Wed, 16 Jul 2008 13:21:37 -0400
@Jack I do agree with you that solely looking at federal tax incentives doesn't give you a clear picture...But still there are only a handful of states who provide incentives enough to get solar off the ground...I mean a considerable amount....Not the tiny amounts of today...and concerning Spain the incentive cut will be bigger than in Germany but that is no reason for concern....A problem would be a cap....But as I stated above i doubt a cap will come and if it does 750 MW is realistic, and not the 250 MW # that some analysts were throwing around...

And it's looking like my prediction from 6 months ago that Italy will be huge is slowly, but surely, coming true....especially in the South of Italy it can be used very well....Also Switzerland increased incentives this week and the package they proposed and implemented looks quiet decent(but it is a small country but every MW helps)....So i totally agree with you that incentives will increase rather than decrease globally but it is really time for y'all to step up to the plate...

It just cant be that the best idea, so far, is to drill in Alaska (if I understood correctly in a wildlife refuge)!!!!I mean that leaves me speechless....And makes me, to be honest, VERY angry...We all live on this planet together and y'all are doing your best to destroy it...First for years driving your huge SUV's, Air conditioning 24/7 everywhere, and your industry being quiet wasteful concerning fuels when they were cheap and that leads to the destruction of OUR planet...and then as if nothing was learned the best idea is to drill in Alaska....The point is that we have great opportunities and that is due to OUR incentives which got Solar, Wind,etc. off the ground...so please use the technologies that are only available because we subsidized them:)I guess i wasn't so speechless after all;)...With kind regards from Germany CW

PS and if we can "save" the planet and "all" earn a good amount of money while doing it lets go for it right!?!:)Sorry for the mix of politics, lifestyle, into a discussion about stocks but I do believe it is important to talk about these issues...and I am not looking to offend anyone as I lived in your country for a few years and quiet enjoyed my time their....But as I said these issues are important to talk about...though they don't really pertain when talking about stocks...]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-206936 206936 Wed, 16 Jul 2008 11:59:01 -0400
However, one thing about his "undervalued" argument (and I think Jack Yetiv's as well) is the question of when exactly the market is supposed to correctly value TSL et al. Investors in this bear market tend to overvalue bad news (share dilution, cash flow concerns, growing pains, margin compression), while undervaluing good news (example: a nice bump, sure, on today's TSL announcement, but not the 15% - 20% spike from last year's solar boom).

So there's some risk that these companies might continue with booming earning announcements, solar fundamentals keep looking great, the story is there, but that investors (especially large institutions worried about risk, credit, leverage, etc.) might steer clear of growth stocks in a highly speculative industry in an emerging market (China) as a rule. That might keep these companies undervalued until the broader market gets its legs back, I believe.

That's not to say that the thesis is void - Trina could very well be that great company ignored by the market - just that it may be years not months for it to pay. And that gets into the territory where Jack Yetiv fears to tread (right, Jack?): past the one-year horizon where industry-wide changes in technology might really shake up the game. So, if you're confident that TSL will survive and thrive for years to come, now is probably a great time to get some discounted shares. I'm more skeptical about investing for months vs. years. That might just go sideways or down further.

Also, my more skeptical case could be mitigated some by better news on subsidies and new solar markets. I personally believe that "green recovery/stimulus" is in the air here in America, but won't begin to be seriously enacted by the US government until the middle of next year.

With a one-year-plus horizon, I am long Suntech (STP) and Akeena Solar (AKNS).]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-206924 206924 P.S. Disclosure. I hold large long positions in TSL, SOL and PWE > (a Candian Royalty trust). I am not short anything. > > Jack]]> Wed, 16 Jul 2008 11:48:59 -0400

On Jul 16 03:45 AM Jack Yetiv wrote:

> P.S. Disclosure. I hold large long positions in TSL, SOL and PWE
> (a Candian Royalty trust). I am not short anything.
>
> Jack]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-206846 206846 Wed, 16 Jul 2008 10:33:50 -0400 if we take the lower end of the results we get 200M$ sales and 14% operating margin. this gives us 28M$ operating profit.
if we assume higher interest expenses, net, and lower exchange loss, which will offset each other, and 10% tax expense we get:
28000000-6200000=21800...
EPS - 19620000/25130000=0.78$
if we use the median:
202500000*0.146=29565000
EPS - 0.84
we have a range of 0.78-0.89 between the high and low end, depending on exchange loss, interest expenses, net, and income tax.
the median gives us 0.09$ better than estimates.
a big question will be the margins.]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-206807 206807 Wed, 16 Jul 2008 09:52:51 -0400 http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-206783 206783 Wed, 16 Jul 2008 09:24:58 -0400 http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-206735 206735 Wed, 16 Jul 2008 08:34:59 -0400
Vitamin J: You may have misunderstood the intent and extent of my comparing TSL and WFR. I am not the only one to make limited comparisons between TSL and WFR:

I am sure some are familiar with the "Solar Stocks Comparison Table" put out by the China Analyst website in which some market cap, revenue, and estimate comparisons are made between TSL and WFR as well other "solar stocks". It is a easy way to keep track of market caps, etc., and can be seen at:
www.cnanalyst.com/sola...

