Chinese Solar Stocks Present Compelling Value

I believe many Chinese Solar companies like Trina Solar (TSL), Yingli (YGE), and LDK (LDK), are good buys after the recent sell off. A few trading days ago, (July 3), Trina traded as low as $26.40, Yingli as low as $13.57, and LDK as low as $29.72. Currently, I am buying at or close to these price levels. I am confident that all of these stocks will be higher in the coming months and years. I am also reminding myself that anyone who sold these stocks in prior sell offs around these prices, didn't have to wait long before regretting it, as they went much higher in a very short time.

In the past two weeks, a small perfect storm has forced solar shares much lower. There have been analyst downgrades and concerns over secondary offerings, speculation that Spain might cut subsidies, and in general, a steep sell off in Chinese and US equity markets. These stocks seem to be highly susceptible to fear, greed, analyst remarks, and speculation. One recent concern has been secondary offerings. If banks that are losing billions can raise additional capital, (even when trading in the single digits) I think it is likely that these fast growing and profitable companies can too, so secondary offerings are to be kept in perspective. As far as downgrades or other speculation goes, if you owned one of these fast growing and profitable companies outright, would you sell it for about half of what it was fairly valued at 3 weeks ago because some outsider/analyst said so? (And quite possibly to the very same outsider or firm who told you to sell your company/shares cheap?)

I think all of the above concerns are mere speed bumps for these companies to roll right over in the coming months. The fundamentals for solar are so positive, and the sales growth is so rapid that I believe any of these problems will be short lived.
I think oil will come down at some point and that may affect solar however, I think solar will continue to grow rapidly as solar prices come down and concern over the environment and energy independence (from foreign oil) continue to gain importance. A few years ago, a Toyota Prius was not a "mainstream" car but today it is. I think solar will go mainstream in the US over the next several years.

For some perspective on what potential Trina Solar or these other stocks might have I looked at the chart of MEMC Electronic Material, Inc. (WFR) which traded around $7 per share between 2004-2005, and as high as $96.08 in the past 52 weeks. WFR has a current market cap of about $12.5 Billion and posted revenues of about $1.1 billion in 2005, $1.54 billion in 2006, 1.92 billion in 2007 and according to Yahoo Finance, has an average estimate of $2.36 billion for 2008.

If you analyze these numbers you can see that WFR had about $1.1 billion in revenue 2005 which is close but slightly less than the 2009 estimate for Trina Solar which is estimated at $1.24 billion. You can also see that WFR had an increase in share price from a low of about $7 to as high as $96.08 between 2004-2008 which is more than a ten fold increase. I see no reason why Trina Solar (or some others, like YGE or LDK) cannot potentially enjoy similar revenue growth rates and a market cap increase over the next 3-4 years that WFR has experienced.

Trina Solar has a current market cap of (only) about $725 million. It seems reasonable to me that TSL, in the next few years, could post similar revenues and profits as WFR will this year (WFR revenue estimated at $2.36 billion for 2008) and when it does, why wouldn't TSL have a market cap much closer to the current $12.5 billion market cap WFR currently has, rather than the $725 million TSL has now? (I realize that WFR and TSL are not perfect matches, as they have different management and gross margins, etc.)

Over the last few years, WFR experienced stock price corrections, analyst downgrades and other concerns, only to overcome and climb higher. If you owned WFR and sold out when the share price or stock market corrected, or when an analyst downgraded it you may have avoided any additional downside but you would have missed the huge gains it has registered since. WFR reached a market cap of about $20 billion when shares traded at $96. The current market caps of TSL, YGE and LDK leave significant profit potential if they reach even half that one day.

These stocks appear to have very good fundamentals, positive earnings, and low PE ratios. Sure, there are risks and company specific challenges as with all companies and stocks, but I don't think solar or these companies have seen their finest day yet, and I want to have some of my money invested in them when they do....These stocks could get even cheaper if the market or other forces impact them in the short term, but I think any downside will be short lived as revenue growth drives these higher.

