Friday, March 12, 2010

LDK Solar Co.Ltd. (NYSE: LDK): Q4 Earnings Preview 2009

LDK Solar Co.Ltd. (NYSE: LDK),the world's largest maker of multicrystalline wafers, is scheduled to release financial results for the fiscal fourth quarter before the opening bell on Tuesday, March 30, 2010. Analysts, on average, expect the company to report earnings of 12 cents per share on revenue of $301.11 million. In the year ago quarter, the company reported a loss of $1.2 per share on revenue of $426.61 million.

LDK Solar Co., Ltd., through its subsidiaries, engages in the manufacture and sale of multicrystalline solar wafers to the manufacturers of solar cells and solar modules in the People's Republic of China and internationally. The company offers multicrystalline solar wafers between 180 and 220 microns in thickness.

In the preceding third quarter, the Xinyu City, China-based company's net income attributable to shareholders was US$29.4 million or US$0.27 per ADS, compared to a net income of US$88.4 million or US$0.77 per ADS in the previous year. Revenue declined to US$281.9 million from US$541.8 million in the same quarter last year. Analysts, on average, expected the company to report earnings of US$0.10 per share on revenue of US$277.20 million.

LDK Solar shipped 320.5 MW of wafers during the third quarter, up 26.8% year-over-year.

Recently, the solar wafers maker lifted its fourth quarter revenue guidance, as well as wafer and module shipments forecast. LDK Solar Co.Ltd. said it now expects fourth quarter revenue in the range of $300 to $310 million, compared to its previous forecast in the range of $280 to $310 million.The company also tightened its wafer shipments to a range of 330 MW - 340 MW and module shipments between 20 MW and 25 MW. Previously the company had projected wafer shipments between 320 and 340 MW and module shipments between 20 and 30 MW.

Further, for the fiscal year 2010, the company expects revenue in the range of $1.35 billion to $1.45 billion. Wall Street analysts expect revenues of $1.37 billion. The company projects wafer shipments to be in the range of 1.3 GW to 1.4 GW, and module shipments between 300 MW to 400 MW.

LDK said it expects production of 4,500 metric tonnes (MT) to 5,500 MT of polysilicon in 2010, and sees gross margin of 15 to 20 percent for the same period. Separately, LDK Solar said it signed photovoltaic module guarantee cover with Munich Re's Special Enterprise Risk unit, which will cover the performance warranty of LDK Solar modules for a period of 25 years.

The Chinese company mended its relationship with German photovoltaic cell maker Q-Cells after a brief supply deal dispute. In December, LDK Solar announced that it has reached an agreement with Qcell to continue their supply contract for solar wafers from 2009 to 2018.

Last month, LDK Solar announced that it has agreed to acquire Best Solar's crystalline module manufacturing plant at cash consideration of $21.5 million. The deal will significantly enhance LDK Solar's position in the downstream PV market.

Among other developments during the quarter, LDK closed FPO of 16,520,000 American depositary shares (ADSs), each representing one ordinary share, at a price to the public of $7.00 per ADS. The company said that it intends to use the proceeds to pay its debts and expand its solar module business.

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. In fourth quarter, Chinese makers won 46% of the new installations in California.

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.

The company's stock currently trades at a forward P/E (fye 31-Jan-11) of 18.78. In terms of stock performance, LDK Solar shares are up 72% over the past year.

Full Disclosure: None.
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