helios q

helios q
Contributor since: 2011
Nice article and pretty quick response. You have put forward some strong arguments to quash the Bloomberg article. I am thinking that everyone is right to a certain degree but perhaps for the wrong reasons.
Sometimes it may appear that an entity is considering options A, B and C but never have the intention of exercising B and C. For Intel, considering Power and ARM and spending a few million to explore the two options is a very good strategic move. After all, it certainly does not hurt when it comes to pricing or perhaps other considerations from Intel.
Disclosure: I hold stock in three main companies, GOOG, INTC and AAPL (plus a minor short in AMZN and long in some Chinese solars). In 2012, I held GOOG six times to one of AAPL, today I hold more AAPL than GOOG. I don't like Apple products but I admire the company's ability to extract maximum dollars from customers - terrible but admirable. One day, maybe 2015, I am hoping my holdings of Intel will be larger than Apple and Google.
Updates to the Q4 Estimates:
To date, the numbers put forward have been pretty grim. Even worse is the picture painted for the next few quarters. Right now it appears that all of the solars will lose money for Q1 and possibly for Q2. It appears that some of the full year losses might be much worse than the current Street estimates.
For the final seven solars, updated numbers are posted below.
Our Q4 Estimates Versus the Street Estimates

Stock Our Estimates Street Estimates

CSUN -0.63 -1.20
DQ -0.20 -0.06
HSOL - 0.32 -0.28
JASO -0.18 -0.15
LDK -0.46 -0.67
SOL -0.17 -0.26
Depending upon how SOL reports, I might adjust the LDK number. My most likely and worst case for LDK actually have a very large variation right now.
In spite of the debt, I still like LDK. If they can transform themselves to a true poly to module company, they will be unbeatable. This was supposed to have happened this year but they were unable to execute on the module side.
To date, SOL has failed to fill out the missing parts (cell and modules).
Although very preliminary, if LDK can execute (a big if) and if module ASPs average $1, then it is possible that LDK could make over a buck next year.
Agree that they have an enviable gross margin at this time. I admire the FSLR approach to production. As an outsider, they appear to be a pretty impressive company.
My personal concerns with FSLR center around the use of cadmium. On a US government list of most toxic materials, cadmium is number six.
Whether individual solars or TAN, both are highly volatile. TAN is down about 66% from the highs of this year. Yes, many individual solar stocks are down even more but still, 66% would be eye-popping for most investors.
TAN makes sense for a risk-taker who does not have time for analysis of individual stocks. With the wild swings, solars including TAN are not really suitable for a lot of investors (especially the novice investor).
Assume that you are referring to LDK? In the case of LDK, they will most likely remain in business. Will refer to a previous response:
About 18 months ago, I was hoping LDK might go out of business so that companies like TSL could swoop in and pick up the choices pieces. Then the realization that LDK could transform itself into a major powerhouse of end to end production (for 2011). Unfortunately, that did not happen.
Even if LDK went out of business, the company will continue. After all, like STP, they employ over 20,000 people. If they failed, the losers would be the shareholders. The debt-holders might take an interesting haircut. It could come out of the bankruptcy very lean and ready to compete at ultra low prices. Unfortunately, we would not share in the future riches of this company.
On the positive side, I have them at $1.70 EPS for 2012 but that estimate is totally dependent on them becoming a major force in module sales.
If you meant JKS, I don't see too much danger for them at this time as they remain one of the lowest cost producers. by the end of next year (assuming $25 poly), they should be at 76 cents all-in. Plus to conserve on cash, they have reduced capacity expansion for this year.
In the ideal world, it would be nice to see them merge with DQ. It makes no financial sense right now but strategically, it would make them into a powerhouse of an end to end producer taking profits from every segment of the four verticals.
Unfortunately no one knows when solars will bottom. Right now it appears that 9 of the 11 solars will post losses for Q4. However, only four or five will post declining Q over Q earnings.
