Friday, November 5, 2010

LDK Solar Co., Ltd. (NYSE: LDK): Q3 Earnings Preview 2010

LDK Solar Co., Ltd. (NYSE: LDK) is scheduled to release its third quarter earnings after the closing bell on Monday, November 8, 2010. Analysts, on average, expect the company to report earnings of 41 cents per share on revenue of $631.81 million. In the year ago period, the company reported earnings of 27 cents per share on revenue of $281.89 million.

LDK Solar Co., Ltd., through its subsidiaries, engages in the design, development, manufacture, and marketing of photovoltaic products; and development of power plant projects. It offers multicrystalline and monocrystalline wafers to the manufacturers of solar cells and modules

In the preceding second quarter, the Xinyu City, China-based company's net income was $45 million, or 36 cents per American Depositary share, from a loss of $216.9 million, or $2.03 per ADS, in the year-ago quarter. Revenue surged 147.6% to $565.3 million from $228.3 million. Analysts, on average, expected the company to report earnings of 22 cents per share on revenue of $458.40 million. LDK also has a headquarters in Sunnyvale, California.

At the end of September 2010, LDK Solar's manufacturing capacity reached, as previously planned, 11,000 MT in polysilicon, 2.6 gigawatts in wafers, 120 MW in cells, and 760 MW in modules. As of the end of the third quarter, cash balances, including pledged bank deposits, were approximately $800 million.

LDK Solar recently raised its outlook for third quarter revenue and wafer shipments on the back of strong demand for solar power products in October. The company expects to report third-quarter revenue in the range of $610 million to $640 million, up from the company's prior guidance of $570 million to $600 million. The company now expects wafer shipments of 550 to 570 megawatts, or MW, and module shipments of 80 MW to 90 MW, compared to earlier guidance of wafer shipments of 520 to 550 MW, and module shipments of 75 to 85 MW.

Late in September, the company entered into a strategic financing agreement with China Development Bank Corporation, a joint stock banking corporation wholly owned by the state of China. Under terms of the agreement, CDB will provide up to RMB 60 Billion (or approximately US$8.9 Billion) of credit facilities to LDK Solar over a five-year period. The financings will support LDK Solar's long-term growth initiatives and corporate development plans. 

Last month, LDK Solar signed a two-year polysilicon sales agreement valued at approximately $300 million with BYD Company Limited. BYD is a China-based enterprise specializing in IT, automobiles and green energy that is 10% owned by Berkshire Hathaway. Under terms of the agreement, LDK Solar will supply polysilicon with monthly shipments expected to commence in January 2011 and extend through the end of 2012. A deposit for this two-year contract has already been received.

The solar company is also eyeing expansion in core markets such as Canada, the United States and Europe as well as Africa and India.

Solar industry as a whole has benefited from continues strong demand due to growing awareness about global warming, skyrocketing oil prices, cheap financing and technological advances. 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 company's wafer processing cost in the second quarter was $0.31 per watt. The company has continued to work towards its goal of reducing the wafer conversion cost to as low as $0.25 per watt over the next six quarters. 

On the downside, an appreciating yuan, which has risen nearly 3 percent against the dollar since mid-June, is putting pressure on an average discount margin of up to 20 percent.

In terms of stock performance, LDK Solar shares have gained nearly 75 percent since the beginning of the year.

Full Disclosure: None.
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