After spending most of the summer in the dark, the solar industry is seeing a ray of light today after an earnings report from LDK Solar Co., Ltd. (LDK). The stock is currently up about 19% on the day and related companies such as Trina Solar Limited (ADR) (TSL), and ReneSola Ltd. (ADR) (SOL) are catching a bid as well. The industry-wide strength is a welcome change since declines in energy prices and disappointing news out of
LDK reported revenues of $441.7 million which is 89.2% above last quarter and an impressive 346% above the second quarter last year. Earnings were recorded at 1.29 per ADS which may be a bit misleading. The company actually had a one time profit of $60 million due to a one time sale of materials, but even if you back out this sale, the earnings were roughly 77 cents per ADS which represents a 108% gain over last year. Management pointed out that it has now signed 9 long-term supply agreements this year which helps in diversifying the client base. The target for annualized capacity was also raised for this year (to 1.2 GW) as well as 2009 and 2010 (2.2 and 3.2 GW respectively).
If there was a dark spot in the announcement, it revolved around gross margins. Although average sales prices were higher than most analysts expected, the cost of polysilicon (or poly) continues to be high. Gross margins came in at 25.4% which compares unfavorably to 27.7% last quarter and 35.2% a year ago. Management stated that they expect margins to continue to show weakness in the third quarter before rebounding in the fourth quarter and into 2009. The change should be due to in-house production of poly which will allow the company to produce material below current costs on the market.
This production of poly is the most controversial issue in the report. Analysts appear to be skeptical as to whether LDK will actually be able to ramp production into the end of this year. production of poly is a difficult process and competitors have faced delays when implementing similar projects. Any delay in LDK’s plans to product raw materials would likely be a disappointment to investors. But the positive side of this argument is that if production goes according to plan, the likelihood for further appreciation in the stock price is very good.
Demand for solar wafers continues to be strong even with decreasing subsidies out of
FD: Author has a long position in LDK
Additional Reading:
Trader Mark reviews LDK’s Earnings
Barrons Tech Trader with a quick bit on the announcement
LDK Solar Co., Ltd. (LDK) – A Spark of Light Get a cash advance faster than the speed of soundWisconsin Cash Value Life Insurance
August 13th, 2008 at 3:10 pm
STP is so well poised i cant highlight it enough!
August 13th, 2008 at 5:22 pm
LDK, I don’t like. It is just to volatile for my liking.
August 13th, 2008 at 9:32 pm
Ever heard of the term called “Cash Flow from Operations”? I am not talking about Free Cash flow. Obviously your investment in LDK proves, you dont.
Anyway, drink lots of Kool-Aid, see the reported earnings, bn$ contracts, inflated capacity growth, stellar reported earnings and throw some cash so that management can build a bigger sand castle. BTW, show me one Chinese solar module company that is growing capacity lower than 100% in 2009? Knew that. None.
What is LDK’s R&D? hahaha. Good joke.
This is my race to zero list – SOLF, TSL, CSUN, CSIQ, YGE and LDK. Everyone of them will in single digits by late 2009. But guess your investment horizon is hours/days. Shouldnt matter – may be you are better off looking at some charts and lines to make a ‘trade’.
Good luck!
August 14th, 2008 at 1:53 pm
Regarding STP and to lesser degree LDK Hang in there Zach, avoid the whimsical-ego negatives posts, there are many hours of effort to see the long side will probably work.
January 5th, 2009 at 8:08 pm
Well, where do we start after today’s pre-announcement? I posted when the stock was $40+. Off the lows in single digits, LDK managed just a 50$ bounce, half of which are probably going to disappear tomorrow.
Read through today (01/05/09) press release again – this is fricking scam of a company. How can gross margins get halved with just 10% hit revenues? Why should the company talk about 1000MT capacity when they are saying 15000MT is going on track? How can they project 2H09 recovery, when everybody across the solar foodchain have zero visibility? Compared to this, SOLF looks like jem and JASO looks like diamond.
And borisb, do you have enough $ to pay for internet bills or have you lost it all? Such a sheeep…..
Zach, I like reading some of your short thesis on stocks, but i am completely baffled that you dont see through the scams in chinese solar companies, especially this one.
January 9th, 2009 at 5:27 pm
hi
tdtia04d6zms24nn
good luck