Although we have had a nice run up this week, many of the solars remain precariously close to 52 week lows.
It is possible that we have already hit bottom (a month ago) when I discussed an important inflection point for solars.
Unfortunately in the surreal world of solars, nothing is certain.
It appears that the remaining longs are pretty battle-hardened. When it looked bad this morning, they kept their ground till they ground out a victory today. Although five of the solars actually hit 52 week lows (or were within two cents of the lows), today pretty well provided some relief for long suffering longs.
If I faced with that perfect storm again, I would still sell out ahead of the week. The reason is that once the greens started to show, one could still restore an original position close to prices of the past two weeks.
I very much enjoyed thinking through the week. This becomes chess at it's best. And we should keep in mind that we still have three more days left. Yesterday the bears may have won a knight. Today the bulls seem to have won a queen. By Friday, it still could end up a draw between bulls and bears.
In the longer term over the next few quarters, the numbers appear to be pretty ugly. Although I added a bit to my JKS position, I am wondering if that was a very good idea in the face of such poor fundamentals for Q4 and Q1.
Monday Morning
This morning's price action is pretty grim (without any news flow). CSUN has just hit a new 52 week low. There are about four others within a few pennies of a 52 week low. The rest are within striking distance of new 52 week lows.
Yes the overall market is down but solars are down by a percentage muliple of three to four times more this morning.
After the markets, our star, JKS will report. Most likely they will crush the Street estimates. Unfortunately Q3 will not count as the total focus will be on Q4. If they guide module ASP to $1 or less, they may post a loss for Q4. This is in contrast to a Q4 Street estimate of a 39 cent profit. If CSUN is forecasting a 91 cent ASP, then I would think that the others will guide sub $1 module ASPs.
If sub $1 is confirmed, then there is a high likelihood of all eleven solars hitting new 52 week lows either after-hours tonight or tomorrow.
On a more positive note, I have completed a rough take-off of demand for 2012 based on the IMS Research numbers:
The solar demand has continued to grow.
2010 17 GW
2011 24 GW (IMS Research estimate)
2012 35 GW (my estimate)
A detailed table by country is available at http://bit.ly/sBvfvX.
About 18 months ago, I was hoping LDK might go out of business so that companies like TSL could swoop in and pick up the choices pieces. Then the realization that LDK could transform itself into a major powerhouse of end to end production (for 2011). Unfortunately, that did not happen.
Even if LDK went out of business, the company will continue. After all, like STP, they employ over 20,000 people. If they failed, the losers would be the shareholders. The debt-holders might take an interesting haircut. It could come out of the bankruptcy very lean and ready to compete at ultra low prices. Unfortunately, we would not share in the future riches of this company.
On the positive side, I have them at $1.70 EPS for 2012 but that estimate is totally dependent on them becoming a major force in module sales.
DB PT of 7 - My views on JKS are pretty optimistic. Perhaps DB is taking the view that it is impossible for one company to decouple from the rest of the solar pack. If that is their argument, they have a very good point.
The LDK Confessions
For the second quarter, LDK confession not only blew up the quarter but they also blew up the year.
For today's confession they just added to a very miserable year. The net result is that they may post a Q3 loss of 78 cents rather than a loss of seven cents. Some of the metrics don't quite add up but the main idea is that the Q3 loss will be pretty big.
The one good piece of news was that they more than doubled module shipments Q over Q. By the numbers, they seem to imply that module sales for Q4 will be fairly strong compared to drastically reduced Q3 sales. Of course, they have failed to execute so many times this year, we will have to approach module sales growth for Q4 with some caution.
For an updated set of Q3 numbers, refer to:
BTW, moreofthesame: DB PT of 7 ???
The JKS Confession:
Well, it finally happened. This morning, they confessed. One of the wheels fell off the JKS wagon. Perhaps more of a flat tire. Although they lowered module shipments for Q3, I was surprised at the implied ASP of $1.27. This is higher than my modeled $1.23 per watt.