While I cited Trina Solar in most examples, I am also buying LDK, YGE and the solar ETF (TAN trading around $23) at their current price levels. In summary, I believe the long term fundamentals of these and other solar stocks powerfully outweigh the short term problems that arise in any fast growing business.

Any investment in these or other stocks has risks and you should research them thoroughly to verify if they are suitable for you. Chinese and solar stocks can be very volatile and the ideas above simply represent an opinion, and the beliefs of one person, not specific investment advice. Numbers and statements above are sourced primarily from Yahoo Finance, are not guaranteed, and should be verified for accuracy before any investments are made.

Disclosure: Long YGE, TSL, and LDK stock and options.

Comments

[rana]

there is no way to compare WFR to TSL.
if we'll get growing demand next year for silicon from the semiconductors industry, WFR will probably go balistic while TSL will go down hill.
for this reason alone they can't be compared and there are other reasons which i won't even mention.
i am a solar fan myself, but i am realistic and as long as the markets are bearish there will be negative premium for high growth high risk companies.

[vitamin_j]

I have to agree with rana. He or she is spot on - what will make WFR's price soar (continued high silicon price/demand) will make TSL's price dip (concern about silicon supply is a major factor driving recent Trina price drop), and vice versa.

Plus, WFR isn't even a pure-play solar company. Much of their revenue comes from supplying other, more traditional semi-conductor needs.

Investors be warned; comparing these two companies as the author does is just wrong.

[Eric Rulmont]

As I stated in the article "I realize that WFR and TSL are not perfect matches, as they have different management and gross margins, etc."

I was comparing only a very few points between these companies like the revenue levels and potential growth rates and the wide spread between their market caps, NOT their products, margins, management etc....

Please don't read into the mention of WFR too much, as the title states, the main point of this article is about the recent decline in solar stocks, and their long term potential.

[heirbrande]

oK THATS GREAT about China's Solar initiatives. What about the USA's? Here we are, selling out everything under the Sun then complaining how our home market sux. (pun intended).
Anheuser-Busch just got sold to InBev in Belgium which itself has about the size ofpopulation of Toronto. How did this happen? AB has been a great sports advertiser. I doubt InBev will feel the same need as they have no image to protect. Greed is the answer to that question. Greed is the reason all of these banks are failing now, housing is down, you name it. There' just no other way to look at it. You can disagree, but that's the truth.

People need to get down and dirty, believe in America and back our own companies first again. There is NOTHING wrong with trying to help yourself and your country, like Kennedy proclaimed. Then, maybe with the extra money we have, go make investments overseas. It is improper to be even thinking about investing over there when we are struggling here!
Investing in oversea companies in this time of economic uncertainty is selfish move, not that investing in US-based companies is not, and an insult to all of the people who have been working hard to hang on to our jobs here. Forget about a little pocket change and help our on team for a while, or no one needs to be complaining about anything.

So. FSLR. What do you think about Cramer's recommendation of this American-based solar stock?

[dicki31785]

If you guys havent already heard from the uninformed comments posted here...TSL has forward contracts in poly....which would lower their poly costs next year from 12-17%....what WFR will do no clue but that is not my point...

if you guys don't know what you are talking about concerning Trina's Poly positioning...I just wouldn't talk about it...So yeah Rana and Vitamin J do some research or just listen to the CC but thinking or doing some research before you talk is always a good idea:)kind regards from Germany CW

PS good article though some tough comparisons to make:)

Long ABX, CSIQ, TSL

[Wez]

Any thoughts on the dilution?

[Zenfar]

Hey heirbrande,

Some mostly USA Solar to consider: ENER, FSLR, ASTI, & SPWR.

[rana]

dicki
there is no talk about TSL (which i'm long) poly positioning but what if..
with that said, it seems you don't know how poly contracts work, so you better learn them first and than we can talk about possible scenarios.

