China Solars: Collins Stewart 2011 outlook
YGE - BUY $13.50
Our revised $1.68 EPS remains above the $1.39 Street consensus and is still based on YGE shipping 1,475MW in CY11 at an ASP of $1.54/w. We reiterate our Buy rating, but lower our PT to $13.5 to from $16 to reflect an 8x P/E of our CY11 EPS estimate (prior PT was based on 9x). YGE remains both a cost leader and brand leader in the solar market, factors that should enable it to trade at a premium to its China-based peers.
JKS - BUY $37
We reiterate our Buy rating on JKS. Our earnings forecast is unchanged, with our CY11 at $6.15, based on 615MW of shipments of modules and an average selling price of $1.53/w (down 14% yr/yr). Valuations in the solar industry have declined sharply in recent weeks, with multiples compressing on concerns of oversupply and potentially FIT reductions in Germany and Italy in CY11. Our prior PT was based on JKS achieving a 7x P/E during CY11. Given that industry leaders are now trading with P/E’s of just 5-6x forward multiples, we are lowering our PT to $37 from $43 to reflect a 6x of our CY11 EPS forecast. In general, we believe that low cost is the key source of competitive advantage in solar, with brand a secondary, though still important source. With already on par with industry leaders, we view JKS more favorably than some of its peers with strong brands but inferior cost structures.
CSIQ - NEUTRAL $13.50
Our rating on CSIQ remains at Neutral and our PT is adjusted to $13.50 based on a 6x applied to our revised CY11 forecast of $2.30. CSIQ shares are trading with a 5.5x P/E, which is cheap by historical standards, but just inline with the average of similar peers. With what could be described as an average brand among its peers but a cost structure that lags, we rate CSIQ at Neutral, implying we believe its share price performance will largely match that of its peer group.
JASO - BUY $8.40
Given its competitive advantages in the cell market, its positioning as an outsourcing partner of choice for high-cost vendors, and its strong balance sheet, we believe this P/E makes JASO an attractive investment option in the solar industry. While oversupply and the recent trend in cell prices is a concern, we reiterate our Buy rating. Our price target is adjusted to $8.40 from $13 to reflect a 6x P/E applied to our revised $1.40 EPS CY11 forecast.
TSL - TOP PICK $32
As we enter CY11, we have chosen to make TSL our Top Pick in Solar for CY11. TSL earns this distinction due to its strong brand, low-cost and strong balance sheet (positive net cash). We reiterate our Buy rating and $32 price target on the company, a target based on an 8x P/E applied to our $4.05 foreward forecast. Our prior top pick was YGE, which has many similar attribute to TSL, though does not have a strong balance sheet or as clean a story, given the uncertainty with YGE’s polysilicon plant. While we maintain a Buy rating on both and used the same 8x P/E multiple to establish our price targets, we believe TSL offers investors a better risk/reward profit at this juncture.
SOLF - NEUTRAL (Downgrade) $8.90
Due to the reasons cited above, we downgrade SOLF to Neutral rating. We establish an $8.90 PT on SOLF based on 5x P/E multiple of our revised 2011 EPS estimate of $1.78. While this valuation is extremely low by historical standards, it is consistent with the forward P/E multiples being accorded to solar shares in the current market environment. At this juncture, we believe investors have better potential for an above market return in other solar names and we therefore move to a Neutral rating.
STP - BUY $10
We maintain our Buy rating on STP, though are lowering our PT to $10 from $11. The revised PT is based on a 7.5x to our revised CY11 EPS forecast of $1.35. With brand leadership but just an average cost structure the P/E multiple apply to STP’s earnings is slightly below that accorded to TSL and YGE. Our EPS forecast for CY11 does not include any benefit to STP from marked up values of Global Solar Fund projects.