ReneSolar Drops On Q1 Miss; Axiom Skeptical On Solar Demand Recovery
By Teresa Rivas
ReneSolar (SOL) recouped some earlier losses, but was still solidly in the red by midday Thursday, after its first-quarter top- and bottom-line results missed analysts’ expectations.
The company reported a loss of 14 cents a share, six cents worse than the 8-cent per-share loss the Street was expecting. Revenues climbed 46% year-over-year, to $415 million, but that was also below the consensus $425.7 million.
Solar module shipments climbed to 521.1 megawatts, up from 505.3 megawatts in the fourth quarter, while solar wafer and module shipments dropped to 710.1 megawatts, from 784.1 in the previous quarter.
Still, ReneSolar’s miss didn’t seem to be hurting peers too much, with LDK Solar (LDKSY) and Trina Solar (TSL) making gains.
Yet Axiom Capital’s Gordon Johnson writes in a note today that he may have previously been too optimistic about a coming resurgence in demand in the sector, and now sees risk to industry fundamentals in both the second and third quarters of 2014, pushing out upside for Chinese solar names until the end of the year. He also notes that polysilicon price quotes are “worryingly” below listed prices, to the point that he sees continued downward pressure on prices, “and thus broader value chain pricing, as likely.”
Given this, he maintained his “negative near-term bias” toward the group, and advises building short positions in Trina , Yingli Green Energy (YGE),and Meyer Burger Technology (MBTN) , but maintained a positive bias toward JA Solar (JASO), given “their shift from selling cells to selling modules, as well as their favorable positioning in Japan, progress downstream, & solid balance sheet.”
More detail from the note:
In short, we along with Consensus expect a 2H14 recovery in Chinese demand, similar to that seen at the end of 2013. However, based on the comments above from our on-the-ground expert on the interworking’s of the Chinese government, 2H14 upside appears back-end loaded to C4Q14 vs. our/Street expectations that a recovery would emerge in C3Q14. As such, given our view that, in general, C2Q14 earnings will disappoint, exacerbated by our view that both: (1.) value China pricing will continue to weaken through C2Q14 and into C3Q14, & (2.) given a solar investor-base focused on near-term trends, should both C2Q14 & C3Q14 trends prove underwhelming, we see significant downside to 2H14 earnings vs. current Consensus estimates. Stated differently, even assuming China does 14GW of solar installations in 2014 (an assumption that appears increasingly unlikely), we see Consensus Trina Solar (TSL; SELL) 2H14 EPS estimates as overstated by $0.34/shr, or 136% (we are modeling 2H14 EPS for TSL at $0.25/shr vs. Consensus $0.59/shr). Thus, even though we see significant earnings revisions ahead, should China fall short of 14GW in solar installations, we see even more risk as likely. Caveat emptor.
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