Wednesday, February 16, 2011

Trina Solar Ltd. (NYSE: TSL): Q4 Earnings Preview 2010

Trina Solar Ltd. (NYSE: TSL) is scheduled to release fourth-quarter earnings before the market open on Tuesday, February 22, 2011. Analysts, on average, expect the company to report earnings of $1.09 per share on revenue of $524.74 million. In the year-ago period, the company reported earnings of 74 cents per share on revenue of $313.27 million.

Trina Solar Limited, through its subsidiaries, designs, develops, manufactures, and sells photovoltaic (PV) modules worldwide. It produces standard monocrystalline photovoltaic (PV) modules ranging from 165 watts (W), to 240 W in power output and multicrystalline PV modules ranging from 215 W to 240 W in power output.

In the preceding third quarter, the Changzhou, China-based company's net income was $82.87 million, or $1.08 per American Depository share (ADS), compared witha profit of $39.76 million, or $0.64 per ADS, in the year-earlier quarter. Revenue surged 103.5% to $508.30 million from $249.75 million. Analysts, on average, expected the company to report earnings of 87 cents per share on revenue of $420.46 million. 

At its last earnings call in November, the company expects to ship approximately 300 MW of PV modules. The company expects its gross margin relating to its in-house wafer production to module production to be in the mid 30s in percentage terms during the fourth quarter of 2010. The company believes its overall gross margin, taking into account wafer and cell requirements outsourced to third party suppliers to meet demand in excess of its internal capacity, for the fourth quarter will be approximately 30%. For the full year of 2010, the company raised its guidance for total PV module shipments to be approximately 1 GW, compared to its earlier guidance of between 900 MW to 930 MW, representing an increase of approximately 151% from the annual PV module shipments in 2009. The company said that it is increasing capacity to 1.7GW for next year, up from 1.1GW ending in 2010. The company executives suggested that they are increasing capacity by 50% and one could expect similar increases in shipment volume. 

The company plans to have more than 10% market share in the global photovoltaic market in 2011, an increase from its 2010 estimation of 8% to 9%. The solar product maker, currently has a global market share of 8%, plans to allocate up to US$400 million in capital expenditure for 2011. According to the company, Europe will still be the largest market but will have a slow sales growth next year. Sales in the region are expected to account for 60% of the firm's global sales from the current 75%. Rapid sales increase with strong demand is likely to be recorded in the U.S., Australia, China and Japan. Trina Solar said that it is well prepared to withstand a weak market environment with plans to reduce its exposure to Europe and shift some of the business in the U.S. Trina Solar intends to double shipments to the U.S. in 2011 from 130 megawatts in 2010. Back home, Trina's shipments could nearly double from roughly 30 MW in 2010. "We expect gross profit to grow tremendously and net profit growing even faster in 2011,"  Chief Financial Officer Terry Wang said in December.

In December, the company said that it plans to invest about $800 million over the next three years in research and development facilities. The Chinese solar maker said the investment in the Changzhou Trina PV Park will help expand the company's manufacturing capacity.

2010 continued the significant growth of the solar market throughout the country with new markets in China and the USA advancing their demand for solar panels. Solar industry as a whole has benefited from continued strong demand thanks to growing awareness about global warming, skyrocketing oil prices, cheap financing and technological advances. Companies involved in the production of semiconductors used in solar panels have enjoyed a positive quarter. Many have experienced rising shipments over the last few quarters, resulting in a sequence of record quarters. The world is becoming increasingly environmentally conscious. Both commercial and private demand for solar power is rising. Solar options are becoming more attractive as more governments provide better options for buildings producing solar power to feed into and out of the grid as required.

Last month, US President Barack Obama in his State of the Union address called for 80 percent of the nation's electricity to come from clean sources by 2035. Meanwhile, Senator Bernie Sanders submitted a bill to congress titled the "10 Million Solar Roofs and 10 Million Gallons of Solar Hot Water Act". This bill is expected to spur alternative energy growth and create green jobs.

Meanwhile, the largest market for solar, Germany, is slated for a significant decline in 2011. German government officials and industry groups are reaching an agreement over solar-power subsidy cuts for 2011. Hinging on the volume of new solar power capacity additions, the government may cut incentives by almost 12%, effective July 2011. However, if installations exceed 7.5 gigawatts, subsidy cuts may reach almost 15%.

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