[vitamin_j]

Dicki - I'll admit I could have clearer re Trina's silicon supply. I am not intimately familiar with the company - I neither love nor hate it. Trina's silicon problems are more in the short term, and I have heard elsewhere about the built-in price decline you mention for next year. So we're both right, but I could have been clearer.

My main point wasn't to bash Trina, but to call out what I felt was a fatuous comparison with MEMC in the article.

[Wayfarer]

I don't have a clue as to why a comparison of MEMC, a silicon wafer manufacturer, was made to Chinese solar module manufacturers.

I think the Chinese solar module manufacturers will outperform on the next bear market rally, probably during this earning season.

[Eric Rulmont]

No one should be arguing that WFR and TSL are not across the board comparable. It would be productive if some posted comments pertained more to the main point which is that I felt these and other solar stocks were too cheap at the prices they recently traded at.

Again, no one is stating a direct across the board comparison between any of the companies mentioned, I just picked one company (WFR) to draw very specific and limited similarities out and to show that long term investors in many companies are easily shaken out with downgrades, short term problems, etc. which can be the wrong move. WFR was downgraded a couple years ago which caused some to sell before a huge gain and that was the other point of mentioning WFR.

Dicki, thanks for posting the disclosures on your positions. I encourage everyone to do the same.

[Eric Rulmont]

One could compare apples and oranges and find the similarities (or differences) such as: they both grow on trees and are fruit.

By comparing apples to oranges or WFR to TSL, it certainly doesn't create a statement to mean they are the same. The article clearly states they are not perfect comparisons and limits the similarities to a very few specific points.

[Alpha 26]

The problem with Chinese solar companies is that they face a currency headwind. The CNY is appreciating at 7% against the $US annually and that is expected to continue. There is also the risk of the Chinese goverment revaluing their currency overnight to the tune of 15%-20%. Either way, Chinese exporters face a currency headwind which will eat away at their margins and not allow them to grow profits at the pace of the industry.
I think YGE, LDK, and STP are enticing, but you can buy ESLR and SPWR, each of which have better technology, a similar valuation (ESLR to YGE and SPWR to STP) and should have the weak $US at their backs for some time to come.
In the end it's a technology business and a margin business and the Chinese solars have niether.
Good luck

[Eric Rulmont]

Alpha 26: Thanks for your comments, I like ESLR as well.

[frflyer]

User Yes, there are dangers in buying Chinese stocks as you point out. But to say that the Chinese solar companies live or die with exports is not totally true. The potential in China itself is huge. China has made a commitment to increasing clean energy. Millions of Chinese live in rural areas not served or underserved by electric grids as we in the developed world know them. Solar is a great solution for rural electrification, where it is not necessary to be on a grid. The same is true in India.

The U.S. will become a much better market for solar and wind, as the politics of energy improves. The amount of dis-information about energy is astounding. Basicall, we are being told that alternatives can't do the job, which is false. We are told we need to drill offshore and in ANWAR which are smokescreens for business as usuall. When people start listening to people like T Boone Pickens, when he says we can't drill our way out of this mess, there will be a mass revelation, and people won't be happy when they learn how much they have been fooled, for the sake of the oil industry and other established powers that be.

To see what oil is really doing to our economy, go to:
www.setamericafree.org...

And to see what we can do right now to solve the problem, go to:

www.setamericafree.org...
A Blueprint For U.S. Energy Security

[dicki31785]

Dear Rana I have many friends at the EU commission for energy and I know a couple guys working for Wacker Chemie(one of the biggest, or the biggest I am not quiet sure, poly producers in the world) so please do not worry about my knowledge about poly contracts, but I do thank you very much for your concern:)

To Vitamin J indeed that comparison is a bit far fetched as I stated before...And I was having quiet the poor day and when i read your guys' comments...you know how it goes:)

@Eric Rulmat - I think you are absolutely right if you are looking for value(yes I said value in the same sentence as solar shares)/growth it is the right time to go for it...These companies trading at these ridiculous P/E ratios...