]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-206629 206629 Wed, 16 Jul 2008 03:45:54 -0400
Jack]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-206628 206628 Wed, 16 Jul 2008 03:44:13 -0400
My concern with Eric's thesis is that I believe the solar field in TWO years (not to mention five years) will be so different than it is now that it is very difficult for ME to predict what all the solars' sales and earnings will be. For example, if Nanosolar indeed does what it says it can do, I believe that will have a giant impact on the solar industry. Other companies are also working on disruptive technologies, and without inside information (which I do not have since I am not an insider to the industry), I simply cannot separate the wheat from the chaff.

I can only look out 6-12 months with any level of precision, and I believe the best risk-reward plays today (based on that 6-12 months out look) are SOL, TSL and CSIQ, with a nod to SOL.

Yes, this space offers risks, as we all know, but I think those risks are amply compensated for when you are buying--at a PE of 10-13-- companies that will about double their earnings from 2007 to 2008, and tack on another 50-60% of earnings in 2009.

I think ENER and FSLR are waaay too rich, which is not to say I would short them--the market can stay irrational far longer than we can stay solvent, as the saying goes.

ESLR may do great--or it may bust.

SPWR and STP are not as rich as ENER or FSLR, but don't offer enough of an advantage to induce me to pay their higher PE's in the 20's and 30's.

YGE, JASO and SOLF are fine companies, but at such attractive PE's as SOL, CSIQ and TSL.

Finally, LDK might turn out to be an ass-kicker if its fab starts up fine and makes the projected amounts of poly in 2008 and 2009. But if it misses, LDK will be dead money for at least a couple of quarters. Yes, LDK has executed pretty well previously, but again, I consider SOL, CSIQ and TSL somewhat less risky.

In general, I believe this earnings season will be great, and I believe most of these stocks will go up at least 20-30% in the next month, and one or two of them will rise substantially more (a double out of SOL wouldn't shock me, and a 50% run out of TSL and CSIQ wouldn't either).

As to incentives and such, let me say that the solar "genie" is out of the bottle. Even without any new incentives and even if current incentives were reduced (as Germany's have been by about 8% per year, and as Spain's probably will be), the number of places where solar achieves grid parity will grow substantially over the next few years. The reason is that (a) conventional sources of power (nat gas, coal and even nuclear) have doubled in cost in the past year or two, and (b) once carbon-generation is fully included in the cost of conventional power generation, we will find that UNSUBSIDIZED solar will be cost-competitive with conventional power sources in locales with a good solar resource.

Having said this, I believe that the total amount of solar incentives around the world will GROW (NOT decrease) over the next few years. For the last few years, all we have heard about is Spain and Germany. All of a sudden, we're hearing about Italy, Korea, Australia and most importantly, China itself, as new customers for solar.

I also think the US will come on board, and in a big way. I believe it is a mistake to look only at FEDERAL tax credits in the US (which are up in the air at this time). The states are far ahead of the federal govt, and at last count, 29 states have RPS's (Renewable Portfolio Standards) which require utilities and power generators to generate a certain percentage of their energy from renewable sources. In addition, many states have substantial subsidies for solar PV (Calif, of course, is the leader there) and I believe more states will adopt solar incentives.

In summary, I believe upside potential is substantially greater than downside risk, at least in the next month or so.

Once earnings season is over, I will write another summary article looking at this space and giving my updated thoughts at that time.

Jack Yetiv]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-206466 206466 Tue, 15 Jul 2008 20:01:09 -0400
Dicki: Excellent posting and great to see more of the European perspective. I also have enjoyed Jack Yetiv's articles. ]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-206444 206444 Tue, 15 Jul 2008 19:19:19 -0400
To Vitamin J indeed that comparison is a bit far fetched as I stated before...And I was having quiet the poor day and when i read your guys' comments...you know how it goes:)

@Eric Rulmat - I think you are absolutely right if you are looking for value(yes I said value in the same sentence as solar shares)/growth it is the right time to go for it...These companies trading at these ridiculous P/E ratios...

And they (analysts) say it is bad to invest in Solar because of Spain, and its potential introduction of a 250 MW cap....anyone making that assumption is clearly uninformed about Spain....If they do introduce a cap, which I doubt, it will be around 750 MW(Spains solar industry just simply won't let it happen and many other reasons for that matter)....what could happen is that they slash incentives by 20-30% which wouldn't hurt the Spanish market as much as one would expect(at least in Spain due to its perfect placing on the "solar map")....And the next boom market for solar is Italy which will be the next Spain....And Trina's positioning their is absolutely marvelous as you can see in the contracts signed in the past few weeks their...I think Trina and SPWR (due to the acquisition they made last year) have the best position in that rapidly expanding market....

