Iam Phree

LDK Solar's Deal: Proof That China Supports Solar Industry

Mostly correct. Poly plant ""mechanical completion" is targeted for end of 2009. Polysilicon manufacturing costs are at present $25.00/kg. Spot market is well over $50.00/kg.

www.jlmpacificepoch.co...
www.jlmpacificepoch.co...

The rest is conjecture. At first, LDK altered their plans to save cash burn on expansions of poly in the market downturn. It now appears that they see poly produced at $25.00 as a cash generating engine with current spot market prices. It would seem improbable that this is the case as most smaller 3000mt poly plants are at break-even. But this is the worlds largest monomer project with TCS recovery systems and proven Seimens technology. It is quite possible costs stated are due to these factors and efficiency of scale. Don't forget the projects depreciation numbers offsetting a large chunk of production costs as well.

Also, this is an 11N capable plant producing more poly than their own internal need (~2gw x 6.2 to 6.5g/w). It suggests some poly will be sold at even higher prices to the semiconductor market.

Recently, QCELLS and LDK are having a quarrel over a depository note of $244m. QCELLS pulled the contract after cheap China solar panels flooded the market at very low cost (hurting their bottom line) and initiated efforts to recover the deposit to shore up its balance sheet. The potential of the cash outflow to QCELLS resulted in LDK shoring up its cash position in the event arbitration returns the cash to QCELLS. Both sides are entangled. Probably best to consider the possibility of 50:50 odds for the outflow of cash from LDK. Even better to look ahead at the impact of their polysilicon plant to their bottom line. Still better, a look to Copenhagen and Global Warming.

Consider... If existing competitors are forced to get poly from market and LDK makes poly at half the cost, who ends with a better bottom line?

Definitely keep your eyes open on this one. There is a big opportunity to capture a sizeable position in New Energy as most competitors have less capacity and more shares. It means the price is discounted in 3 ways. Actual PPS price, shares, and market stake in terms of capacity.

LDK Solar: Is the Sell-Side Analysis Valid?

Most point their fingers at the analysts negative sentiment and conclude that they were correct based on stocks performance. But if you read deeper, the only reason the analysts got it correct is that the market crashed. Not one of these analysts cited an impending market crash for the reason to justify their downgrades. So what am I getting at? They were lucky! And luck doesn't fly! To a large degree, we conclude that the analysts actually got it wrong based on their reasoning processes and right based on unforeseen external circumstances. If their reasoning process has failed, what credibility do they retain?

We also have to look at the possibility that the firms they work for may have a vested interest. Could it be that the analysts are in a position where a conflict of interest may be at play? I think this is what you are getting at. "Want a job, then do as I say or imply." mode of operation.

Continued negativity without a down market to hide behind will not work for long. So the bets are on of virtually all investments, when will the market turn? Hard to say, but Obama is pro-alternate energy. At least for solar, I believe the worst is over. Solar may in fact lead in the market recovery.

While all this played out, LDK has actually accelerated plant wafer operations to facilitate an overbooked manufacturing capacity in 2009. What does this tell you? It tells you they have a booming business and with polysilicon manufacturing about to turn on, their margins will improve significantly. 2008Q4 time frame offers a rare opportunity for a LDK investment.

We are dealing with billions in revenue and margin improvements of 50%. I'm not recommending waiting for the analysts to figure it out.

Solar Stocks Are Now Attractive Again

With all due respect, I think you were correct that LDK Solar would drop earlier by shear luck. If you recall, the market tanked! I see no math projections here so I will offer some.

LDK Solar provided preliminary guidance for 2009 of 2.9 BILLION revenue. Link: www.clusterstock.com/2... LDK is also completing their own polysilicon plant expansion, which will reduce costs associated with buying polysilicon, in effect, increasing margins. Let's presume margins are 30% due to self-sourcing polysilicon. 2009 EPS est = 2900 x .3 / 111.28 = $7.82!!! At a prediction of $33.00, you are stating in 2009, LDK will have a PE of 4.22! I think your projection may be off by at least a factor of 1/2 even in this market environment! They have also published preliminary revenue numbers for Q3. It appears Q3, will blow away analysts expectations as so many other quarters before. Your one year price target may just be hit in a month. With all due respect, may I suggest a little deeper digging.

Still, I like your bullish sentiment. It is good to have you aboard.