CS preview on SPWR
C2Q preview. SPWR will report C2Q earnings on Aug 10, after market close, CC at 4:30 PM ET. We are modeling C2Q rev/EPS $396.9mm/$0.08, vs. street at $401.2mm/$0.10 and guidance at $380-420mm/$0.05-0.12. For CY10, we are modeling rev/pro-forma EPS at $2,151.1mm/$1.25 vs street at $2,095.9/$1.28 and guidance at $2,000-2,250mm/$1.25-1.65.
There are three key issues to focus on for SPWR:
(i) Cost/watt;
(ii) Back end loaded
guidance;
(iii) Cash flows. Cash flows should improve following the AUO JV (see our note from May 27, 2010). The biggest swing factor to 2010 guidance is whether company can successfully complete the development (financing + sale of equity) of the 52MW remaining in its Montalto projects in Italy – we are positively biased on this factor.
The Montalto swing factor. We are currently modeling SPWR to generate 13c in 1H EPS, but $1.11 in 2HEPS – of which 4Q at 96c – company’s 4Q EPS guidance of $1.05-$1.35 requires we think system completions of ~110- 120MW. The biggest swing factor here is the 84MW of "Montalto projects" the company is developing in Italy (unlike other system projects which SPWR will do EPC for, the Montalto projects are developed by SPWR which means SPWR is responsible for financing and sale of equity on the projects (exactly the same for WFR’s 72MW Rovigo project). Of the 84MW, 24MW was completed in 2009, and 8.8MW has been completed so far in 2010. The 2010 projects were sold at ~€5/watt. We think the cost/watt for SPWR was likely ~€3.5/watt, suggesting at least €1.5/watt profits (in addition to profits of ~US$50c/watt on module sales). Thus the financing of the remaining 52MW of Montalto is the biggest swing factor for SPWR to hit its guidance in 2010 – we are positively biased that eventually financing will come through on these projects, but will be a key question for the call.
Note that the revenues from 20MW Canada project with Macquarie will be recognized through mid-2011, so Italy is the key swing factor for SPWR.
Cost/watt. Conviction on long term cost/watt competitiveness is critical to get a critical mass of investor sponsorship. We estimate SPWR’s cost/watt in C1Q10 was $1.89/watt for modules, and company has a roadmap to lower cost/watt to $1/watt by 2014. China solar companies are targeting a $1/watt cost at a poly cost of $40/kg, achievable by year end 2010. While SPWR has a 400bps higher panel efficiency compared to c-Si, nearly all solar companies have a plan to improve efficiencies 100 200bps (JASO-Secium, YGEPanda, STP-Pluto etc, Trina-Quadmax as well as start-ups like Innovalight which is selling efficiency improvement technology, and companies like AMAT offering higher efficiency c- Si equipment), which can commoditize the key advantage that SPWR has over the competition. SPWR’s wafer supplier Woongjin had a GM of 51%, versus typical wafer supplier GMs of 20-25%, suggesting SPWR’s cost/watt should be lower if procured from typical wafer suppliers. SPWR owns 31% stake in Woongjin – it is unfair to penalize SPWR for both higher cost but also not give credit for Woongjin stake. However, SPWR’s tech specs for wafers are known to be significantly tighter than normal tech specs for c-Si – this could require dedicated equipment or warrant a higher cost for SPWR’s wafer suppliers. Thus, if Woongjin can demonstrate it can diversify away from SPWR and/or SPWR can diversify away to neutral suppliers, then investors could provide more credit to SPWR’s Woongjin stake and cost/watt. |
