ysong

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  • The 'Problem' With Solar Companies is Not Really a Problem
    Merrill Lynch had a research report on TSL titled "Improving working capital management is key" on June 9th. It addressed the same cash flow problem but the tone was much less harsh than GS. I think their view is more balanced.

    QUOTE:
    "Solid 1Q results
    Trina (TSL) once again impressed the Street with solid earnings. 1Q EPS of $0.51 was better than our forecast of $0.48 on higher revenue of $116mn and margin of 25.8% vs. guidance of 23-25%. Recall on Jan 13 we were first to downgrade TSL to Sell based on its expensive polysilicon project on a stretched balance sheet.
    We then upgraded the stock back to Neutral once Trina scraped the poly project but we did not upgrade to Buy as due to its looming balance sheet risks. We raise ’08E sales and EPS by 13% and 25% on improved operational results but our new numbers are still 5% below the consensus to reflect our neutral stance.

    Needs better working capital management
    TSL needs a better working capital strategy to minimize the ST debt level. Trina actually has petty low LT debt of $14mn but ST debt is over $245mn due to its high working capital requirement. As a result, over $120mn of cash is restricted for securing ST debt and it limits TSL’s access to more capital. TSL may still need
    $200mn in the next 3Qs with current cash of $38mn.

    Cost leverage should continue on a 2H loaded story
    As full vertical integration is now in place, we see cost structure to improve over time as capacity ramps. Trina should narrow its current processing cost of $1.17/W to below $1/W vs. peers at $0.80/W. In addition, silicon cost should ease in late 2H08 and operating expense as a % of sales should decrease as well.

    Undemanding valuation despite fundraising pressure
    Trina trades at 15x of our upgraded ’08 EPS and priced at the lower end of peer range of 15-30x. We believe the poor working capital/cash management continues to be an overhang for the valuation but we believe even with a 10-15% equity dilution from new issues the valuation is still undemanding below 20x."
    UNQUOTE
    Jul 03 14:46 pm |Rating: 0 0 |Link to Comment |View article
  • Which Solar Stocks Will Continue To Shine?
    West1,

    It says in the "Change of Fuctional Currency" section in today's ER that "...Trina China's significant and sustained shift in conducting a majority of its business activities in US dollars".

    It also says in the "Net Revenue" section that "... Average sales price ("ASP") was $3.95 in the first quarter of 2008, compared to $3.94 in the fourth quarter of 2007", which means the AVR did not gain nearly as much as USD depreciated.

    Both seem to suggest the sales, supposedly most of which were in Europe, were still denominated in US dollars.

    The $4.0 million exchange loss was "... primarily associated with Trina China's non-US-denominated obligations that are now required to be remeasured in the US dollar functional currency. Such remeasurements are and will continue to be, to the extent we continue to have such non-US denominated obligations, recorded as transaction gains or losses in the consolidated statement of operations"

    So they were converting the non-US-denominated obligations to USD functional currency, and hence recorded the exchange loss. This is opposite to a situation mentioned in Q4 2007 release (when the functional currency was still RMB):

    "The Company's 4Q and 2007 financial statements are subject to change based on the Company completing its computation of the fair value of foreign exchange derivatives embedded in two of its material long-term silicon supply contracts. Such contracts provide that the purchase price of the silicon to be acquired is denominated in U.S. Dollars, which is not the functional currency of either of the contracting parties. Given the continued strengthening of the RMB against the USD, the Company believes that the ultimate impact would increase the earnings for both 4Q and fiscal 2007. The impact, if material, will be recorded as "Exchange Gain", a non-operating item, in the consolidated income statement"

    I agree with most of Jack said here, but it looks like this kind of exchange loss charge might not be a one-time thing, since they may "continue to have such non-US denominated obligations".

    I'm not totally sure about this, but a seemingly logical conclution is, we'll porbably see more "exchange loss" than "exchange gain" after this change of functional currency to USD with the assumption that USD will continue to depreciate against the currencies in which thye hold the non-US denominated obligations.
    Jun 06 18:20 pm |Rating: 0 0 |Link to Comment |View article

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