Further Thoughts on Trina Solar and the Solar Space
This past Friday, I wrote an article updating my thoughts on the leading companies in the solar space. Since I submitted the article just an hour after the Trina Solar (TSL) conference call ended, I was unable to comment extensively on information given during the TSL conference call. I am now able to give further thoughts on TSL—which will also help us to understand key facts pertaining to all companies in the solar space.
I found the TSL conference call very interesting—not only because of its relevance to Trina’s prospects, but because I believe the conference calls reinforced many of the themes and arguments I have presented in various articles on these virtual pages over the past several months (I should note that Trader Mark also wrote an article on Trina over the weekend, an article you should also read if interested in TSL).
Let me summarize what I found so interesting in the TSL conference call, and discuss how this information is useful even to investors who do not hold any TSL:
1) TSL re-affirmed 2008 revenues guidance to between $770 million and $808 million. I believe their sales will be at the upper end of that range (but I do not expect sales to exceed $810 million) because their 2008 production is almost fully (95%) booked, and because demand in Europe not only remains very strong but may well be increasing as new markets open up (more on that below). Keep in mind that oil’s return to the upper $130’s in the past three trading days will only serve to focus greater attention on alternative energy going forward, and should help boost the solar stocks as well as their sales prospects.
2) More importantly, TSL’s operating margin guidance was also re-affirmed for this year—at 15-17%. Although many did not believe it when TSL guided to those levels in March of this year, the fact that TSL achieved operating margin of 16.7% in Q1 would suggest that 15-17% for all of 2008 is a very reasonable range. Taking the midpoint on sales and margins guidance ($789 million times 16%) yields operating income for this year of $126 million. Annualizing the same interest cost and exchange losses as just reported equals a currency exchange-and-interest expense of about $24 million and taxes at 4.92% (announced on the call) adds up to $6 million, yielding earnings in 2008 of $96 million. This translates to$3.79/sh, yielding a PE of under 11 against TSL’s price in the $41 range as I write this.
However, because I think TSL’s revenues will actually be $800 to $810 million (not $789 million), I am projecting EPS of about $3.90/share this year. Please note that to arrive at these numbers, I have assumed that currency losses reported for the first time this quarter will continue at the same amount ($4 million per quarter) for the rest of 2008 even though on the conference call, TSL mgt indicated they expected that Q2’s currency loss will be about $3 million.
I believe that the analysts will go through the same math I have just done and that earnings estimates for both 2008 and 2009 will be increased by at least 10-15% (to over $3.50) in the next few days.
Therefore, to me, TSL at $41 is a strong buy, not a sell. This does not mean, of course, that TSL may not be able to be bought at $40 or even less. I do not have a crystal ball, and can’t say if TSL will drop further to $40 or even less. What I can say is that TSL has very good support at $40-41, so I think downside risk from there is pretty limited (but anything is possible in the solar space).
But if the analysts do what I expect them to do and upgrade this stock based on increasing 2008 estimates, TSL is far more likely to go up than down from $41.
3) Some parts of the conference call were far more interesting than the above, and have relevance to the whole solar space, not just TSL. For example, TSL told us that their non-silicon panel costs were $1.17/watt this quarter (down from $1.28 last quarter), and that they expect to exit 2008 at $1.05. Please note that in this cost per watt, TSL, as an integrated manufacturer includes ingot, cell and panel-making. Thus, if a non-integrated competitor of TSL has lower per-watt panel costs, it may be that they are only including panel-making because they are buying their ingots and/or cells.
4) It is interesting to note that unlike any of its competitors, TSL’s panel production is now fully integrated—ie, they make the ingots and cells for all the panels they build and sell. This partially explains TSL’s industry-leading margins among poly-based producers. I believe that as TSL increases production capacity from 200 MW (where it is right now) to somewhere around 300 MW’s at exit of 2008, it plans to continue to be fully integrated, which, of course, will help TSL maintain the highest margins in this business.
5) More interesting, TSL’s silicon costs were $1.76/watt in Q1. Combined with another fact—that TSL is using 7.5 grams of silicon per watt—we can work out that TSL’s silicon cost this quarter was 176 cents/7.5=23.4 cents per gram, or $234 per kilo, which seems substantially lower than TSL’s competitors.This, by the way, also explains TSL’s superior profit margins (for example, TSL’s operating margin this quarter was 16.7% versus about 13% for Canadian Solar (CSIQ) (going by memory)—a humongous difference). While spot price for poly this year has been north of $400, TSL paid under $250 for its poly in Q1, and expects to pay under $200/kilo in 2009.