And they (analysts) say it is bad to invest in Solar because of Spain, and its potential introduction of a 250 MW cap....anyone making that assumption is clearly uninformed about Spain....If they do introduce a cap, which I doubt, it will be around 750 MW(Spains solar industry just simply won't let it happen and many other reasons for that matter)....what could happen is that they slash incentives by 20-30% which wouldn't hurt the Spanish market as much as one would expect(at least in Spain due to its perfect placing on the "solar map")....And the next boom market for solar is Italy which will be the next Spain....And Trina's positioning their is absolutely marvelous as you can see in the contracts signed in the past few weeks their...I think Trina and SPWR (due to the acquisition they made last year) have the best position in that rapidly expanding market....

I think it is quiet obvious...that companies that grow 100%(sometimes more, sometimes less) y-o-y need some money in order to finance their rapid expansion...Obviously they burn more money than they take in at the moment...How could you not with ramping of X amount of lines a year and investing in long-term poly contracts...expanding capacity in some cases three or four fold...(sometimes less but certainly not the point)...Alternative energies are there to stay....

The last advanced country that has to make the step is your guys' country(and your little/big brother the UK...depending how you look at it;))...And it is quiet shameful what is happening with renewables in the US....and I certainly love how everybody complains about Gas prices/Oil prices but nobody looks for solutions...the next "great" American plan is to drill in Alaska....that is the solution...is it really?Quiet impressive:)In any case we are not here to talk politics, otherwise I probably wouldn't stop typing in any case;)

To bring this long post to an end...As you stated the main point you were trying to make is that the companies in the solar industries are just hitting speed bumps...and that is certainly the case...Would I sell my shares because of that no way...Each day is another day shopping for solar shares at ridiculous valuations....The more the American public, and the world(besides the EU), gets involved and begins to grasp what Solar can do for us in the long term the greater will be our returns so enjoy because I do not know how many oppurtunities you will get buying shares at these prices(not saying it couldn't go down a bit more in this bear market but I think we are close to bottoming out)....Kind regards from Germany CW

PS @All....I do encourage you to read Jack Jetiv articles about the solar space I have been involved quiet some time...with plenty of different stocks...But both TSL and CSIQ were his picks(well he wrote some articles and I got more informed about them and tend to agree with him in most things)....With one working out quiet well the other one lagging...But IMO he has a great understanding for the industry....But also bigger companies besides the ones Jack mentioned are worth other looks....with SPWR(probably the best managed company in the whole solar space),LDK, STP...Please beware of FSLR everyone.....check out all the facts there are....Cheap doesn't mean good:)(certainly not meaning their valuation,but the cost of their inefficient panels when size of the area is constrained)

Long ABX, CSIQ, TSL (No shorts at the moment but if FSLR hits $300...)

[Eric Rulmont]

Frflyer: great points to keep in mind...

Dicki: Excellent posting and great to see more of the European perspective. I also have enjoyed Jack Yetiv's articles.

[Jack Yetiv]

I think Eric's point about WFR versus TSL is simply that if TSL, in a few years, sold $12 billion in solar panels, it should maybe trade at close to $100. I don't think he intended the comparison to go any further than that.

My concern with Eric's thesis is that I believe the solar field in TWO years (not to mention five years) will be so different than it is now that it is very difficult for ME to predict what all the solars' sales and earnings will be. For example, if Nanosolar indeed does what it says it can do, I believe that will have a giant impact on the solar industry. Other companies are also working on disruptive technologies, and without inside information (which I do not have since I am not an insider to the industry), I simply cannot separate the wheat from the chaff.

I can only look out 6-12 months with any level of precision, and I believe the best risk-reward plays today (based on that 6-12 months out look) are SOL, TSL and CSIQ, with a nod to SOL.

Yes, this space offers risks, as we all know, but I think those risks are amply compensated for when you are buying--at a PE of 10-13-- companies that will about double their earnings from 2007 to 2008, and tack on another 50-60% of earnings in 2009.

