A revisit..

Yes, after a few profitable trades in TSL earlier in the year, it was our one big disaster in 2008. Here is what happened:

Trina solar is an integrated low-cost, China based player that had one of the best metrics in the polysilicon sector and for long stretches of time, was significantly cheaper than its peers. That was the main attraction.

Then came the recession and financial crisis.

• We thought by fall that the worst was priced in, as the share price had already came down from rather a lot and we advised a buy
• In fact, we argued that the main raw material polysilicon, would become a lot cheaper (that indeed has happened), since that’s something like half the cost, this would offset at least part of the recession as it enables much cheaper end product prices and better competition against the cheaper (but less efficient) thin film technologies
• What’s more, and this really tripped us up, throughout much of 2008, the issue of the extension of American subsidies was a major drag on share prices in the whole sector (without subsidies, solar energy has little market, although that is rapidly changing). So, within the first bank bailout bill (the one that was first voted down), there really was a very generous extension and even enlargement of subsidies. Since stock prices were already so low, we thought that this would stop the rot. It didn’t, in fact, what happened is that the rot accelerated in a truly amazing fashion, quite literally from the moment the bill was passed.

Now that the smoke has cleared a little we can say that:

1. That last sell-off was indeed quite ridiculous (and indeed the stock is already up more than three times from the lows), it was indiscriminate selling of perceived risk
2. Actual results have not been good, but not nearly as company threatening as the share price development would have it
3. This year, analyst expect $1.16 per share in profits, which despite the rally still makes the shares quite cheap, but there is a reason for that, as analyst opinion varies enormously in range, from a loss of $0.39 to a profit of $2.23 per share! We’ll have to wait for indications in upcoming quarterly figures which way it goes. There must be a substantial recovery to reach that, as the last quarter produced a (very small) loss. However;
4. One thing that might help though is the arrival of a big dollop of Chinese subsidies.

We were always optimistic about the sector in general, and this company in particular, because we could see a structural change towards solar energy in the demand side, and structural innovations and efficiency improvements making solar energy ever cheaper at the supply side, combined with the fact that the US and even more China are still in it’s infancy as far as market penetration is concerned.

Should you buy now? Yes if you have a two year time horizon at the minimum. No if that is shorter. Not because we think there is anything wrong with Trina, but we really don’t trust these markets at the moment. We’re waiting for some kind of correction (hence we adviced you to sell Fuqi today at $10.40, a double in five weeks).