Many people do not know why TSL has better profit margins than its competitors, and a key reason has been that it uses a substantial amount of recycled silicon which it obtains at a discount to virgin poly.What I did not know until this call was that from the customer’s point of view, TSL’s panels which are made with recycled/virgin poly mix are essentially indistinguishable from other manufacturers’ panels made from virgin poly, and carry the same 25-year warranty that every panel must essentially carry in order to be marketable in the US (and some other countries as well).
6) In keeping with the other solars that have reported (although in most cases, you had to read between the lines on the conf call to get this point), I believe poly prices will be coming down substantially in 2009. In fact, TSL stated they expect a decrease in poly cost of 15% in 2009, although I believe that by exit of 2009, poly costs will drop by more than 20%.An interesting fact relating to this was TSL’s statement that prepayments for poly are now in the single digits, and I got the sense that TSL has deliberately not contracted for all of its poly in 2009 because it believes it will do better in the spot market for poly in 2009 than contracting for it now. I think TSL is correct on this point (assuming my read was correct).
7) ASP guidance was also very interesting. TSL guided to about a 10-cent drop in the latter half of 2008 ($3.95 this quarter to $3.85/watt later this year), with only maybe another 10-cent drop in the first half of 2009. When TSL was probed about this, it turned out that most (95%) of its 2008 production has been sold, and that 60% of either first-half 2009, or all of 2009 (it wasn’t clear which) has ALSO been sold. Because they have pre-sold so much product, I consider the ASP guidance especially reliable.
8) The above paragraphs, taken together, explain why TSL’s margin (gross and operating) are expected to remain so strong—while ASPs will only drop a few percent in the next 12 months, poly costs will drop by 15% and non-poly panel costs will drop by 10% ($1.17 to $1.05).
Therefore, margins will not only remain stable but actually expand from 2007’s margins. It seems likely that margins will remain strong in 2009.
9) What I also found interesting is the number of countries in which TSL has already begun to sell product in addition to Germany and Spain—Belgium, Italy (where it has 26% of the market; interestingly, some people believe that Italy could become as large a market as Spain has traditionally been), France, Korea, the Netherlands and Australia.This shows much more geographic diversity for TSL than most of its competitors, something that I think will serve TSL well going forward.
10) Although the market clearly does not appreciate the significance of this, TSL obtained (in March, 2008) certification to sell its panels in the US, and already has contracts in the US that will begin to ship next month (TSL’s entry into the US could possibly explain why it decided to go to the dollar as its functional currency). I think this could potentially be very significant because I think it is likely that the US market will become a leading solar PV market in the next year or two. Most of TSL’s competitors do not have a position in the US market and I think TSL is entering the US at precisely the right time.
A discussion of why I believe the US solar market is on the verge of taking off would take too much space to get into here, but, very briefly, I believe we are at a tipping point in the US—very close, I believe, to finally recognizing as a country that we MUST embrace alternative energy in a BIG way. In addition, as I have recently opined on these virtual pages, I believe that if we take ALL costs into account—including environmental costs and the fact that coal and nat gas prices have doubled in the past year—we are at grid parity right now. As this fact becomes more recognized in the very near future, it will be a MAJOR kick in the pants to solar energy in this country.
It’s not my intent to brag, but much of the above supports some theses I have propounded in my previous articles, including these:
- For 2008 and 2009, poly costs will drop faster than ASPs, allowing solar panel makers (not just TSL) to maintain (and possibly even expand) gross and operating margins. The reason for this is that (as I opined in late 2007 and since), global demand for PV panels is going to grow faster than many industry experts believed. This will largely be due to the recognition that if we take CO2 and other environmental costs (as well as increasing coal and nat gas, and nuclear plant construction and insurance costs) into account, solar PV has reached grid parity in the places with excellent solar resources (eg, Calif, Arizona, Nevada, Colorado, etc).
- I believe that First Solar (FSLR) will progressively lose its pricing advantage over poly-based panels because while FSLR’s panel costs will be going UP (aluminum, glass, CdTe costs, etc), TSL’s (and other poly-based manufacturers’) panel costs will go DOWN.
Let’s do some back-of-the-napkin calcs:
- First Solar indicated cost per watt in Q1 to be $1.14 (FSLR cost per watt has been steady the last 3 quarters; may decrease with Malaysia fabs, but materials inputs may go up)
- TSL’s costs--$1.17 (all-except-poly) + $1.76 (poly) in Q1
- TSL’s projected costs at 2008 exit--$1.05 (non-poly) + $1.50 (poly 15% less)
So, at the end of this year, TSL will be at $2.55 versus $1.14 for FSLR.
