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雷达卡
Asia Solar in a global context
Time to be selective. In line with our recent upgrade of the Global Solar sector (see Solar eclipsed? 23
September), we now turn selectively positive on Asia Solar. We would not wholesale overweight the
sector since product ASPs will continue to fall over the next 12 months and overcapacity will persist till
2012. However, negatives are overly priced in, particularly for companies that have started differentiating
themselves in a crowded sector. We initiate on two such players: Trina Solar with an OW(V) rating in the
downstream and GCL-Poly with N(V) rating in the upstream. We also upgrade Suntech, the biggest
downstream player in China, to N(V) from UW(V).
The long-term growth story remains compelling or even better after recent ASP compression. Solar
is now 2-2.5x more expensive compared to conventional energy sources (5-6x in 2007-08). Sector
consolidation and rapid growth (CAGR >30% over next three years) will bring the benefits of economies
of scale and lower costs even further, in our view. We expect retail grid parity (when the cost of solar
electricity equals retail electricity tariffs) to be achieved in many big markets by 2013 and this should
spur demand, provided financing is more readily available than it is now.
Globally, we have a positive bias towards cost-competitive upstream and vertically integrated
players. Our key OW calls are cost leaders: upstream polysilicon producers like Wacker Chemie and
REC and downstream cost-leaders like Trina. Upstream players have born the brunt of overcapacity and
falling prices, however, the risk of a further fall in polysilicon prices is limited, in our view. Delay in
expansion plans by majors like OCI (NR) and MEMC (NR) has helped improve the demand-supply
balance and additional upside risks exist if uneconomical capacity is mothballed. We highlight two
contrasting upstream players in Asia: GCL (N(V), 3800.HK) is a cost-competitive polysilicon entrant
which has good leverage and is exposed to the right supply chain, while LDK (UW(V), LDK US) is
uneconomical with a highly geared balance sheet and exposure to an inferior supply chain. We believe
sub-scale or mid-stream players with limited market access, poor quality or higher costs are
disadvantaged vis-à-vis low-cost, quality-focused integrated players. Our global top pick at this end of the
supply chain is SolarWorld (OW(V), SWVG.DE) and our top pick in Asia is Trina (OW(V), TSL US).
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