Chinese solar equipment manufacturer LDK Solar (NYSE:LDK) will release its results for Q1 2012 on the 26th. The company’s earnings could be hit by the imposition of import tariffs by the U.S. Department of Commerce and the continuing decline in panel prices. Q1 results could also see the impact of seasonal weakness in the sale of solar equipment. Panel manufacturers are looking to offset the impact of lower sales in European markets by targeting opportunities in emerging markets such as China. LDK’s performance in 2012 will be dependent on its ability to adapt to the changing dynamics in the solar industry.
The solar industry has seen major shifts since countries in Europe announced major cuts in subsidies to reign in installations. Players like LDK have been stranded with high debt levels while panel prices and margins have fallen, threatening the survival of many firms in the industry. Falling panel prices have also opened up new opportunities in other markets. Sales are picking up in the U.S. and in China and other emerging markets. However, the U.S. imposed countervailing duties on solar equipment manufactured by Chinese firms, which has hit the margins of Chinese players in the last quarter. LDK is placing its hopes on sales in the fast expanding Chinese market for a revival in demand for its equipment.
LDK recently announced that it had won contracts to build plants with a total capacity of 600 MW in the province of Gansu, in China. (See: LDK’s China Contract Win Help Recovery Prospects) Recently, Japan unveiled a plan to provide lucrative subsidies for solar power to rapidly ramp up the country’s installations. LDK Solar’s success in capturing demand from growing markets and its ability to cut costs will be major determinants of the company’s ability to survive the present shakeout in the solar industry.
We are looking to revise our $3.70 price estimate for LDK Solar, which is at a 70% premium to its current price.