If you add $1 of profit to each, you are at $2.14 and $3.55.
But, you need TWO FSLR panels to make the same electricity as ONE TSL panel, so installation costs will add an extra dollar per watt for extra racking, wire, and installation labor cost in the FSLR installation.
This makes INSTALLED costs much closer—say, $5.14 for the FSLR installation (assume $3/watt for balance-of-system and installation labor) versus $5.55/watt for the poly installation.
And if land or roof space must be leased to accommodate double the number of panels, the extra lease costs might be enough to completely eliminate the price differences. Even if the installation-cost differential is only 50 cents, the point is, once poly gets to $150/kilo (which I expect to occur in less than 24 months), the price advantage which FSLR now enjoys may be gone.
Of course, it may well be that by late 2009 or 2010, disruptive technologies offering PV panels with ASPs (not costs to produce, but actual sales prices) of $1.00 to $1.50/watt will constitute new and serious competition to poly-based panels, but we’re not there yet.
In summary, I think TSL offers compelling value at a stock price of $41 (I also think CSIQ in the upper $30’s is a good buy). However, as Trader Mark and others have noted, some aspects of TSL’s management at this stage are disappointing. They initially stated their earnings would be reported the week of May 19—after EVERY other solar company reported earnings.
They missed that. Then they said they would report earnings either in late May or early June. They barely made that, releasing earnings on the very last day of the first week in June. And on the day they released earnings, they only released them a minute or two before the conference call was due to begin. I am sure there are reasons for that, but whatever the reasons are, reporting earnings two minutes before the conference call begins is simply unacceptable.
And finally, TSL management surprised everyone with their “currency accounting change” beginning this quarter that converted what would have been a stellar quarter of 67 cents in earnings into a so-so headline number of 51 cents. While CSIQ and several other solars boosted their Q1 earnings with currency GAINS obtained from selling most of their product in Europe, TSL’s management succeeded in LOWERING their earnings by 25% despite selling the same product in precisely the same markets.
Again, maybe there are valid reasons for this change, but assuming this was the right decision (which I cannot evaluate because I still don’t know why the decision was made), a heads up on this issue at some point in the quarter would have been wise, in my opinion.
Even failing that, a better explanation in the earnings release of why this change was made and what impact it might have on the rest of this year and in 2009, would have been extremely helpful.For good or for bad, if you are a public company, you can run the business well but if you fail in your communications with the investing community, that good work can fail to be reflected in the stock price.
That is what I believed happened this quarter. The operational aspects of this company have hit on all cylinders in the past two quarters, validating management’s approach in the solar space, but there are some frankly inexcusable gaffes that remind me more of a student taking his first MBA class than of professionals running a billion-dollar-plus company.
If TSL management can do as well on their communications as they have done on the operational side of the business, this company will cease to trade at a PE discount, providing significant upside with some real value to be unlocked here. Since the gaffes are so easy to fix, I have confidence that management can and will do so. They can begin by clarifying the reasons for changing TSL’s “functional currency.”
I think the market may be wondering—If everyone in the world is running away from the US dollar, why did TSL decide to run to the dollar as its “functional currency”? If there are good reasons for this decision, investors want to know what they are, as well as what impact this will have on 2008 and 2009 earnings, to the extent that is knowable. TSL would also do well to NOW set an aggressively EARLY earnings release date for Q2 (TSL management--how about being the FIRST to report Q2, rather than last?), showing they have gotten their act together on that score. And once they set that date, they need to make sure they keep it at all costs, and release the earnings report hours, not minutes, before the conference call begins.If anyone is wondering, yes, I have sent a copy of this article to TSL management.
In summary, I believe TSL offers compelling value at $41, with a realistic 2008 forward PE of 11. If TSL starts garnering more respect from the investing community and its PE expands to a very modest 15, and as 2009 earnings in the $5+ range become more visible after next quarter’s report, I think that a $70-80 stock price is well within reach well before the end of this year.
Disclosure: I own a large position in TSL, plus some TSL options bought when TSL was $41-$44 recently. I am not short or long any other stock, but also hold a large position in PWE, which will be the subject of a future article.
Related Articles
|
This article has 84 comments:
- larsson
- 27 Comments
Jun 10 06:57 AMPlease explain in detail this:
disruptive technologies offering PV panels with ASPs (not costs to produce, but actual sales prices) of $1.00 to $1.50/watt
The rest is fantastic and you did a very good job, keep it up!
