Suntech Power Holdings Co. (NYSE: STP), China's biggest solar panel maker, is scheduled to release its fiscal fourth-quarter 2009 financial results before the market open on Thursday, March 4, 2010. Analysts, on average, expect the company to report earnings of 11 cents a share on revenue of $468.25 million. In the year ago period, the company posted a loss of 42 cents per share on revenue of $414.41 million.Suntech Power Holdings Co. (NYSE: STP) engages in the design, development, manufacture, and marketing of photovoltaic products worldwide and its products include monocrystalline and multicrystalline silicon PV cells; PV modules; and building-integrated photovoltaics products.
In the preceding fiscal-third quarter, the Wuxi, China-based company announced third-quarter profit that topped expectations. Net Income nearly tripled to $29.79 million or $0.16 per ADS, compared to $42.64 million or $0.25 per ADS in the year-ago quarter and $10 million, or $0.06 per ADS, for the second quarter of 2009. Total net revenues declined to $473.11 million from $594.40 million a year ago. Sequentially, revenues were up 47.4% from $321 million in the second quarter of 2009. Analysts, on average, expected the company to report earnings of $0.08 per share on revenue of $426.58 million.
Gross margin for the core wafer to module business was 20% in the third quarter, compared with 19.1% in the second quarter of 2009. Further, the company stated that it saw 100% sequential shipment growth in the U.S. market and the rapid development of a number of non-traditional PV markets such as the Czech Republic, Benelux, China. These complemented the strong growth in the German market.
The company expects fourth-quarter shipments to be at least 10% higher than the third quarter of 2009. Gross margin for the fourth quarter is expected to be relatively flat compared to the prior-year quarter. The company anticipates full-year 2009 PV shipment in a range of 640MW to 660MW.
For full year 2010, the company sees at least 75% shipment growth in 2010. Further, the company targets to expand to 1.4GW of PV cell and module production capacity by the middle of 2010, of which 450MW will be Pluto-enabled. Based on that, fiscal 2010 capital expenditures are expected to be approximately $200 million.
Suntech plans to rapidly expand its presence in the US in the coming months. Already, the company has grabbed a 25% market share in the state of California- by far the largest solar market in the U.S, up from only 8% in Q109, according to the California Public Utilities Commission. Thanks in part to the establishment of its North American partner programs, shipment to North America inthe third quarter was the highest in Suntech history, up over 100% from previous quarter. In November, the company announced a plan to invest $10 million to build its first solar factory in the U.S. The factory, which will be constructed in the Greater Phoenix region in Arizona, will be 80,000 to 100,000 square feet in size and will have an initial PV (photovoltaic) module production capacity of 30 megawatts (MW). It is expected to begin production in the third quarter of 2010. The company estimates that the Arizona plant could serve about 8 percent of the U.S. solar-panel market.
The company aims to triple sales in the United States market and expand its dealer network this year. The company plans to add another 50 dealers this year in the United States to bring the total number of dealers to over 300.The company officials are confident Suntech would be able to grow its share of the U.S. solar power market to 20 percent in 2010 from about 15 percent last year.
Moreover, Suntech is expecting a boost this year from a further fall in prices of polysilicon, the material that is used in majority of solar panels. It expects polysilicon prices to fall to a range of $35-$40 per kilogram from the current price of about $55 per kilogram.
In China, Suntech Power Holdings Co Ltd announced it expects to develop about 20 percent of the 91 megawatts of solar projects under solar rooftop program. Launched in March this year by the Ministry of Finance, China's Solar Rooftop Program, is designed to increase the energy efficiency of buildings through the installation of building-attached and building-integrated PV solar systems. It is estimated that Suntech will get a subsidy of 1.4 billion yuan under the solar rooftop-plan.
Thanks to better cost advantages, Chinese solar module maker have grabbed more market share from their international competitors. Local solar companies have also benefited from China's well-developed supply chain, cheap electricity, supportive policies and even low environmental standards.
The demand for solar power products has picked up after a difficult 2009, when the turmoil in the credit market forced financial players to abandon U.S. solar energy projects. The 2008 collapse of top solar financier Lehman Brothers and the freeze-up in the global credit markets drove nearly all banks to halt funding for major new solar projects, forcing the makers of systems that turn sunlight into electricity to cut prices for their products and sending their stocks crashing. The problems of solar companies had been further compounded by an oversupply of polysilicon, a material used in solar panels.
The solar industry is poised to benefit from growing attention to global warming, skyrocketing oil prices, cheap financing and technological advances. At the Copenhagen Summit held in December 2009, the five major polluters of the world agreed to take action to reduce CO2 aggressively, with $100B per year pledged to help developing nations adopt green energy technology to cut greenhouse gas. Meanwhile, the US, China, Brazil and India continue to invest heavily in wind and solar energy with China's $454B in the next 5 year period as the most aggressive one. As part of the stimulus bill signed last year, the federal government approved around $60 billion in loan guarantee authority and $30 billion in energy grants for renewable energy and transmission companies. Congress has also granted a 30% renewable-investment tax credit to help expand the development of alternative sources of energy.
In the near term, the solar industry is facing an important challenge in the form of reduced government subsidies. Globally, solar industry depends upon government subsidies and incentives and support to remain competitive. However, recent developments suggest that subsidies will inevitably be reduced or phased out. According to media reports, the German government is planning to cut solar subsidies for new roof and open-field sites from April by 16 percent to 17 percent. Additional cuts to the subsidies will be made from 2011 if solar projects amount to more than 3,000 megawatts, and even more if they total more than 3,500 megawatts. Already, France in January slashed the tariffs for electricity produced from rooftop solar panels by 24 percent. Spain too has taken similar steps. Since Suntech generates a bulk of its revenue from Europe, a reduction in solar energy subsidy programs, may hurt the company's prospects. Europe as a whole represented approximately 76% of total sales while Germany accounted for 44% of sales in the third quarter.
The company's stock currently trades at a forward P/E (fye 31-Dec-10) of 20.40 and PEG Ratio (5 yr expected) ratio of 1.59. In terms of stock performance, Suntech Power shares have gained nearly 89% over the past year.
Full Disclosure: None.
