Eystein Magnus ...'s  Instablog

Eystein Magnus Hansen
Send Message
Norwegian. Master degree in psychology. Currently studying law and working part time. Interested in stock Analyst work.
  • A closer look at: Hanwha SolarOne 6 comments
    May 16, 2011 8:11 PM | about stocks: HQCL

    In this blog post I will try to look at the strengths and weaknesses of Hanwha SolarOne (HSOL.) It should be noted I currently have stock in this company so readers should keep this in mind. Currently HSOL is trading close to its 52 week low therefore its an interesting company to look at.

    To make a closer look at HSOL we will look at its history financial values, its current strengths and weaknesses and finaly try to peak into the future.


    History of Hanwha Solarone

                James OShaughnessy (What Works on Walls Street , 2005) has done some quantitative empirical research on historical predictors of future value. One of his findings was that price to sale ratio (P/S) returned a higher % on your investment than for example price to earnings (P/E).  So this could be a useful place to start our historical look at HSOL. Our goal will be first to see if HSOL has kept increasing its sale and then what its P/S was in 2010. It should be noted HSOL used to be called SolarFun Power before the Hanwha group decided to get a majority number of shares in SolarFun.


    (numbers in millions, currency is renminbi)

    HSOL Sales

    2007: 2,395.14

    2008: 4,949.07

    2009: 3,778.32

    2010: 7,526.99

    Total sales growth since 2007 compared with 2010: 214.26% +


    P/S (2010 annual sales and market cap value of 16 may 2011) : 0.86 (dollar converted.)

    HSOL can't show us a steadfast growth year after year, but 2009 was very tough for the solar industry and HSOL was not alone in showing less sales that year. If we look at sales growth since HSOLS 2007 numbers and into 2010 there has been a significant growth of 214.26%. Thats a good historical sign HSOL is doing something right. The current P/S means your paying 0.86 dollars for every dollar sold based on the annual sold numbers of 2010. That means HSOL could drop its sales this year by 16% and you would still be paying only 1 dollar per dollar sold.

                Another thing one should be worried about in my opinion is how the cash is flowing through the company. Any company worth its salt should keep generating more cash over time.

    Net Cash change at end of year: (in millions, currency is renminbi)

    2007: -864.86

    2008: 137.97

    2009: 234.82

    2010: 985.06

                HSOL can definitively show a cash flow growth trend historically and has kept this up since 2007. A good sign.

    Current strenght and weaknesses

    Hanwha solarone is a highly vertical producer:
    Manufacturing Capacity:



    Q1 2011

    Q2 2011

    Q3 2011

    Q4 2011























    1 200

    1 300




    1 000

    1 500

    1 500

    Currently Hanwha is purchasing polysilicon primarily from GCL and E-mei (long term contracts)to make the ingots so they are not yet fully vertically integrated. Also you may note that they need to buy wafers from 3rd party to produce the full number of cells, and buy cells from 3rd party to sell the full number of modules they have a projected 2011 capacity to produce.

    What this means is that Hanwha Solarone is at risk to polysilicon price changes, but also this means that if prices on polysilcion fall in the future Hanwha will have a favorable negotiation for further contracts. Also you should note that in 2013 Hanwha chemical will have a 10000MT polysilicon capacity so at this time Hanwha solarone will be fully vertical. This actually for me is a two edged sword as it means Hanwha would probably not get very favorable contracts in the near term as its known they will soon have internal capacity and therefore is not a long term client.

    Around 44%  (q1 2011) of the wafers made in Hanwha modules are from Hanwha solarone so they will have lesser margins if wafer prices increases. Currently this looks like it is a good thing for Hanwha solarone as wafer prices dropped over 6% this week. (Source:  http://pvinsights.com/ market data 11 may 2011)

    Also after the Hanwha group purchased a majority of Solarfun Hanwha Solarone have quite a capability to market and finance solar projects around the world so also in this part of the solar business Hanwha solarone is vertical.

    Also Hanwha solar have the full support of Hanwha group:

    - Hanwha chemicals planning polysilicon capacity

    - Hanwha Engineering & Construction Corp US$ 1.05 billion deal to build a power station and desalination plant (solar powered) in western Saudi Arabia,

    - Financial muscles of the Hanwha group.

    Finally Hanwha solarone have contracts and visibility in the first half of 2011 but less for the second half of 2011.

    A peak into the future?

    2011 looks like the year of oversupply, possible up to 50% more supply than demand. One question here is if the oversupply situation is the same in all segments of the solar market?

    (Source: http://solarpvinvestor.com/wafer-to-module.html)

    Wafer capacity 2011: 44,202
    Cell capacity 2011: 42,283
    Module capacity 2011: 36,187

    It seems the more downstream solar companies (like Hanwha solarone) have less an oversupply problem than the more upstream companies. Also Hanwha can simply use its own capacity only and in this way increase the margins (in 2010 annual report they say around 30% margins if only using internal capacity) to produce some 800mw of modules

    The big question is if the current spot price drops of both wafers and now rumors of cell spot prices drop have had an effect on the terms of contracts Hanwha have in q1 and q2 2011 for Hanwha solarone. We will see when the q1 report is released 24 may.