- investinghobo
- 7 Comments
Jun 10 09:12 AMWhy would the majority of tsl's business be in usd if they are selling almost exclusively to EU nations? In fact peers such as yge, solf, and csiq do their business with EU countries in euros, not dollars. This is evident by their asp increases in Q1, over Q4, which ranged in line with the euro appreciation vs the usd during that period. yge's asps went from 3.86 to 4.11/watt. csiq's asps went from 3.85 to around 4.15/watt. solf's asps went from 3.85 to 4.07/watt. If their contracts were based in euros, then the asps that they ultimately receive when converted back to usd, is increased by the degree the euro appreciated vs the usd. In contrast, tsl's asps stayed stable at 3.95/watt, up only .01/watt over Q4. tsl also noted that they are using long term fixed priced contracts, apparently based more on the usd, if not exclusively to the usd. This is why they have very good asp guidances for 2008 and even 2009, and it is also why, because if their contracts are in usd, they did not see any asp rise for Q1.
Now many would argue why on earth would tsl want to make such a move when everyone is so negative on the usd and believes that it can only go down further against all other currencies. Maybe it's because tsl believes the usd has bottomed, I don't know, but this isn't likely the case. It's more likely that they wanted to keep their asp visibility stable by using the usd, instead of the euro which would have to be converted back to usd for reporting purposes, causing asps to bounce around wildly from quarter to quarter. In essense, I believe tsl removed any asp risks, as well as rewards. If the euro continues to appreciate vs the usd, tsl will not see any benefits, as they did not in Q1. If the euro declines vs the usd, tsl will not see their reported asps decline either, while peers still basing revenues in euros will could see their future asps decline by the degree the usd appreciates vs the euro. Unfortunately for them, Q1 was an unusual quarter where the dollar tanked 8% vs the euro. You could have argued that they should have made this change in functional currency at the start of Q2, but it's probably more logical to do so at the start of a fiscal year instead of in the middle of one.
Thus I also believe most of their currency exchange loss is more tied to the relation of the rmb vs the usd. Their bank loan liabilities are based in rmb, and logically, if the usd declines vs the rmb, their liabilities, in usd, would increase, causing charges. Unfortunately again, the rmb went up 4% vs the usd in Q1, much higher than the usual 1-2% of late.
In the end, while the impact of this change was relatively large in Q1, as revenues continue to increase to much higher levels, the currency exchange risks on revenues will be much higher than the currency exchange risks on their liabilities, which cannot increase much more on an absolute value basis. So from a longer term business prospect, this move makes a lot of sense, although it can have negative effects in the near term. Without access to their books, this is the best rationalization I can come up with.
- Jack Yetiv
- 442 Comments
Jun 10 09:44 AMFinally, I did not say I believed their operating margins will expand in 2009 from the 16-17% in 2008 to some bigger number. That is certainly possible, but too much can happen to ASP's and poly for me to want to make that prediction at this time. I did say that as TSL has previously guided, 2008 margins are higher than 2007.
To investinghobo,
Reasonable and plausible explanation--just imagine how much better the market and analysts would have received it if TSL explained that they believed the pro's of this decision in 2008 exceeded the con's?
I think their move into the US might have also prompted this change--I doubt American resellers and other companies would have wanted to deal with anything OTHER than USD. Regardless of the reason, TSL should have known that this $4 million hit would have raised a lot of eyebrows, and they should have explained it better both in their release and on the conference call (they never really got into it on the call).
Jack
- alphameister
- 87 Comments
Jun 10 10:09 AM- investinghobo
- 7 Comments
Jun 10 10:35 AMAgain, the drawback is it puts their liabilities in terms of rmb denominated bank loans at risk, since now those obligations have to be readjusted to the usd every quarter. The majority of any currency exchange gains or losses tsl might see in the future, should be tied to this, and not the euro. While the rmb will most likely continue to appreciate vs the usd, it's most likely going to do so at a 1-2% quarterly clip, as seen in the past. Q1's rmb 4% rise over the usd was unusually high, and thus, the magnitude in absolute dollar amounts for tsl's Q1 currency exchange loss, is probably near it's limit.
tsl's move to the usd will most likely be seen as a smart move or not, will ultimately depend on how the usd reacts vs the euro. usd/euro exchange rates reached extreme levels at the end of Q1, and so far the usd has rallied 2% vs the euro in Q2. If the dollar can rally back to year end 2007 levels at some point in the future, tsl would then command the highest asps after peers translate their euro revenues back to usd. In addition, tsl would not be subject to any forex risks, while peers in the case I just mentioned, would most likely report forex losses on their euro amounts sitting in banks or in accounts receivables.
