Another report from CS on the 8th:
Solar Snippet
Poly prices increase again: Second derivative has improved
Poly spot prices are up 5% w/w and 21% YTD to $29.30/kg, according to
PV Energy Trend. Poly and wafer spot prices continued to increase this week.
Industry checks also suggested some wafer companies may have pushed
through a 10% YTD increase in prices – PV Energy Trend is quoting a 4% YTD
increase to $1.19 per 156mm multi wafer. Yesterday we raised our 2011 and
2012 demand estimates based on pull-in ahead of policy changes and price
elasticity. To be very clear - there are very significant risks that still exist -
overall 2012 planned supply still well above than our modeled demand,
Germany policy outcome could end up in a 3.5GW or lower cap which
depending on magnitude will be important and US could decide to apply tariffs
retroactively on Chinese companies - unfavorable outcomes on these issues
can quickly change investor sentiment. That said, we have to acknowledge the
fact that price elasticity once again surprised demand to a much higher level at
year end compared to expectations at the beginning of the year for probably the
fifth straight year running. And the fact also is that the second derivative on
pricing is not as negative for solar in 1Q12 as it was in 4Q11. Valuations of
China-based mid-stream panel companies with leading cost and brand positions
like TSL, YGE, STP, and JKS, given their valuations of ~0.6 P/tBV could benefit
from this improving second derivative. We would still expect stocks trading at
significant premiums to tangible book (such as poly companies with high P/tBV
and FSLR) can underperform in this environment.
REC’s poly ASP declined by 42% q/q in 4Q11 to secure off take; volume
up 25%. REC reported this morning before market open. REC halted 50% of
the wafer activity in Norway in 2011 (25% of original capacity is in operation)
and had to pursue new customers with oversupply conditions. Total 2011 poly
production of 19.05k tons was slightly above previous guidance of 18.5k tons.
2011 solar and electronic grade poly of 16.7k tons was slightly above with our
estimate of 16.4k tons. Total polysilicon production targets are 20.5k tons (up
8% y/y) in CY12 and 5.21k tons in 1Q12. REC silicon revenue of NOK1,109mm
is down 20% q/q. Silicon EBITDA margin of 28% is down 2300bps q/q. REC
average FBR poly cash costs of $14/kg (total cost of $26/kg) in 4Q11 are
targeted to reach a cash cost of $13/kg (total cost $23/kg) by YE12. The mix of
FBR production is increasing and helping to lower average costs - 2/3 of
production is now lower-cost fluidized bed reactor (FBR) and 1/3 Siemens (not
clear exactly what the mix was in the past). FBR may have costs about ~$6-
8/kg below Siemens. Lower production costs across the industry may allow
further price reductions if capacity expansion plans persist.
OCI update - possible delays to expansion. OCI reported results yesterday before the
market open. OCI operated near full utilization in 4Q11 and reached 42k tons of annual
capacity. A-Hyung Cho estimates OCI 2011 production of 35.8k tons, below our previous
supply demand model estimate of 37.3k tons. Cho is modeling 42k tons of capacity
through 2012 and 62k tons through 2013. OCI poly revenue in 4Q11 was KRW 298bb
with poly EBIT % of sales down 3000bps q/q to 7% and poly EBITDA down 1800bps q/q to
34%. CS analyst A-Hyung Cho estimates that the cash cost of OCI poly declined 25% q/q
to $18/kg in 4Q11, in part due to the debottlenecking. Management commented that the
poly cost reduction target is a lot more aggressive than 15% in 2012. Perhaps the most
important datapoint from OCI's earnings was that OCI is slowing P4 poly capacity
expansion; no decision yet on P5 expansion. OCI had planned the P4 poly expansion for
completion by YE12, but now the company is moving slowly with the expansion because
of low poly pricing. It can be completed by YE12 but a push out is likely with the slow pace
of expansion. No decision has been made yet on P5 – it was originally planned to be
completed by YE13. Procurement and engineering for P5 will have to start by May 2012 to
complete it by YE13 - there was no change in stance on P5. In Nov 2011, OCI completed
the 3.7 debottlenecking for 7k tons, helping cost reductions.
Wacker management claimed that polysilicon demand is now more robust than in
December. Wacker held a sales and revenue call on Jan. 26th. Wacker 4Q11 poly sales
of E255mm were down 33% q/q. Poly EBITDA margin of 64.7% was up 1730bps q/q and
810bps y/y (including 4Q11 E65mm of retained prepayments and E25m impairment of
small poly 5 plant). Excluding these one time items EBITDA margin was 49%, up 160bps
q/q. Lower volumes and lower ASPs in 4Q11 led to a decline in sales of 32% y/y and q/q.
Hemlock shipments were up 6% to 32kMT in 2011, below the 36.4k tons we had
estimated. Like many other tier I polysilicon manufacturers, Wacker is continuing with
capacity expansion plans, from ~34k tons at YE11, to 52k tons at YE12, and 70k tons at YE14.
Hemlock has decided to delay certain capacity expansions until pricing improves.
Hemlock, which is part owned by Dow-Corning JV, appears to have delayed some
capacity expansion plans. Corning, in its conference call, did not clarify details of the
capacity expansion delay but did note that poly pricing is likely to remain under pressure,
in spite of the recent up tick in January. We have said that tier I poly makers need to
reduce utilizations and cut capacity expansion plans to improve the supply demand
balance - as such, the prospect of at least slower expansion from two of the biggest poly
Tier 1 companies (OCI, Hemlock) could help overall supply growth from 2013 (though may
do little to change the balance on 2012).
Companies Mentioned (Price as of 08 Feb 12)
Corning Incorporated (GLW, $13.75)
First Solar (FSLR, $46.59, NEUTRAL [V], TP $30.00)
Jinko Solar (JKS, $7.96, NEUTRAL [V], TP $7.50)
OCI Company Ltd (010060.KS, W278,500, OUTPERFORM [V], TP W323,000)
Suntech Power Holdings Co., Ltd. (STP.N, $3.60, UNDERPERFORM [V], TP $2.50)
Trina Solar Ltd (TSL.N, $8.20, NEUTRAL [V], TP $6.00)
Wacker Chemie (WCHG.DE, Eu78.32)
Yingli Green Energy Holding (YGE.N, $4.56, NEUTRAL [V], TP $4.00) |
