Report out on the 27th from CS
C1Q10 Preview FSLR
Bottomline.
We remain bullish on CY10 demand, our estimates are 12.7GW which is above cons at 9-10GW. Positive demand will help all solar stocks including FSLR - but stock would have had more upside if its capacity adds were more aggressive in CY10. FSLR is a well managed company, but at 20x potential CY10 EPS, stock appears fairly valued.
FSLR 1Q10 preview.
FSLR reports 1Q10 results on April 28th after market close, and will host a CC at 4.30PM. We expect company to reiterate its CY10 EPS guidance range of $6.05-$6.85, and expect the event to be Neutral to the stock. Since the time of company's guidance, we think 1H10 solar end-demand has remained strong - even strengthened a bit since March, which could help company's pricing. On the policy front, matters remain largely unchanged, although there will be less new ground mount project activity for 2H10. Also the Euro has weakened 6.8% q/q in 1Q10 to avg level of $1.386, and if it remains flat will be down 3.6% q/q in 2Q10, versus FSLR's currency assumption of $1.40. Every $0.01 change in currency impacts op income by $10mm. In balance, we think there is potential for FSLR to earn around $6.7-$6.8 in CY10, versus current cons at $6.16. But given FSLR's penchant to provide conservative guidance, we expect company to reiterate prior guidance. Note that FSLR's 2010 outlook implies 1H rev/EPS of $0.95bb/$2.43 - versus current street at $1.05bb/$2.93 - this point has been widely telegraphed and we do not think a miss for 1H relative to consensus will be a surprise. We would focus on CY10 guidance.
Bull thesis.
(i) CY10 end-demand strength can provide pricing and ultimately a bit of upside to CY10; 2H sharp system project ramp is supported by Canadian projects; France is a positive geography for FSLR given EDF-EN relationship; general industry checks suggest FSLR panels are in tight supply in 2H and bankability of FSLR panels remains high
(ii) C-Si cost reductions could stall as poly already down to $50/kg- $55/kg, vertical integration is playing out aggressively, and the move to China is in later innings; (iii) 2011 capacity will grow ~56% y/y, long term system project pipeline provides growth with reasonable margins and company typically executes well on conversion efficiency, productivity and cost reductions. If company can additionally provide a surprise on lowering opex ($389.8mm in CY10 assumption vs $334.7mm in CY09), or pull in Malaysia Line 5 ramp by a quarter, could provide upside. Every $10mm reduction in opex helps EPS by 10c; a 1-quarter pull in of Malaysia all-else equal is 40c of upside to CY10 EPS; current tax rate assumption is 15% - every 100bps lower tax rate is 1.2% to EPS.
Bear thesis.
(i) Not enough visibility on 2H system projects - we are modeling ~337 MW for CY10 systems, but can only point to 238 MW of publicly announced projects;
(ii) FSLR does not have enough capacity to capitalize on CY10 demand strength;
(iii) y/y comps will get weaker in CY11 for industry - and CY10 c-Si capacity adds are 6-8 GW per AMAT - which means competition will be a factor in CY11; (iv) C-Si pricing can still decline to $1.25/watt for CY11 in a bearish scenario, which would imply our FSLR pricing assumption of $1.29 for third party sales in CY11 could be at risk (FSLR typically sells at a 25c discount). Every $10c/watt lower price on CY11 for FSLR for component sales affects CY11 EPS by 19c. |