In my opinion, while tsl's move is considered beneficial or harmful to earnings after currency exchange translations, is up in the air right now, what they did do was increase visibility and eliminate risks by many folds over their euro denominated peers. The extent on tsl's currency exchange losses in future quarters is most likely limited to the levels seen in Q1, unless the rmb appreciates more than 4% vs the usd on any given quarter. However, the currency exchange risks that their peers face as revenues increase much higher, will be a lot more. Of course, peers could always hedge currency risks to the value of their revenues, at added costs. In terms of the stock price, perhaps part of the reaction was due to the over all markets as well.
- TraderMark
- 249 Comments
My Website
Jun 10 10:38 AMSadly about 90% of investors would never go to this length to dissect anything - if Reuters says its a 3 cent beat, well then its a disappointment! The fact some of these companies are now making 20-33% of their "profits" from currency is not something that "investors" can be bothered with - they just clap like seals and say "they beat they beat! BUY BUY BUY!" Trina performed far better operationally than most of these now "high fliers". But this is the sophistication of the market - the longer you are around it, the more you realize it is a very much "keep it simple stupid" market even with all those MBAs running around moving trillions of dollars.
I think one key point was this one
"TSL told us that their non-silicon panel costs were $1.17/watt this quarter (down from $1.28 last quarter), and that they expect to exit 2008 at $1.05. Please note that in this cost per watt, TSL, as an integrated manufacturer includes ingot, cell and panel-making."
So you cannot compare apples to apples with MOST of the others. Interestingly the 2 most integrated co's (YGE being the other) hav e been taken to the woodshed the hardest the past 3 sessions. Any thoughts on the horrendous action in YGE? I am just always fascinated by the relative outperformance of these stocks versus one another.
- TraderMark
- 249 Comments
My Website
Jun 10 10:45 AMNow at this point I have to guess how high their OPEX charges will be next quarter since they will have a big 10 year anniversary party and their annual bonuses. Why not disclose their estimate for the charges? Like a Non 1st year MBA student. Same old, same old.
- investinghobo
- 7 Comments
Jun 10 11:02 AM"During the first quarter of 2008, the Company recorded an exchange loss of $4.0 million, which was primarily associated with Trina China's non-US-denominated obligations that are now required to be remeasured in the US dollar functional currency."
- maxbid
- 42 Comments
Jun 10 11:13 AMHeck of a great time to buy!
- investinghobo
- 7 Comments
Jun 10 11:24 AM- SHABBAZZ
- 8 Comments
Jun 10 12:36 PMBy the way, I think you focus too mutch on TSL.
I prefer YGE or JASO !
Why ?
Better margins (20-25%) and a lot of cash available in the bank.
Why do you ignore YGE and JASO over and over again ???
- buystocks
- 73 Comments
Jun 10 12:54 PMWhen new technologies came up, and Fed raise tax. All TSL investors will be in BIG TROUBLE. That's why I sold all my shares recently.
- geniuspup
- 6 Comments
Jun 10 02:05 PMpatience can reward you
I will buy at $30-$35 an initial position
- buystocks
- 73 Comments
Jun 10 02:12 PM- aquaculture
- 104 Comments
Jun 10 03:15 PMThe two 'spectacular' solar stories of 2007 were FSLR and Upgraded Metallurgical Silicon: Timminco's share (TSX:TIM) price went from about 30 cents to 30 $, and its up there for a reason. Mr. Market simply expects a brilliant future for solar panels made with UMS.
Now Canadian Solar (CSIQ) is the first horse in this race as they will present the specs on their 'e-panel' shortly at the Munich Intersolar 2008.
Based on info released by both companies i estimate 12.5 gram Si/watt and 75-82 $ cents/watt. This would bring total cost/watt to about $1.95 (for 40 MW in 2008) This should improve margins for CSIQ.
In fact i think it is also the reason why CSIQ poly-based margins were much lower than Trina's: they have concentrated on UMS in coop with TIM from the start.
The 5000 mt ton UMS (already ordered) for 2009 and 2010 means an extra 400 MW online, which started in april 2008 and as i have heard is being well received here in Europe.
But it even gets better when one considers the fact that both production of UMS (a modular 1200 mt ton line) and CSIQ can be increased relatively easily.