I think it is quiet obvious...that companies that grow 100%(sometimes more, sometimes less) y-o-y need some money in order to finance their rapid expansion...Obviously they burn more money than they take in at the moment...How could you not with ramping of X amount of lines a year and investing in long-term poly contracts...expanding capacity in some cases three or four fold...(sometimes less but certainly not the point)...Alternative energies are there to stay....

The last advanced country that has to make the step is your guys' country(and your little/big brother the UK...depending how you look at it;))...And it is quiet shameful what is happening with renewables in the US....and I certainly love how everybody complains about Gas prices/Oil prices but nobody looks for solutions...the next "great" American plan is to drill in Alaska....that is the solution...is it really?Quiet impressive:)In any case we are not here to talk politics, otherwise I probably wouldn't stop typing in any case;)

To bring this long post to an end...As you stated the main point you were trying to make is that the companies in the solar industries are just hitting speed bumps...and that is certainly the case...Would I sell my shares because of that no way...Each day is another day shopping for solar shares at ridiculous valuations....The more the American public, and the world(besides the EU), gets involved and begins to grasp what Solar can do for us in the long term the greater will be our returns so enjoy because I do not know how many oppurtunities you will get buying shares at these prices(not saying it couldn't go down a bit more in this bear market but I think we are close to bottoming out)....Kind regards from Germany CW

PS @All....I do encourage you to read Jack Jetiv articles about the solar space I have been involved quiet some time...with plenty of different stocks...But both TSL and CSIQ were his picks(well he wrote some articles and I got more informed about them and tend to agree with him in most things)....With one working out quiet well the other one lagging...But IMO he has a great understanding for the industry....But also bigger companies besides the ones Jack mentioned are worth other looks....with SPWR(probably the best managed company in the whole solar space),LDK, STP...Please beware of FSLR everyone.....check out all the facts there are....Cheap doesn't mean good:)(certainly not meaning their valuation,but the cost of their inefficient panels when size of the area is constrained)

Long ABX, CSIQ, TSL (No shorts at the moment but if FSLR hits $300...)
]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-206434 206434 Tue, 15 Jul 2008 18:58:29 -0400
The U.S. will become a much better market for solar and wind, as the politics of energy improves. The amount of dis-information about energy is astounding. Basicall, we are being told that alternatives can't do the job, which is false. We are told we need to drill offshore and in ANWAR which are smokescreens for business as usuall. When people start listening to people like T Boone Pickens, when he says we can't drill our way out of this mess, there will be a mass revelation, and people won't be happy when they learn how much they have been fooled, for the sake of the oil industry and other established powers that be.

To see what oil is really doing to our economy, go to:
www.setamericafree.org...

And to see what we can do right now to solve the problem, go to:

www.setamericafree.org...
A Blueprint For U.S. Energy Security











]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-206429 206429 Tue, 15 Jul 2008 18:49:41 -0400 http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-206404 206404 Tue, 15 Jul 2008 18:11:22 -0400 I think YGE, LDK, and STP are enticing, but you can buy ESLR and SPWR, each of which have better technology, a similar valuation (ESLR to YGE and SPWR to STP) and should have the weak $US at their backs for some time to come.
In the end it's a technology business and a margin business and the Chinese solars have niether.
Good luck
]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-206354 206354 Tue, 15 Jul 2008 16:53:52 -0400
By comparing apples to oranges or WFR to TSL, it certainly doesn't create a statement to mean they are the same. The article clearly states they are not perfect comparisons and limits the similarities to a very few specific points.]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-206345 206345 Tue, 15 Jul 2008 16:34:37 -0400
Again, no one is stating a direct across the board comparison between any of the companies mentioned, I just picked one company (WFR) to draw very specific and limited similarities out and to show that long term investors in many companies are easily shaken out with downgrades, short term problems, etc. which can be the wrong move. WFR was downgraded a couple years ago which caused some to sell before a huge gain and that was the other point of mentioning WFR.

Dicki, thanks for posting the disclosures on your positions. I encourage everyone to do the same.


]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-206339 206339 Tue, 15 Jul 2008 16:28:37 -0400
I think the Chinese solar module manufacturers will outperform on the next bear market rally, probably during this earning season. ]]> http://seekingalpha.com/article/85058-chinese-solar-stocks-present-compelling-value?source=feed#comment-206327 206327 Tue, 15 Jul 2008 16:11:44 -0400
My main point wasn't to bash Trina, but to call out what I felt was a fatuous comparison with MEMC in the article. ]]>