Will Vestas Wind Systems Bounce Back in 2011?

| About: Vestas Wind (VWDRY)
This article is now exclusive for PRO subscribers.

By Don Miller

Danish wind turbine maker Vestas Wind Systems A/S (VWDRY.PK) has been racking up an impressive number of new orders lately, especially in the burgeoning Chinese market. Combined with several new manufacturing plants that will increase capacity in the United States, the surge should boost the company's performance in 2011.

Vestas, the world's biggest maker of wind turbines, said last week that its orders from China last year reached a record high.

"In 2010, Vestas has announced almost 1,000 megawatts (MW) worth of orders in China alone, which is a record high order intake for Vestas in this competitive market," the company said in a statement announcing an order from Chongli Construction Investment Huashi Wind Power Company Ltd.

Vestas got an order for 58 turbines with total capacity of 49.3 megawatts from Chongli China and logged multiple orders from Germany in the past week.
"The turbines are scheduled to be delivered in the second quarter of 2011," Vestas said, adding that the deals include delivery, installation and commissioning, an online control system and a service and maintenance agreement.

Vestas had a strong finish in 2010, announcing new orders from New Mexico, Italy, Norway, and Poland in the final week of the year.

The company said in an earlier forecast that its global order volume for all of 2010 would be between 8,000 and 9,000 MW, after rebounding from a weak level of 3,072 MW in 2009.

Vestas does not disclose the value of its orders, but as a rule of thumb turbine orders are worth around $1.32 million per MW.

China Drives Demand

HSBC Holdings PLC (NYSE ADR: HBC) recently reported that clean energy companies have proven "resilient" to the global financial crisis and recession. Global revenue for the sector was about $530 billion in 2009, down only slightly from 2008's $534 billion.

Global wind power capacity grew by 31.7% in 2009, the most since 2001. And more than a third of that happened in China, according to the World Wind Energy Association.

Barclays PLC (NYSE ADR: BCS) forecasts an additional 35.3 gigawatts of wind power generation capacity for next year.

Once again, Asia – and mostly China– will account for most of that growth.

Earlier this year China announced a $736 billion investment plan for clean energy in the next decade.

New private and public sector investments in core clean energy leapt by 53% in China last year, according to the Global Wind Energy Council. It added 37 gigawatts of total renewable energy power capacity, more than any other country.

"China's wind farm development was the strongest investment feature of last year by far," the Council concluded.

While China was becoming the world's biggest wind turbine market in 2009, energy infrastructure markets in the West remained depressed due to the economic downturn. This allowed top Chinese manufacturers, including Dongfang Electric (PINK: DNGFF), and China Wind Systems (Nasdaq: CWS) to climb into the ranks of the top turbine suppliers, rivaling Vestas, General Electric Co. (NYSE: GE) and other established players.

In response, Vestas, which has its largest integrated manufacturing plant in Tianjin, China, opened a research and development center in Beijing in October and has declared it will reserve its entire Chinese manufacturing capacity to meet China demand this year.

Building U.S. Capacity

In order to meet demand in China and the rest of the world, Vestas has been building new manufacturing plants in the United States.

Its wholly-owned subsidiary, Vestas Towers America, Inc., recently opened the world's largest wind tower manufacturing plant. The new Pueblo, Colorado facility currently employs 400 workers and features nearly 13 million square feet of space and eight miles of on-site railway tracks for the transport of materials and finished tower components.

The company has geared up its North American manufacturing operations by opening several new plants at its U.S base in Colorado, including a blade factory and a nacelle (enclosure) factory. Sales and service operations are based in Portland, OR.

Vestas also has research and development offices in Texas, Wisconsin, Massachusetts and Colorado.

Vestas' stock price has tumbled off its highs near $20 to about $10 due to poor earnings, reflecting 2009's 50% slump in orders. However, many investors may not realize that Vestas takes a conservative approach to accounting and doesn't recognize real revenues on its balance sheet until it delivers its products - often a year or more after signing contracts.

And it has now booked at least 25% more orders in 2010 than in 2008, its highest year on record.

The revenue from those deals should start to flow in early 2011, giving the company an earnings boost for the year. Vestas' stock price should follow earnings higher in short order.

The company will report full-year financial results on February 9.

Disclosure: None

original article