I think ENER and FSLR are waaay too rich, which is not to say I would short them--the market can stay irrational far longer than we can stay solvent, as the saying goes.

ESLR may do great--or it may bust.

SPWR and STP are not as rich as ENER or FSLR, but don't offer enough of an advantage to induce me to pay their higher PE's in the 20's and 30's.

YGE, JASO and SOLF are fine companies, but at such attractive PE's as SOL, CSIQ and TSL.

Finally, LDK might turn out to be an ass-kicker if its fab starts up fine and makes the projected amounts of poly in 2008 and 2009. But if it misses, LDK will be dead money for at least a couple of quarters. Yes, LDK has executed pretty well previously, but again, I consider SOL, CSIQ and TSL somewhat less risky.

In general, I believe this earnings season will be great, and I believe most of these stocks will go up at least 20-30% in the next month, and one or two of them will rise substantially more (a double out of SOL wouldn't shock me, and a 50% run out of TSL and CSIQ wouldn't either).

As to incentives and such, let me say that the solar "genie" is out of the bottle. Even without any new incentives and even if current incentives were reduced (as Germany's have been by about 8% per year, and as Spain's probably will be), the number of places where solar achieves grid parity will grow substantially over the next few years. The reason is that (a) conventional sources of power (nat gas, coal and even nuclear) have doubled in cost in the past year or two, and (b) once carbon-generation is fully included in the cost of conventional power generation, we will find that UNSUBSIDIZED solar will be cost-competitive with conventional power sources in locales with a good solar resource.

Having said this, I believe that the total amount of solar incentives around the world will GROW (NOT decrease) over the next few years. For the last few years, all we have heard about is Spain and Germany. All of a sudden, we're hearing about Italy, Korea, Australia and most importantly, China itself, as new customers for solar.

I also think the US will come on board, and in a big way. I believe it is a mistake to look only at FEDERAL tax credits in the US (which are up in the air at this time). The states are far ahead of the federal govt, and at last count, 29 states have RPS's (Renewable Portfolio Standards) which require utilities and power generators to generate a certain percentage of their energy from renewable sources. In addition, many states have substantial subsidies for solar PV (Calif, of course, is the leader there) and I believe more states will adopt solar incentives.

In summary, I believe upside potential is substantially greater than downside risk, at least in the next month or so.

Once earnings season is over, I will write another summary article looking at this space and giving my updated thoughts at that time.

Jack Yetiv

[Jack Yetiv]

P.S. Disclosure. I hold large long positions in TSL, SOL and PWE (a Candian Royalty trust). I am not short anything.

Jack

[Eric Rulmont]

Jack: Thanks for your comments, I agree them including the expectation that solar companies will announce good earnings and possibly more signed contract just as ESLR did yesterday. Looking forward to your next article, after earnings.

Vitamin J: You may have misunderstood the intent and extent of my comparing TSL and WFR. I am not the only one to make limited comparisons between TSL and WFR:

I am sure some are familiar with the "Solar Stocks Comparison Table" put out by the China Analyst website in which some market cap, revenue, and estimate comparisons are made between TSL and WFR as well other "solar stocks". It is a easy way to keep track of market caps, etc., and can be seen at:
www.cnanalyst.com/sola...

[User 26737]

Rulmont and Yetiv: Please tell me why JASO gets so little coverage from bloggers?

[Eric Rulmont]

User 26737: Unfortunately, I don't follow or know enough about JASO to answer that question, perhaps Jack or someone else will...

[rana]

TSL gave preliminary 2nd Q results.
if we take the lower end of the results we get 200M$ sales and 14% operating margin. this gives us 28M$ operating profit.
if we assume higher interest expenses, net, and lower exchange loss, which will offset each other, and 10% tax expense we get:
28000000-6200000=21800...
EPS - 19620000/25130000=0.78...
if we use the median:
202500000*0.146=295650...
EPS - 0.84
we have a range of 0.78-0.89 between the high and low end, depending on exchange loss, interest expenses, net, and income tax.
the median gives us 0.09$ better than estimates.
a big question will be the margins.