The situation with respect to the purification of silicon has many parallels to the introduction of steel mass production of the second half of the 19 th century.
- rana
- 66 Comments
Jun 10 03:24 PMthey can focus on general market conditions, sector conditions, size of companies. financial strength, p/e, growth, cash flow etc...
since theyall play in the market we must take all into account. if we are daytraders we need to focus on the momentum of the stock and the sector while using technicals to make our entry/exit decisions.
if we swing or invest we must make deeper considerations. we need to understand that we will not enter at the exact lows or exit at the highs.
regarding TSL, it looks like the company is giving great operationsl results but they get discounted for many of the reasons you guys are talking about here.
they get size discount, blur disclosure discount, missing the whisper number discount(the 0.51 that they reported), they also have low growth prospects for 5 year view whcih is kind of silly since 5 years is eternity in growth sectors but it is what it is, they also get the award for making material decisions every quarter (open new plant, not open new plant, new accounting hange etc...)
all that said and done as an investor/swing trader i view this as buying opp. i also like SOL, CSIQ, SOLF, LDK here. (CSIQ,SOLF are very much alike.
very good articles from jack and tmark and great comments from hob and the rest.
- Jack Yetiv
- 442 Comments
Jun 10 04:37 PMIncidentally, TSL did NOT discuss the currency issue much at all on the CC, only that we should expect $3 million in Q2.
Having said that, I appreciate your comments but we need to hear it from TSL in more than one sentence.
I also agree with you that operating margins this year will be 15-17%, and I do not beliieve their 10-year party or anything else is going to affect that. I believe my modeling 16% for this year is reasonable.
To TraderMark, nothing sad about how the market reacts--that is the market, most of which is composed of ingoramuses. But don't fight it, Mark, because that is how we make big money. Volatility can help us more than it hurts. I keep loading up the boat--pretty soon, I'm gonna own TSL (LOL).
Bought today at a PE less than 10 for a company that will substantially more than double earnings this year. I'll do that every day, including Sunday.
To Shabazz, have you read my nearly dozen articles in the past 6 months, on solar and energy? I have written on FAR MORE than TSL. TSL is the focus here because (1) it announced on Fri, and (2) it is the best deal in the solar space, IMO.
If you believe YGE or JASO are better--write an article and tell us why. Your just saying so doesn't make it so.
To Aqua--yes, FSLR was the story of 2007, but it ain't 2007 anymore. I think FSLR is a terrible investment, as I have stated in many of my articles. If you think otherwise, write an article.
As to UMG silicon favored by CSIQ--read my two articles at the beginning of this year calling CSIQ the best value of the solar space. CSIQ is my second-favorite stock after TSL. CSIQ is also following TSL's model by integrating more of its production, but TSL is far ahead of CSIQ in that regard--yet CSIQ is at a higher PE.
Further thoughts later.
Jack
Do keep
- TraderMark
- 249 Comments
My Website
Jun 10 06:15 PMSincerely,
A graduate from "up north"
;)
- TraderMark
- 249 Comments
My Website
Jun 10 06:26 PMThat said, I still like growth at value so to complement the TSL I am probably now returning to CSIQ - I like the UMG factor and the 2nd lowest valuation and frankly it has 1 thing you cannot measure - sentiment - on its side - chart is holding up very well. SOLF is the 3rd choice - might do both as complements and reduce TSL. I believe now looking at all the information there could be an uncertainty overhang to TSL similar to SOLF in spring/summer/fall 2007... people uncertain about management, uncertain about secondary, knowing another 3M currency loss is coming, and knowing an OPEX spike is coming because their annual bonuses are due. That is a lot of uncertainty - that does not mean they cannot beat their number but they will hand away 15-16 cents or so due to currency once again next Q) So even if they beat they lose a lot of upside they would otherwise have. Then the quarter AFTER that might be their quarter to finally (one can hope) shine but that is nearly 6 months away. In the meantime the next time solar runs CSIQ and SOLF will probably trounce it (along with every other major name even with higher valuations) You know in the short run 1 thing matters - sentiment. TSL does not have it -they COULD of had it very easily if they just sat on their hands with this darn currency thing.
p.s. I also believe as we move closer to Nov 08 election solar will see a large move simply due to talk of alternative energy... especially if Obama looks to win - so you can have a big sector move from that. That said McCain will look like a tree hugging greenie compared to the current crew plus he is anti corn ethanol. Things are looking a lot more stable for the next 12-15 months than I earlier feared (thought ASPs would be dropping hard by 2nd half 2008/early 2009 - doesnt appear so) and polysilicon should be stable to falling. Can't predict out more than a year with all the moving parts, but next 12-15 months should be more stable than I anticipated.
