Suntech Smashes Estimates and Ramps Production
Suntech Power Holdings Co. Ltd. (STP) scorched revenue and earnings estimates. Suntech’s Q4 results highlighted a company firing on all cylinders pulling further ahead of their competition.
Q4 Financial Highlights
- Total net revenues increased 23.4% sequentially to $583.6M versus estimates of $468.3M.
- Gross profit margin for the core wafer to module business was 26.3% compared with 20.0% in the third quarter.
- Consolidated gross profit margin was 23.8% compared with 17.8% in the third quarter.
- Net income was $49.9 million, or $0.27 per diluted American Depository Share (ADS), $0.16 ahead of the $0.11 First Call consensus.
Full Year 2009 Financial Highlights
- Total net revenues were $1,693.3 million.
- Total shipments of solar products increased 42% year-over-year to 704MW
- Consolidated gross profit margin was 20.0%
- Net income was $91.5 million or $0.53 per ADS
- Cash, cash equivalents and short-term principal guaranteed investment was $1,034.0 million as of December 31, 2009
- Increased capacity to 1.1GW by the end of 2009 and maintains target to increase total PV cell and module production capacity to 1.4GW by the middle of 2010, of which 450MW will be Pluto-enabled.
Business Outlook
- Expects first quarter 2010 shipments to increase by 5 to 10% compared to the fourth quarter of 2009. Consolidated gross margin in the first quarter of 2010 is expected to be in the range of 18% to 20%.
- Suntech targets to ship more than 1.25GW of PV products in the full-year 2010.
- Capital expenditures are expected to be approx $200M in 2010.
more details, Suntech’s Q4 results.
The Big Questions
Commodity or not? Suntech argue their product superiority is a differentiating factor. They have delivered over 2GW of PV cells to 2,000 customers is 80 countries. While I think it is stretch to argue Suntech’s PV are equivalent to “Intel Inside”, their performance this quarter appears to corroborate their believe that the quality and reliability of their brand differentiates their products. Suntech’s Q4 results were the best amongst the Chinese solar producers.
Demand after Germany subsidies are cut in second half 2010.
Suntech Q1 production is already accounted for and that’s after they ramped up production. As the graph to the right shows, demand in Europe outside of Germany is growing at pace. Throw is North American and Asian growth and it becomes clear why the CEO, Dr. Zhengrong Shi, was so confident on the conference call. Shi also pointed out that even after the German subsidies are cut, investment in PV remains attractive there.
The concern amongst analysts over the German subsidies is one of the major issues holding the price of STP down. However, after these results I expect analysts will upgrade their estimates above the current consensus of $0.65 for 2010.
The following graphs shows that Suntech plan on continuing to diversify their revenue stream and Germany will become less of a factor. My view is subsidies come and go, but solar will continue to grow and STP is the best positioned PV manufacturer in China.
Highlights from the Q4 Presentation
- Growing presence is Asia Pacific, Middle East and Africa.
- New subsidy program announced is Taiwan
- China’s first 10MW utility scale power project.
- 20MW of utility scale power projects under way. In the conference call they mentioned bidding on 2GW of projects and being short listed for 1GW.
- Sales in US increased 60% QoQ. 30MW Production in Arizona scheduled to start in Q3.
- Non-silicon costs fell from $0.63 to $0.56 in 2009.
- Silicon costs continue to decline, fell 15% QoQ 3rd to 4th.
- Working capital management improved significantly. Cash conversion cycle reduced from 108 days in Q1 to 64 days in Q4.
For more details view the presentation.
Conference Call
SA have posted the transcript.
Here’s some comments on ASP. I think their analyst is wearing rose tinted glasses, but if they are even close and ASPs fall by single digits there is lots of upside for STP.
“From our own detailed analysis, we do not see the need to adjust the ASPs much from the Q1 level for a couple of reasons.
Firstly, we believe that healthy and acceptable investor returns can be achieved at the Q1 ASP level. Secondly, the subsidies in other global markets continue to provide very attractive returns for investors in solar projects.
And thirdly, demand for Suntech module in Europe is extremely strong and growing. We are fully allocated for the first half of 2010 and our current pipeline exceeds our capacity in the second half of the year. Naturally, we will continue to closely monitor the situation.”
“Okay. Look, Q1 and Q2, as we all know, the market is pretty strong, I think ASP is quite stable. And year end for the second half, especially people has been talking about German feed-in-tariff cut, but according to our analysis, even at current ASPs the incremental rate of return especially in Germany may not be affected meaningfully. So we basically, we believe the reduction of ASP for the second half is also quite minimal.”
Disclosure: Long STP
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