[Bob Sharron]

What is happening with PWE? Instead of North of 40 it is now South of 30 and declining. There is no rationality to the price or the volatility of this stock. Anyone have a hypothesis on current performance?


On Jul 16 03:45 AM Jack Yetiv wrote:

> P.S. Disclosure. I hold large long positions in TSL, SOL and PWE
> (a Candian Royalty trust). I am not short anything.
>
> Jack

[vitamin_j]

I'm not hugely against Eric's thesis - he may indeed turn out to be right.

However, one thing about his "undervalued"... argument (and I think Jack Yetiv's as well) is the question of when exactly the market is supposed to correctly value TSL et al. Investors in this bear market tend to overvalue bad news (share dilution, cash flow concerns, growing pains, margin compression), while undervaluing good news (example: a nice bump, sure, on today's TSL announcement, but not the 15% - 20% spike from last year's solar boom).

So there's some risk that these companies might continue with booming earning announcements, solar fundamentals keep looking great, the story is there, but that investors (especially large institutions worried about risk, credit, leverage, etc.) might steer clear of growth stocks in a highly speculative industry in an emerging market (China) as a rule. That might keep these companies undervalued until the broader market gets its legs back, I believe.

That's not to say that the thesis is void - Trina could very well be that great company ignored by the market - just that it may be years not months for it to pay. And that gets into the territory where Jack Yetiv fears to tread (right, Jack?): past the one-year horizon where industry-wide changes in technology might really shake up the game. So, if you're confident that TSL will survive and thrive for years to come, now is probably a great time to get some discounted shares. I'm more skeptical about investing for months vs. years. That might just go sideways or down further.

Also, my more skeptical case could be mitigated some by better news on subsidies and new solar markets. I personally believe that "green recovery/stimulus"... is in the air here in America, but won't begin to be seriously enacted by the US government until the middle of next year.

With a one-year-plus horizon, I am long Suntech (STP) and Akeena Solar (AKNS).

[dicki31785]

I do agree with you their Rana the increased REV guidance was nice...the convert doesn't hurt too much since they did not "over do it"...but the margin does leave some room for concern...I expected it to actually be at the very minimum equal to the Q1 margin...And am sort of disappointed by that...Obviously the beat was nice....two times beating in a little more than a month...(since last Q numbers came out so late)Well we will have to wait for audited numbers/CC for more information concerning that...but certainly not bad news today....

@Jack I do agree with you that solely looking at federal tax incentives doesn't give you a clear picture...But still there are only a handful of states who provide incentives enough to get solar off the ground...I mean a considerable amount....Not the tiny amounts of today...and concerning Spain the incentive cut will be bigger than in Germany but that is no reason for concern....A problem would be a cap....But as I stated above i doubt a cap will come and if it does 750 MW is realistic, and not the 250 MW # that some analysts were throwing around...

And it's looking like my prediction from 6 months ago that Italy will be huge is slowly, but surely, coming true....especially in the South of Italy it can be used very well....Also Switzerland increased incentives this week and the package they proposed and implemented looks quiet decent(but it is a small country but every MW helps)....So i totally agree with you that incentives will increase rather than decrease globally but it is really time for y'all to step up to the plate...

It just cant be that the best idea, so far, is to drill in Alaska (if I understood correctly in a wildlife refuge)!!!!I mean that leaves me speechless....And makes me, to be honest, VERY angry...We all live on this planet together and y'all are doing your best to destroy it...First for years driving your huge SUV's, Air conditioning 24/7 everywhere, and your industry being quiet wasteful concerning fuels when they were cheap and that leads to the destruction of OUR planet...and then as if nothing was learned the best idea is to drill in Alaska....The point is that we have great opportunities and that is due to OUR incentives which got Solar, Wind,etc. off the ground...so please use the technologies that are only available because we subsidized them:)I guess i wasn't so speechless after all;)...With kind regards from Germany CW

PS and if we can "save" the planet and "all" earn a good amount of money while doing it lets go for it right!?!:)Sorry for the mix of politics, lifestyle, into a discussion about stocks but I do believe it is important to talk about these issues...and I am not looking to offend anyone as I lived in your country for a few years and quiet enjoyed my time their....But as I said these issues are important to talk about...though they don't really pertain when talking about stocks...

