Shining light on solar power equipment makers
Commentary: China's demand for alternative energy will grow
By Sage Brennan; May 27, 2007
SHANGHAI (MarketWatch) -- Investors in China's tumultuous solar power equipment sector will watch Suntech Power Holdings Co. Ltd.'s (STP: news) earnings report on Tuesday morning, after Suntech competitor Trina Solar reported solid results last week.
After a sluggish stretch following its IPO in late 2006, Trina Solar Ltd.'s (TSL: news) stock saw a massive rise through mid April to almost $70, and has since settled in the mid-$50 range. Suntech's stock has seen similar volatility since its late 2005 IPO, and JA Solar Holdings Co. Ltd. (JSOL: news) has been on a bit of a roller-coaster ride too.
Stocks in this photovoltaic generation technology sector are driven by limited supply of resources, namely their silicon base material, as well as by the recent attention that alternative energy technologies have received as the global warming phenomenon has finally gained acceptance.
Although the largest markets for solar-based energy products are currently found in Europe, countries in other regions are beginning to consider government policies and other incentives that could increase worldwide demand for alternative energy technologies, including solar.
Interestingly, the many solar-cell manufacturers that have cropped up along China's east coast are overwhelmingly producing for export, but this will eventually begin to change as Beijing makes good on recent promises to improve energy efficiency. Currently, of course, China's energy efficiency is degrading with every new power plant and car that is produced, as is the case in other industrial economies.
Like the U.S. and Europe, China's demand for the whole spectrum of alternative energy products will inevitably grow, bringing prices of solar products within reach of Chinese consumers. In my opinion, the question for investors is when, not if, the solar energy market will go mainstream.
Suntech reported a tripling of profits during the fourth quarter of 2006, and I would expect the long-term prospects for companies in the solar sector to be bright.
>>>China Finance ticks up as China's stock markets bubble
Investors will watch closely when China Finance Online Co. Ltd. (JRJC: news) reports earnings on Wednesday after market close, following a strong move by the stock late last week; the stock approached $10 for the first time since early 2005 before falling off a bit on Friday. China Finance Online provides investors with a selection of subscription-based research tools covering listed companies, bonds and mutual funds.
With China's domestic stock exchanges on an ear-splitting tear this year, one would expect China Finance Online to be well-positioned to profit from the star-appeal that comes from being the only U.S.-listed company providing such services. The company has not been overwhelmingly successful since its 2004 IPO, however, consistently losing users despite price decreases.
China Finance Online's stock has therefore been largely ignored by investors, as high-fliers like The9 and NetEase and others have distracted attention with their booming online game businesses. But some investors are clearly aiming for a modest turnaround in the first quarter.
Speaking of inexplicable share price gyrations ...
We continue to track the irrational volatility of China's domestic stock markets, which are closed to most foreign investors. My JLM colleague David Cummins blogged last week about Wu Zhong Instrument Co., a little-known manufacturer of wind-powered electrical generation equipment based in Ningxia, whose stock price gained 10% -- the daily session upside limit, as set by regulators -- in each of eight successive trading sessions.
With Beijing's increasing focus on corruption and market manipulation, one would think that a stock that booms 115% in a week and a half might get flagged by officials. And that is exactly what eventually happened: trading was halted last Wednesday and has not yet resumed. But it took a week and a half for officials to notice the unusual activity, despite the company's somewhat colorful recent history.
Trading in the stock had previously been halted for a few months, while officials attempted to sort through some legal issues with the company and its shares. Trading resumed in mid-April and the stock price has since tripled, driven by a parade of "insider" rumors. Apparently, as evidenced by the most recent uncontrolled burst of trading activity, there are still some problems to be ironed out.
China's stock markets are moving so fast, and so unpredictably, that market overlords are having trouble keeping up.
Sage Brennan is research director of JLM Pacific Epoch, which covers China's emerging media, entertainment and technology industries. He does not hold positions in any of the companies covered in this report. E-mail him at sage.brennan@pacificepoch.com.
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