TSL will probably make its move late in the calendar year, we have another 90 days of hand wringing now.
- Jack Yetiv
- 442 Comments
Jun 10 08:22 PMI will pick up another 10,000 shares (and some more call options) if TSL hits upper $35 or even $36 range (I was out of the office today and so did not make that trade. Given the recent chart, I may well have an opportunity to do so tomorrow).
Mark, your comments are all well and good--but as you pointed out, we can't measure sentiment, and we can even less determine where it's going to be next week, much less next month. Sure, CSIQ has the sentiment now, but it didn't when I recommended it at $18.56. Indeed, there were very few positive comments I received on my articles, but hell, that didn't matter to me. It was trading at about an 11 PE against 2008 consensus earnings, and based on my own earnings estimates at the time, the PE was closer to 9.
That is PRECISELY where I am today with TSL--using consensus, it's trading at about 11.5 PE, using mine, we're at about 9. I'll take that trade any day. I was fully margined when I was holding CSIQ, so my percent return on that trade was in the thousands of percent (because most of my CSIQ position was obtained using margin dollars). I've got a lot of margin capacity right now and plan to load up on more TSL.
As to sentiment--if CSIQ has a currency LOSS next quarter because the dollar has firmed up against the Euro (admittedly, unlikely given recent ECB action, and recent probs here), it might lose that sentiment. On the other hand, I just don't see much downside potential for TSL (yeah, I said that at $45, and again at $40; one of these days, I'll be right [LOL]).
So if I find it difficult to trade on sentiment, what am I down to? Fundamentals, and yes, "value" investing, buying at a 10 (or less) PE a company that without a doubt will double earnings this year (and probably go up closer to 150%) as well as increase earnings 40% next year.
In summary--"This too shall pass"--this ridiculous valuation--and significant money will be made on this stock. The greater the discount now, the more I'm gonna make. Let it go to $30 for all I care--it's like a "half-off" sale at Home depot.
Finally, I think TSL can EASILY fix the problems it has created. It is damn hard for TSL's competitors to achieve 16.7% operating margins, or to enter a half-dozen new markets, but fixing the communications problems should be easy to do.
I assume some of the management people get options as compensation. If nothing else, if they want those options to be worth something, they will get their act together.
Jack
- Jack Yetiv
- 442 Comments
Jun 10 08:24 PMU of M is a fine school, and I love Ann Arbor. Haven't been in the Midwest in ages, though.
Jack
- Amateur Economist
- 5 Comments
Jun 11 01:32 AM- dicki31785
- 73 Comments
Jun 11 06:02 AMAnother excellent article. Really not much too add to it. As you pointed out in your last post it is not hard to increase the level of communication (though it does appear to be a problem for TSL), it is harder to penetrate so many many markets as TSL has done....
By 2020 Europe wants to achieve that 20% energy output comes from renewable sources...That means the countries that started the green revolution in the EU (GER, ESP) will slower their incentive structure since they are already producing quiet a lot of renewable power (not saying that those markets are dead....but the growth rates are going to come down sharply in the two above mentioned markets....On the other hand we have those countries who have not done too much (Italy, France, Greece, Belgium) and these countries, and many more, will increase their incentive structure in order to reach the target of 20%....Because this target is not up for debate in the EU at all...Also it has the backing of the public....
That being said Trinas position in Italy seems quiet important to me, as you also pointed out above, that market is probably going to go on a tear....If I understood correctly, during the CC, Trina already possesses a market share of 25% in Italy and concerning second half shipments Italy is Trinas biggest market with 25% of shipments to Italy(20% GER 17% ESP and I heard something about the US was it 4 MW or 14 MW got a question mark in my notes could anybody clear that up?would be very much appreciated)...This will probably further increase Trinas market share....
So Trina is actually better positioned in the Italian market than SPWR which bought a company in Italy just for a better positioning and more visibility in the market...and SPWR management knows what they are doing!!!big fan of them(currently hold no positon in SPWR)...Showing that Trina is doing quiet the job in Italy and other developing markets(Greece, Belgium, Korea)...IMO Italy and Greece being the most important for the near future due to the location on the map concerning sun hours and lack of renewables currently in place in those countries and them having to play catch up....