The net change to the bottom line is an EPS estimate of $1.07 (compared to my previous estimate of $1.07). This is still a double over the Street estimates.
It was curious why they did not announce the revisions with the ER release date announcement.
BTW, the Q4 implied module ASP seems a bit low but will wait for the Q3 CC for further details.
Boomers, the DQ processing cost roadmap for poly is:
Q3 - $28
Q4- $31
Q3 2012 - $25
Q4 is larger than Q3 (if I remember correctly for electrical cost reasons during the end of the year).
Much of their fortunes for 2012 will rest on poly pricing and module execution.
fktw, if you look at the article below, it appears that the FSLR BOS is about 13 cents more than the c-si module BOS. This would indicate that as the ASPs narrow for 2012, there might be some interesting changes in thinking with respect to large scale projects.
Someone with a better knowledge of FSLR would know the exact differences in BOS costing.
The other interesting observation if the two technologies are equal in pricing is the fact that the c-si technology is apparently more stable than the FSLR technology (indicating that the c-si modules might retain rated performance for a longer period of time). Perhaps you might have better knowledge on this point.

I just noticed that the third table is the same as the second. My apologies. During the writing of this article, I was fooling around with the tables (over and over) and at the end inadvertently entered the same table for the Most Likely Case I and Case II.
Most Likely Case II - 2012 EPS Estimates Versus the Street Estimates
Our Street %
Stock Estimate Estimate Difference
JKS 8.16 1.57 419.5
LDK 0.51 0.23 123.5
SOL - 0.44 0.51 -186.4
STP 0.02 -0.02 210.5
TSL 0.53 0.96 -44.5
YGE 0.29 0.36 -20.2
For Outsmart, you have a valid point but for simplicity, I chose to freeze the poly, cell and wafer ASPs.
The US has complained about the huge credit facilities offered last year to the Chinese solars. The numbers amounts announced were huge:
stp 7.5b
tsl 4.5 b
ldk 9 b
yge 5.3 b
jaso 4.5 b
hsol 3 b ?????
jks 7.5 b
To the best of my knowledge, none of the companies have tapped into these credit lines. It is possible that they will only be used for financing of solar projects - something LDK alluded to earlier this year.
CSIQ - both pieces of news have not altered my lack of confidence in this company. They happen to be very fortunate in the current vertical ASP pricing structure. At some point the pricing structure will change but no one knows when this might happen.
TSL and YGE were used for points of reference as having more normal potential returns for 2012.
To date, JKS has not shown a tendency to fudge numbers. I have emailed back and forth to JKS and have found them to be pretty straight forward. They did not comment on the increasing AR so it is possible that one day we might be looking a write down on AR. Compared to peers, the number is not so bad but taken in isolation, the growth in AR this year was big.
On DQ, I agree that with falling poly prices, margins will compress and quarterly profits will decline (for each quarter of 2011). If poly prices stabilize around $30 next year, then we could see some quarterly increases in eps numbers. I have not yet modeled DQ from a sensitivity point of view (ie different poly spot prices for 2012), but am assuming that the floor will be around $25. At $25, they will continue to be profitable for 2012.
JKS - I agree they don't spend much on R and D. Still you have to admit that they continue to execute in terms of unit sales and profits. Over time, the R and D gap with YGE and TSL should narrow. Although you feel that the view is short term, JKS has a comfortable lead on non-silicon processing costs for Q4 2011 and projecting to Q4 2012, they will continue to have a lead over both TSL and YGE.
CSIQ - I have the least confidence in my CSIQ estimates and have stated that fact in previous articles. As you know, they will substantially increase module capacity from 1.3GW to 2 GW (for December 2011). Of course this is cheap expansion of only modules. They are also expanding cells by a lesser amount. The company has been riddled with earnings misses so any investment in the company is done with extreme care.
On both TSL and YGE, I have tinkered with their numbers to optimize earnings but using my most likely estimates, they just don't show the same kind of returns for 2012. Having said that, I certainly trust TSL and YGE more than both CSIQ and LDK.
