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Trina Solar will exceed expectations while disaster is priced in

October 15th, 2008 · 1 Comment

We have stated a few times in this huge sell-off (including in our best visited post ever), that Trina Solar (TSL) seems to have disaster seem priced in. While it’s price (and that of the whole sector) has been slaughtered, the company is moving from strength to strength (just like LDK and a few other solar plays). One day, the price will reflect that value and this strange disconnect between it’s price and actual business performance will be a thing of the past..

Trina Solar Announces Selected Estimated Third Quarter Results
Wednesday October 15, 8:00 am ET

  • CHANGZHOU, China, Oct. 15 /Xinhua-PRNewswire-FirstCall/ — Trina Solar Limited (“Trina Solar” or the “Company”), a leading integrated manufacturer of photovoltaic products from the production of ingots, wafers and cells to the assembly of PV modules, founded in 1997, today announced its selected estimated unaudited financial results for the third quarter of 2008.
  • For the third quarter of 2008, the Company expects its net revenues to be in the range of approximately $285 million to $294 million, exceeding its previously forecasted range of $250 million to $265 million. The new range, which includes non-module income, represents an approximately 40% to 44% increase from its net revenues in the second quarter of 2008. During the quarter, the Company shipped approximately 66 MW of PV modules, compared to its previously forecasted range of 62 MW to 66 MW. As guided previously, the Company’s gross margin for the third quarter is expected to be in the range of approximately 23.0% to 25.0%, and its operating margin is expected to be in the range of approximately 15.0% to 17.0%.
  • “We are very pleased with our continued strong growth in the third quarter, reflecting our increasingly recognized brand and strong sales distribution capabilities in existing and new markets,” said Mr. Jifan Gao, Trina Solar’s Chairman and CEO. “We expect to strengthen our operating cash flows over the third and fourth quarters of 2008, which combined with the proceeds from our senior convertible notes offering, will greatly enhance our cash position for future operations.”
  • As these selected estimated results are subject to the Company’s normal, quarter-end closing procedures, the Company’s actual results may differ from its current estimates.
  • Based on customer commitments in signed contracts and the Company’s current operating and market conditions, the Company believes it is on track to meet or exceed its full year 2008 targeted total net revenues of between $850 million and $900 million.

Now reflect on this for a moment. Here a company that grows 44% quarter-on-quarter (and this is no exception), has very solid margins, yet its p/e for this year (hardly foreward looking) is about 4.

That p/e might lead you to wonder, is some terrible implosion expected in the near future? No. TSL has already sold 70% of next year’s production, and growth, although a little slower as the company is getting bigger, but it will still be close to 100%.

Where is the problem? The only problem we see is that they need up to (depending on the cash from operations which they themselves generate) $200M for 2009 capex spending (to increase production capacity).

Since they have started to generate cash from operations in the second half of this year already, something which can only increase because of the big ramp-up in scale, we don’t really see a problem with that.

The one possible other risk? Is the solar industry collapsing because of falling energy prices? Not really, in fact, a host of companies (Trina is not the only one) are guiding above expectations and the US just finally had the tax breaks extended for another eight years.

Energy prices will recover with the world economy (and probably more so as investments in capacity are scaled back, only setting us up for more scarcity in the future), and the need for clean energy will not go away.

Large markets remain relatively untapped (China, India), and countries will embark on solar energy for other than environmental issues. How about energy independence..

In Europe, where solar’s biggest markets are situated, retail energy prices are relatively insulated by high taxes and the EU is committed to clean energy, while many European markets are only now following into the footsteps of Germany and Spain which pioneered the fiscal support for solar which got the market going.

And disaster is priced into the shares of Trina, if you look at their valuations, it’s almost like the sun will implode next year. In this market, valuation and rationality don’t count for much, but that won’t remain. Especially with good news like today’s out.

Tags: TSL

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