    Stocks: HQCL
Back To Eystein Magnus Hansen's Instablog HomePage »

Instablogs are blogs which are instantly set up and networked within the Seeking Alpha community. Instablog posts are not selected, edited or screened by Seeking Alpha editors, in contrast to contributors' articles.

Comments (6)
Track new comments
  • Eystein Magnus Hansen
    , contributor
    Comments (376) | Send Message
    Author’s reply » It seems also HSOL have a long term polyslicon / wafer contract going on with GCL-Poly




    Also i think its a good sign of financial health before the quarterly realease that HSOL decide to expand the team in america.
    17 May 2011, 04:46 AM Reply Like
  • AGA7d
    , contributor
    Comments (253) | Send Message
    A good synthesis on HSOL. It is not a coincidence that it has its 2010 low at May due to the seasonal solar demand.


    I have to say I way underestimated the downside given its 2010 earnings, Hanwha's stake and secondary offerings last year. Now the market regards HSOL as depressed assets trading 53 cents on the dollar right now. This is really strange as HSOL is a 2nd-tier module maker with a reputation of high quality modules. Its gross margin is also in the middle among peers - better than STP/CSIQ, behind TSL/YGE/JKS. Therefore, it is competitive as for the cost among all the global players.
    17 May 2011, 10:42 AM Reply Like
  • Eystein Magnus Hansen
    , contributor
    Comments (376) | Send Message
    Author’s reply » S&P released a sell recommandation on HSOL and speculated a 32% drop in market prices. Lets look at that number what would happen. In the end of 2011 HSOL will have a 40% increase in capacity while internal wafer capacity goes from 44% to 53% meaning margins will be higher (internal margins is around 30% while margins with buying wafers from others is 20,3% in q4 2010) in q4 2010 sale prices was 1.4629 $ per watt. If this drops 32 % prices will be at 0,97172 $ per watt. But one should keep in mind this drop of sale prices would be spread out over the whole year so probably the average would be above 1$ per watt for 2011. Currently in q4 2010 hsol pays 1,16 $ per watt to produce so would at this rate be loosing money. But given that around 47% of the wafers & ingots bought also would be 32% lower price margins and the rest 53% would be internaly produced at 30% margins the prices would be 0,7888 cents for the outside bought and 1,02403 for the internal produced giving an average of 0.91 cents in production cost minus overhead. They would still earn from the sales of 6 cents per watt. The drop from 30 cent per watt to 6 would mean 80% reduction on margins while at the same time number of watt sold would increase 40%. So yes they would be less profitable at this time than they are currently. But we are talking around 40% reduction of profitability and this is in worst case scenarios.By the end of 2011 hopefully there will have been margin improvements too.


    Also many people are thinking that 2012 etc would be even worse. I dont think so. After this expansion in 2011 we will see more carefull 2012 with return to higher profits. But readers should keep in mind not to base the purchase they do on q4 2010 margins as these are clearly not going to be the earnings for 2011. I think a p/e around 3 is around 6-7 in the future end of 2011. (very rough estimate guess of half of the revenue currently) Still what I would call a good buy as the future can only be brighter again for solar in 2012.
    18 May 2011, 05:26 AM Reply Like
  • mathew1234
    , contributor
    Comments (22) | Send Message
    Monday, May 23, 2011
    China Analyst


    Hanwha Solarone Co Ltd (NASDAQ:HSOL) has the 4th highest upside potential in this segment of the market. Its upside is 91.9%. Its consensus target price is $10.04 based on the average of all estimates.


    23 May 2011, 03:18 PM Reply Like
  • mathew1234
    , contributor
    Comments (22) | Send Message
    Awaiting reaction to the ER & CC.
    24 May 2011, 08:53 AM Reply Like
  • AGA7d
    , contributor
    Comments (253) | Send Message
    The company is upbeat on the coming quarters although it intentionally ramped down the production in Q2 to avoid inventory build up.


    Overall, the ER is fine. Next year it will have catalysts like Hanwha-steered contracts, China's PV FIT policy etc.


    Recently, the installers increasingly worry the survivability of some Europe PV makers - and of course, including most Taiwan module makers. Therefore, HSOL should do well in this environment as its survival is guaranteed.


    What's next in the market trend and company plans? First of all, the poly and wafer price is coming down quite rapidly. The company was hurt in Q1 by the high poly/wafer price. The decline will help its bottom line. Secondly, its new wafer line will gradually come into production next, and bring down costs. There are still excess cell capacity so its new cell line won't do much. The module capacity is the least expensive to add, so boosting capacity to 1.5 GW is more a token rather than bottom line.


    Boosting module capacity is for the next year's Chinese FIT introduction - which is a game changer for the PV makers. If Gao JiFan (TSL CEO) is correct, then China may start to have 8GW installation rate in 2012 (although if the FIT is introduced in mid-year, the installation will only be 4GW). 2013 will see 12GW installation in China - which will make China the biggest green country. Anyone has doubt? China's wind energy grows so fast that it becomes the country with largest wind installation in just 3-4 years.
    24 May 2011, 11:26 AM Reply Like
Full index of posts »
Latest Followers


More »
Instablogs are Seeking Alpha's free blogging platform customized for finance, with instant set up and exposure to millions of readers interested in the financial markets. Publish your own instablog in minutes.