AP---6/11
JA Solar Up on Revised Wafer Agreement
Monday June 11, 2:28 pm ET
By Marley Seaman, AP Business Writer
JA Solar Shares Surge on Revised Wafer Supply Agreement, Upgrade
NEW YORK (AP) -- JA Solar Holdings Co. climbed Monday after the solar cell maker said it doubled the amount of wafers it ordered from M. Setek Co. and an analyst upgraded the stock saying its secure supply of polysilicon is likely to lead it to boost capacity.
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Polysilicon, a key raw material used in making the material used to build solar cells, is in short supply and has gotten substantially more expensive in recent years.
The Chinese company will receive 10.2 million wafers between July 2007 and December 2011. The companies had previously agreed on 5.1 million wafers, and changed the schedule on which M. Setek will be paid. The deal still includes a $100 million prepayment.
Analyst Jeff Osborne of CIBC World Markets upgraded JA Solar shares on the news, saying the increased order will allow it to compete with other leading Chinese solar companies. Osborne raised his rating to "Sector Outperformer" from "Sector Performer," and set a price target of $32, implying growth of 37 percent over its closing price Friday.
The analyst said the company now has the raw materials to compete with companies like Q-Cells AG and Suntech, and may actually have more wafers than it needs for 2008.
"We believe JA Solar deserves a premium valuation to the Chinese solar peer group due to its strong wafer supply contracts," he said. "JA has done extremely well to now lock up all of its 2007 and 2008 expected wafer supply."
The analyst also predicted the sourcing deal, coupled with agreements with other suppliers, would lead JA Solar to boost its capacity in 2008. Accordingly, Osborne raised his profit and revenue estimates for 2007 and 2008, now calling for $1.01 per share in 2007, with revenue of $299.9 million, and $2.01 per share in 2008 on sales of $617.7 million.
Wall Street analysts project 2007 earnings of $1.03 per share on $290.7 million in sales, and a per-share profit of $1.47 in 2008 on revenue of $544.4 million, according to Thomson Financial.
However, Osborne said, the payments are not fixed, meaning the full cost of the order is not known. He expects it to be several times the size of the prepayment, but costs could go up before the order is completed. The company's margins could shrink as a result.
JA Solar's American Depositary Shares rose $1.45, or 6.2 percent, to $24.74 in afternoon trading. The stock has ranged from $16.17 to $28.88 since trading began in February. |