Schnitty, you raise a good point. There is a technical reason flowing from Seeking Alpha out to Yahoo.
One of my objectives is to help change the general public perception of this Chinese stocks. While trying to be balanced (hence the look at worst cases and best cases), it would be nice for potential investors to view these stocks in a positive light.
My target audience is JKS, TSL, YGE, DQ, LDK and SOL. If I publish all eleven at once, I seem to lose many of my target companies (TSL, YGE, LDK and SOL) to an audience reading only specific solars. Being new to writing (on the internet), I will see if can "fix" this problem. It is much easier for me to write only one article than two : )
Btw, I sold my DQ. Although, I really like the company, the expansion into the other verticals is too slow and the price of poly is falling faster than expected. They could be a great end to end producer (poly to modules) but it seems that will not happen.
It would be great if JKS were to purchase DQ. By the end of next year, JKS could have full end to end production of over 2 GW at an industry low price of around 75 cents per watt..
Even without the purchase, JKS has remained a gem this year.
The LDK earnings as I see them are below. Q2 was a loss and right now, Q3 and Q4 could be worse than my estimates because I have not changed their module guidance which is pretty aggressive.
LDK 0.95 -0.62 -0.07 -0.28 -0.02
Module production is below. They missed Q2 module estimates by a wide margin. They are expecting to go from 80MW to 300 in Q3. In this environment, this seems a bit of a stretch.
production module 118.00 80.00 300.00 300.00
I have often wondered the same thing. Do the shorts know something that I do not know. LDK, TSL and JKS have similar short positions. To me it takes guts to short JKS and TSL so heavily. Unless they are pair trading. I shorted TSL against JKS earlier this year. Then one day, there were no shares available for pair trading.
Fuma and Nolaig,
Good point. Agree with both of you. I should have commented on the methodology in the article. Will do this in the future. Did provide notes in earlier articles but then stopped because it seemed kind of repetitive. For all stocks, have used a six times PE ratio. If a company suffered a loss for the year, I have simply halved the current stock price.
1. In the case of LDK and CSIQ where the earnings are very low, I just kept the six times ratio simply because the strong bears out there would question why I used a different PE for some companies. However, I should have footnoted a comment in the article.
2. In the case of companies with losses, I simply reduced the values by 50%. Is this fair? Maybe not since they have already been beaten down a lot. However, if LDK is 33 cents, then how could I reduce loss company stock price by token amounts.
This is why, I have used the term theoretical. Even with the seemingly harsh approach we are looking at signs that the short term is looking better and the longer might be looking very good.
On the other side, it is unlikely that companies like JKS and DQ will reach theoretical targets..
Good luck to both of you.
Yes, for the time being, I have closed out my LDK position. The reasons are more or less listed in an earlier article comparing Q2 for JKS and LDK.
If it appears that ASPs will stabliize around $1.10 or higher, then I will be a buyer of LDK and more JKS.
Notice there is a lot of interest in DQ. Although it looks like DQ will make about $2.55 this year, one should keep in mind that the quarterlies will look as follows:
Q1 99 cents
Q2 73
Q3 44
Q4 39
As all of you are aware, declining earnings are a bit of a problem for stock growth.
I really like DQ but am a bit concern about the Q over Q declines. As well, I have modeled 2012 quarter by quarter and it appears that they will end up with at lower full year EPS than for 2011.
They are a very good company and not in danger of losing money.
Now I have modeled based on 40 35 35 35 per KG assuming that modules will be 1.15 1.10 1.10 1.10 per watt.
If these metrics are too low, then of course we will all be smiling next year.
Good luck to all of you.
CSUN Correction:
My apologies - the stock price should not be a negative price. In updating the article, I forgot to hand change the negative entry from the spreadsheet calculations.
It is hard to tell what may happen to CSUN stock price. It could fall to a dollar but then it could go up simply because the stock price is pretty low.