[rana]

SOL book to bill in the 2nd Q was over 1GW bookings to an estimated 75-80MW shipments. nice ratio.
i looked at each news item in the Q to get the bookings number and the estimated shipments from the 1st Q report, the guidance for Q2.
i didn't calculate the exact average period of the bookings, but if it's for 5-6 years, or 24 quarters, the average addition per Q is over 40MW. do the math.

[rana]

the latest annoucments from CSIQ TSL lead me to believe that the silicon shortage is almost certain to stay with us at least till 2009, which is still unclear also.
as i posted before regarding pricing of wafers in taiwan, the prices moved up in June which brings more pressure to the market.

[rana]

SPIR 2009 estimated PE is under 10 now.
the stock created a falling wedge formation with bullish divergence on the RSI on 3 points and the same with the money flow.
i'm long SPIR and adding.

[Ryan Hall]

Hi,

I haven't been able to find an answer to this question, so I wondered if someone here might be able to help me.

I often see the price of solar energy listed in price per kilowatt hour. I don't understand the time frame used for this. If solar pays for itself 15 years down the road, then over 15 years, solar's price/kwh must be better than conventional energy (15-25 cents/kwh), right? So for what time frame is the price of solar calculated? One year? Five years?

Thanks,
Ryan

[Jack Yetiv]

To Ryan:

There are different ways to measure the cost of solar electricity, but cents per KWH is a common one because each one of us can look at our electric bill and calculate what we are paying. In Houston, Texas, I am currently paying about 17 cents/KWH.

To calculate "payback," different people calculate it differently, but a much better thing to calculate is whether it is economic for you to install a PV system at your house. One way to do that is this: Imagine you pay 17 cents per KWH and you use 1000 KWH/month, or 12,000/year. Your electric bill is $170/month. Let's say that a $30,000 PV system could generate 1000 KWH/month and therefore eliminate your electric bill (with incentives in sunny locales, eg, Calif, this is a realistic example).

Let's say you don't have a dollar to spare on the PV system, but let's further suppose the PV company will install it for free (the installing company will actually borrow the money to pay the full $30,000 to cover the equipment as well as installation). Instead of paying money to your current utility, you will make monthly payments to the installing company (or to its lender) for say, 20 years. The first year, you will pay $170/month--no more than you would have paid for electric. Each year, you will pay 2% more.

If structured correctly, you will be guaranteed relatively low electric bills for 20 years, the installing company gets an installation job, and the lender can earn a return well in excess of 10%.

What's really cool is that after 20 years, YOU become the owner of the system, and since PV panels will probably live well over 30 years, you will get FREE (minus maintenance costs, which should be no more than a few pennies per KWH) electricity for quite a few years after 20 years. The deal would be transferable to subsequent owners of the house.

I predict you will see the above transaction become quite common in the next 1-2 years.

Further responses to other comments a bit later.

Jack

[Jack Yetiv]

Regarding JASO, my feeling is that it does not offer anything better than SOL, CSIQ or TSL, yet trades at a higher PE. I will only pay a higher PE if the company offers me some compensation for that higher PE. I don't think JASO does that.

Regarding Rana's EPS estimates for TSL--you and I are in the same ballpark. However, TSL's tax rate this year is 4.92%, not 10%. On the other hand, interest expense and exchange loss will probably amount to more than $6 million, IMO. So we're OK there.

