Kelvin Schulle's  Instablog

For investors who favor emerging market, such as Chinese markets, will get in confidence as Beijing signals on Wednesday that it will allow Yuan to appreciate against green back, well actually against a basket of currencies. This is seen as a boost to exports of US and EU companies as stronger yuan makes goods cheaper to Chinese people, which is a big positive for US market getting ready for next leg up for the months ahead.

Well, the sector, who will benefit the most, is the renewable energy sector, particularly the companies whose business is growing in China. Revenue of Asian renewable energy companies will get boost when China's strategic Golden Sun project and wind farm projects kick off later this year. These projects are targeting to achieve the nation's 20% electricity generated from Solar and wind. When revenue is received in yuan and reported in USD. Investors may see surprising earning upbeat for coming years. The following companies are growing business aggressively in China as local government is strongly supporting them.

A-Power energy generation(APWR): company is ramping up wind turbine capacity rapidly to meeting demand in Chinese market and international market. The pace of signing contracts is picking up recently, for example, 49MW inner-mongolia wind farm(to be completed in mid 2010) and 20MW wind farm in Shangdong province(to be completed in Nov 2010). The company will reach an estimated capacity over 2GW in 2010.

Suntech power(STP), the company has reached deal with Chinese government to develop over 1GW solar farm so far this year. Although Suntech has majority sales in overseas so far, the domestic demand is picking up speed.

Solarfun(SOLF): Solarfun is expanding domestic market aggressively as the co work together with local government to develop solar farms, 600MW contract was signed earlier this year with inner mongolia government. The management has raised Q3 earning not long time ago due to increased shipping of panels.

Trina solar(TSL), Trina may be doing the least business in China market as it reaches out the most to Germany and Italy, but Euro appreciation also benefiting the top line.

First Solar(FSLR), First solar entered China market with a 2GW contract with central government. this is going to serve as a seed to grow in China market

Disclosure: long FSLR APWR SOLF

First Solar(FSLR) reported Q3 earning with revenue down from $520M of Q2 to $480M, however the company beat on the EPS by 0.05c margin. The company raised 2009 guidance to $1.975B to $2.025B from previously announced numbers.  one positive movement in the sector is that inventory is getting lower according to CEO. The inventory depletion is across the whole solar sector, which is positive for the rest of the industry. For the rebate program, it is not working as expected according to the company. It is likely Chinese solar names are gaining market shares in Europe because company like Trina solar(TSL) and Solarfun Power(SOLF) raised shipment guidance for Q3 a few weeks back. The cost base is much more competitive for Asian solar companies. Overall First solar presented a mixed earning report. 

We also had Sunpower(SPWRA) earning reported last week. Co said its third-quarter profit fell 48 percent to 13 cents per share. On the bright side, excluding one-time charges, adjusted earnings amounted to 42 cents per share, beating Wall Street estimates of 40 cents per share. For the full year, SunPower said it expects adjusted earnings to be between $1.15 per share and $1.25 per share on revenue of $1.43 billion to $1.5 billion. That's slimmed down from its July estimates of $1.15 per share to $1.60 per share on revenue of $1.35 billion to $1.7 billion. Again the company cut Q4 outlook, despite acknowledging that the industry is improving significantly in terms of demand. That may means shipment from Chinese solar companies are gaining momentum because they are more competitive. An evidence is that LDK recently joined TSL and SOLF, raising Q3 and 2009 shipment.

Disclosure: long FSLR SOLF TSL

On last Thursday, the world learned China achieved 8.9% in Q3 based on year over year, while for the first three quarters the nation achieved 7.7% GDP growth year over year. Having said that, China needs to achieve at least 8.9% in Q4 to reach their average 8% growth for 2009, which means massive stimulus policy needs to stay for the Q4 at least. It was reflected recently in a speech by Premier Wen Jiabao. Chinese Premier Wen Jiabao pledged to continue his government's aggressive stimulus efforts on the  World Economic Forum meeting in China last month.  The Chinese leaders know that stimulus need to stay well into 2010 to sustain the growth before the econemy can grow itself.

China's $700B stimulus was largely spent on building infrastructure, such as high speed railway cross the nation. As a result, steel demand, hence the metal coal from overseas are sky rocketing. Both Peabody Energy and Alpha Natural Resource(ANR) are seeing strong demand from China. The metallurgical coal demand is growing as China use it to produce steel domestically, China is not importing steel from overseas, which is reflected in the weak demand in international steel names, such as US steel(X), nucor(NUE) and ArcelorMittal (MT). Building the high speed railway and other infrastructure will keep the demand of raw materials such as metallurgical coal growing in the next 5 years.

China is also spending aggressive on renewable energy, the nation sees the industry as an opportunity to surpass western nations in the 21st century. So far 270GW from solar, wind and nuclear power is planed to reach before 2020. Many Chinese companies in the space have seen domestic demand picking up, such as GE(GE), Yingli green(YGE), Solarfun Power(SOLF), Suntech power(STP),JA Solar(JASO) and Best solar.  As a result, Chinese solar names will out perform US names such as Sunpower(SPWRA) and First Solar(FSLR).




Author is long GE, FSLR, SOLF