I currently hold 1,500 Trina shares, with 500 being bought yesterday, I intend to double that position to 3000....I will buy another thousand somewhere in the low 35's and then I will take it from their...As all Trina holders I am disappointed with the move the stock made but one can not look in Trina in isolation because solar stocks move in herds and if the sentiment towards them wasnt so bad at the moment the Shorts would have had a much harder time with TSL...So why not let us take advantage of the market overreaction...at the latest next Q the stock will turn sharply....
But reporting at the end of the cycle is never good for the TSL stock, as we saw, I can only agree with Jack when he said how about being first to report for once with much more disclosure and the numbers coming out 2 minutes before the call it was just hectic...They really have to treat their investors better....That is all I have to add since the article already mentioned pretty much everything and the comments are great....With kind regards from Germany CW
Long ABX, CSIQ, STP, TSL
PS Jack so have you been watching some Euro Cup....making it tough for me to trade at night nowadays:)
- aquaculture
- 104 Comments
Jun 11 07:37 AMI think FSLR will turn out to become a curiousity, a lone, rare star in the solar space, to use Mark Anthony's analogies, or at least a temporary diversion from the main silicon path.
I'm just saying si supply issues dominated 2007 again.
I did reread your articles on Canadian solar (whats in a name right?) which makes it even harder for me to understand your solar investment strategies.
On the other hand Trina's cancellation of the polyplant speaks for management, and i'm sure you will get above water.
But I do think UMG is the future (eg. take a look at (LON:GLBM) the recent deal with BP Solar) and the e-panel will be a good solid workhorse for CSIQ.
Being the first horse in the race might not always be the best horse of course and at some point they may be overtaken by Q-cells (FRA:QCE) which contracted 400 metric tons UMG for 2008, 3000 mt tons 2009 and 6000 mt for 2010 and beyond for Malaysia, the first phase 160 MW scheduled Q1 2009.
I recently sold off positions in AMG (TIM is subsidiary) and have been looking for a good entry point in CSIQ as i'll switch from si commodities and solar ovens etc. to those who will use them.
I have also gotten into ENER (amorphous silicon thin film) @ 48 $ as high brow European architects are starting to like BIPV and i hold a bit of YGE with an average of 23$ (ouch) but Yingly, well its a love affair, i like the website, the quality of the panels, management etc. etc.
- rana
- 66 Comments
Jun 11 08:32 AM- svosavvy
- 129 Comments
Jun 11 09:59 AM- Jack Yetiv
- 442 Comments
Jun 11 10:18 AMTo Amateur Economist,
Yeah, I really only own two stocks, and very large positions in each, plus I trade in and out of the options (I buy call options at what I perceive is a low and sell call options when I think we are at a peak).
My whole stock account only constitutes a small percentage of my net worth, and a tiny percentage of my income, so I could lose it all, and it really would not affect me or my family. Therefore, I do extensive research, pick one or two horses, and ride them.
It is difficult for me to be expert in many stocks and areas, so by concentrating in just very few sectors and very few stocks, I can do better than by diversifying. It's a high-risk, high reward approach but has worked very well for me.
As to CSIQ--I like that stock very much, and I agree that UMG is significant, but I think TSL's advantages (higher margins due to use of recycled silicon and being more integrated than CSIQ, got its panels certified in US 3 months ago, big position in Italy, geographic diversity, etc) at least equal CSIQ's advantages--and TSL will make close to $4 this year while I'm modeling $2.80 for CSIQ.
Thus, at price parity (which is where they are right now), I like TSL better.
To dicki--I think several countries in Europe will far exceed the 20-by-20 (20% renewable by 2020) targets. My guess is that Germany will probably exceed them this year or next year, and I believe Spain already produces substantially more than 20% of its electricity renewably.
Also, one country that is never mentioned (except in my articles) that I think is going to be huge is China itself. I predict that shortly before the Olympics, you will read about a major push in China toward renewables, and given that China is building a powerplant per week, that could create huge demand.
Jack
- TraderMark
- 249 Comments
My Website
Jun 11 10:37 AMThey only made $18M so $8M came from others net - don't tell me that is the currency adjustment; if so that means 44% of their profit came from currency. Which makes me even more peeved at TSL :)
re: China
The sad thing is not only is the US behind W Europe and Japan, it has a good chance of falling behind China very soon in solar. We have leadership attaching windfall taxes for big oil on top of renewable act - pure stupidity. Our leadership is a complete failure.
Really sad to see some of the things happening here - all victories must come from the bottom up since the "top down" solution is not an option in America anymore.