ANWELL: China’s solar stocks emerging from partial shade

Anwell CEO Franky Fan said, 'We target to be one of the top 10 thin-film solar module producers in the world'.

ANWELL TECHNOLOGIES is not as big as its three larger US-listed Chinese peers, but the S-chip is hoping its business model of product diversification across the panel spectrum is the appropriate “solar system,” especially in a short term overcast market outlook.

The Singapore-listed firm has since 2007 successfully developed a wholly-automated production line for silicon based thin film solar cells, which can compatibly produce single-junction amorphous silicon solar cell of 120MW, and double-junction micro-crystalline silicon solar cells with highest capacity of 60MW.

Major China-based listcos in the industry also include US-listed Suntech, Yingli, JA, ReneSola, Sunergy, Canadian Solar, Solarfun, LDK and Trina.

But despite a shady share performance of late, the Chinese Solar Stocks Index is still the top-performing index over the last month by a wide margin, gaining 54.6%, according to share tracking website Tickerspy – a feat made all the more impressive considering it tracks some some 250 proprietary indices.

Iluminescent interest in China’s solar panel industry is understandable, given the rapid growth in capacity of some of the country’s brightest prospects (see chart below).

Recent global ranking of solar panel firms, with Chinese firms taking 3 of top 10 spots (Nomura)

But where is the industry headed in China?

It was only around 12 moons ago that a well-known market research outfit was predicting that global solar energy output should increase by 30% or greater annually between 2008 and 2010, with annual before tax profit margins to average around 19%.

Research and Markets went on to say at the time that China is likely to emerge as “one of the greatest” solar power manufacturing bases in the world after 2008.

“Certain fundamental conditions are already in place in China for the large scale development and exploitation of solar energy.

These conditions include China's huge potential domestic market and solid resource foundation.

China's solar energy industry has already taken shape, and progress has been made in technological development and innovation,” the researcher added.

As one of the most expensive forms of electricity generation, solar power is widely expected to lower the price gap with less expensive – but far more polluting – rivals like coal and oil-generated power.

“Given the recurrent oil and coal price spikes as well as the power shortages nationwide, energy, and energy uncertainty, is increasingly having a bottleneck effect on China's economy.

This brings new opportunities for the development of solar energy.

In the near future the cost of electricity from solar generation will come close to or even become lower than that of power generation by coal.”

Research and Markets said this makes it practical for China to conduct “vigorous development” of the sector.

“China's solar energy industry, having been nurtured in the domestic market for over ten years, is fully launched by now, and it has built momentum for rapid development in the future.”

However, this bold prediction was made in the era of triple digit per-barrel oil prices when alternative energies were all the rage.

It was also released before Wall Street and Main Streets everywhere began to crumble under their own weight and inefficiencies, and external demand for China’s export-reliant panel and wafer market began to wither in the sun.

Nomura International recently incorporated these shadier inputs into its outlook for the industry.

“We believe 2009 will be a transition period for the solar photo-voltaic industry, with softening demand, due to global credit tightening and polysilicon oversupply, due to producers’ expansion and weak semiconductor sentiment,” it said.

Anwell's PECVD system deposits thin films from a gas state to a solid state on a substrate.

Let’s shine some light on China’s three biggest – and possibly brightest -- prospects in the sector.

Suntech

Credit Suisse recently upgraded its call on Suntech to “neutral” and hiked the target price to 16.50 usd (from 8.50), which represents about 20x estimated earnings for 2010.

YGE) panels from China versus other Asian vendors,” Credit Suisse said.

The Swiss brokerage added that solar panel firms would be among manufacturers benefiting the most from the Chinese government’s ongoing 4.5 trln yuan economic stimulus handout.

“The Chinese government is set to announce a new ground mounted feed-in-tariff.

STP appears to be deeply engaged with the provincial and central governments on the design of the incentive program, and appears set to capture a high share of local demand in China.”

Credit Suisse said that prior to a recent visit to Suntech’s Intersolar production facilities, it was wary of excessive expectations of Chinese demand in STP’s stock, industry oversupply and balance sheet.

Credit Suisse cited the following reasons for its sunnier outlook on Suntech.

1) Bankability: Several banks Credit Suisse met were comfortable with banking solar projects that have STP (and YGE) panels from China (whereas they were seldom interested in other Asian vendors) – bankability and brand awareness of STP’s panels should help the company maintain differentiated pricing with tier-two/ three vendors.

As a low-cost bankable panel producer, a more ‘neutral’ stance is warranted for STP.”

2) New Chinese incentives: The Chinese government is set to announce a new ground mounted feed-in-tariff, around 1 yuan/kWh.

“While the total volumes are unlikely to tilt the oversupply imbalance in the industry, contacts were hopeful that the program would drive 3-5 GW of new demand by 2015. STP appears to be deeply engaged with the provincial and central governments on the design of the incentive program, and appears set to capture a high share of local demand in China.”

CS added it is raising its 2009E EPS from 0.13 usd to 0.32; 2010E from 0.51 usd to 0.82.

Solar panel. Photo source: stkXchng

Yingli

JA Solar

JA Solar Holdings Co Ltd (Nasdaq: JASO) was recently downgraded by Lazard to "hold" from "buy," due to the firm trading at a premium to its peers.

The Shanghai-based firm, which successfully listed on the Nasdaq in 2007, is the holding company of JingAo Solar Co Ltd -- the world's largest mono-crystalline silicon manufacturer.

JA Solar’s performance has been clouded over by slower global demand since the financial crisis, and is trying like its domestic peers to break through the cloudcover.

Its first-quarter-to-March revenue was down nearly 80% year-on-year to just 33.9 mln usd, also a decrease of 76.3% from the fourth quarter of 2008.

"The first quarter of 2009 was the most challenging quarter for JA Solar since the company was founded in 2005.

The global industry conditions were particularly difficult, with the market affected by worse than normal seasonality, a weak macro-economic environment and the continuing impact of the credit crisis resulting in some issues with customer project financing,” said Mr. Samuel Yang, CEO.

However, he added that the company is “actively managing” its business to prepare for what it says it hopes to be the market's recovery in the latter part of this year.

“We are seeing encouraging signs of market improvement in key end markets.

We have sufficient liquidity to sustain the current downturn and we are positioning ourselves for growth in the second half of 2009 and beyond," he said.