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Curious, mega-sell-off in solars coincides with boom

October 8th, 2008 · No Comments

And the boom is even better than previously thought. This morning it was LDK who spread the good news, but they are hardly alone. There isn’t any sign of any slowdown, in fact, all the news out of the solars is that the boom is exceeding expectations.

We already argued yesterday that Goldman forsees oversupply as a result of decreasing tax incentives and tighter credit. That was sloppy reasoning, according to us:

  1. The US just extended their tax incentives for eight years, and everything looks set for a boom in that big market. Utilities are starting big solar based power stations left, right, and center.
  2. Tighter credit would mean some capacity extension plans do not get financed. That would reduce supply, not increase it..

So we weren’t very impressed, yet there was a huge sell-off, helped of course by the terrible general market. LKD already had an absolutely bumper second quarter this year, flying past even the most optimistic expectations, and now they say the third quarter is more of the same.

They are hardly alone. FSLR, STP and TSL and a couple of others also surprised on the upside last time they reported, and what we can take away from the news from LDK is that the good news will likely be reproduced in the current quarter.

Many of these solars have already sold deep into 2009. Trina Solar has already contracted 70% of it’s 2009 sales, for instance. So we have some problem seeing why the mother of all sell-offs should happen now.

Valuations have become quite silly. Some kind of nuclear disaster seems to be priced into some of them. TSL now has a 2008 p/e of four, or even less if indeed the third quarter is going to be better than expected (and they manage to avoid one of these one-time hickups that seem to plague their quarters on a regular basis).

And TSL is a company that grows at triple digit rate..

Yangli, although it’s not a company we’re very familiar with, is even more ridiculous, it seems to have a p/e of less than one. Can it get more ridiculous. Is this company about to fall over? It doesn’t seem so if you read the following:

  • 9:21AM Yingli Green Energy confirms that cash flow is sufficient for current capacity expansion plans; confirms no further capacity expansion plans beyond current plans (YGE) 5.90 : Co confirms that it believes its current cash and expected cash flow from operations and committed available lines of credit will be sufficient to meet its currently anticipated cash needs for the remainder of 2008 and for FY09, including cash needs for working capital and capital expenditures for the remaining phases of its current capacity expansion plans.
  • The company confirms that at Sep 30, 2008, the company’s cash and cash equivalent totaled approx $130 mln and that the company also had approx $548 mln in authorized lines of credit, of $385 mln were drawn down up to date. The remaining $163 mln in available lines of credit can be used if and when needed. In addition, the company has also received a letter of intent from a PRC domestic bank relating to a potential line of credit of $74 mln.

So selling has gotten to an indiscriminate stage, sell first, ask questions later. Oh well..

But that also provides some good opportunities..

Tags: Solar sector · TSL