However, I think both revenues and margins will come in at the UPPER end of the range that was indicated today--ie, closer to $205 million and 15.2%. It's bad form to pre-announce 2 weeks AFTER the quarter ended and then come in at the LOW end of your pre-announcement range. So I think upper 80's to low 90-cent range is a reasonable EPS projection for Q2.

If we go with 90 cents and figure only 10% qoq increases (VERY CONSERVATIVE), we have full-year EPS of 51+90+100+110 cents=$3.51, meaning that AFTER today's 13% run, TSL is still trading at a 2008 PE of under 10. And EPS of $3.51 is substantially more than double 2007's $1.54. And my projection for TSL EPS in 2008, which I posted a couple of months ago, is about $3.85 to $3.90. So TSL has $5 more to run before it gets to a PE of 10 against my EPS projection.

A PE of a little over 9 for a company that is more than doubling income this year, and will tack on another 30-40% next year? Call me stupid, but to me, that is a screaming buy.

Also, details about the convertible have emerged. TSL will pay 3.5 to 4% interest on the $120 million ($138 million if fully oversubscribed). The conversion price has not been announced but I am guessing it will be between $42 and $45--to make it attractive enough to the bond buyers but not dilutional unless that target is met. Even once the target is met, this represents only a 10% or so dilution.

Given its cheap cost of capital (3.5 to 4%) I do expect TSL to do a follow-on offering when its stock is in the $40's or maybe later, but basically, the market's response today despite this offering is very encouraging in that it shows that the "lack of capital" overhang may no longer be much of an issue for the market.

Further thoughts in a future post.

Jack

[rana]

TSL - with the option to the underwriters they will raise close to 140M$.
if we take low conversion price of 40$ per ADS we get 3.5M additional shares. if we add this to the current count we have around 28.6M shares.
if we had this count in this Q the current estimated EPS for Q2 2008 would have been (under the assumption of the mid range, which i agree with jack that it's more likely we'll be at the higher end, but we always prefer being conservative):
73-74
this means we have a 12-13% reduction in the EPS.
the important thing is that the cloud of financing will be lifted (at least for the short term).
margins are still a problem, but it goes to all the industry and the higher growth might compensate for that partially.
regarding the stock price - if we take the new dilution into account and assume 10% EPS growth for each coming Q and use the mediam assumption for the current Q - we get EPS around 3$ (this is super conservative if we assume no more margin erosion). we have 2008 PE around 11 and 2009 is under 8.5 assuming EPS of 4$ for 2009 (33% EPS growth for 2009).
i like the numbers, but off course everyone needs to make thier own decisions regarding price vs. risk and there are clouds out there in the futureas we don't have a clue regarding which technology will be the big winner, or how silicon prices will be in the future (some new companies that are building new silicon plants may not be able to raise enough money to complete the new plants, see HOKU as an example) and so many other uncertainties that with the current environment of risk aversion is impacting the prices of risky assets.

[Eric Rulmont]

Stockaccumulator: Thanks for the post on SOL, I think it has potential too.

For anyone interested: There is an interesting article called "Inside The Solar Gold Rush" in the July 21, 2008 issue of Fortune Magazine.

[trumanburbank]

This S&P buy recommendation on TSL was posted 7/6/2008, including EPS estimate of $3.72 for 2008.

S&P MAINTAINS BUY RECOMMENDATION OF TRINA SOLAR ADSS Updating selected Q2 guidance, TSL now expects revenues of $200M-$205M, gross margin of 22.5%-23.5%, and operating margins of 14%-15.2%. These metrics are notably above our model and previous guidance. Consequently, we are raising our '08 earnings per ADS estimate by $0.54 to $3.72, supported by our confidence that management will continue to execute growth plans.

[trumanburbank]

Sorry, that should say "S&P buy recommendation on TSL was posted 7/16/2008...

[buystocks]

I agree with it. That's why I bought TSL.

[STR]

dicki- you're right about the bad policies of the u.s.- but try and give us a little break. we've been trying to survive george bush, condoleeza rice and donald rumsfeld. all three have been a disaster and are war criminals.