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雷达卡
New dawn
As we wait for Beijing to finalize its revamped renewable energy plan,
provincial governments are scrambling to out-green eachother. Solar in
China is a key beneficiary. Short-to-mid-term, Trina (TSL US – O-PF) is
best placed to thrive in an increasingly commoditized market while it also
ramps up its brand presence in Europe and now the US. LDK (LDK US –
Sell) is most vulnerable as it ramps up new capacity for polysilicon amid
an extreme glut. (See also our related company pieces in today’s pack.)
Solar in the spotlight as China revamps renewables law
􀂉 We are still awaiting final plans from Beijing on their revamped renewable energy
law, expected out in August (and certainly ahead of Copenhagen in December).
􀂉 Meantime, support plans are trickling in from provinces and municipalities.
􀂉 With wind facing temporary saturation, solar is receiving the brunt of the policy
push for renewables in China.
Solar demand showing a pulse, but barely
􀂉 Solar projects in China have the potential to exceed 20% equity IRRs.
􀂉 Wind in China grew from 5% of the global market in 2005 to over 20% in 2008. For
solar, we expect China to grow from 40 MW in 2007 to 1500 MW in 2011.
􀂉 China and a resurgent US market will still not be sufficient to bring demand up to
capacity before 2012. We see 40% excess capacity in both 2009 and 2010.
Supply side is not helping achieve balance
􀂉 The long-expected sector consolidation seems forever around the corner, as
second-tier names find easier access to financing.
􀂉 Non-branded modules will continue struggling to get deals, but branded Chinese
players will continue taking market share from most European and US competitors.
􀂉 The magnitude of Demand-supply imbalance will continue driving prices down even
as demand picks up in 2H.
Upgrade Trina to O-PF; SELL LDK
􀂉 After going back through the growth, margins and ROEs of tech commodities, it is
clear that there is room for differentiation even when entry barriers are low..
􀂉 We value both Trina and LDK on a mix of fair value PB and peer-group PE basis.
􀂉 Trading at a discount, Trina has strong upside surprise potential in 2Q and 3Q
quarterly earnings. Long-run, it is gaining traction in the US and Europe. Upgrade
to O-PF, with 15% upside remaining.
􀂉 LDK remains a Sell, as it ramps its new polysilicon plant into a supply glut, and
begins producing at above spot prices. The long-term story could be compelling
but risk remains to the downside until 2011 or later.
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