Suntech Power Earnings Preview: Margins in Focus
Suntech Power (NYSE:STP), one of the world’s largest PV manufacturers, is expected to release its 2011 Q4 earnings over the next few weeks. We will closely watch the earnings to understand the impact of the ongoing shakeout in the solar sector on Chinese PV manufacturers including Suntech and Trina Solar (NYSE:TSL), who are leading a drastic price war in the industry. On the volumes side, the end-year rush in German installations is expected to boost the sales results for Suntech. However, low margins will impact the profitability of the company and may result in a small loss for the last quarter.
We have a $4.4 price estimate for Suntech, which is at a 10% premium over its current stock price.
Click here for our full analysis of Suntech Power.
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High volumes
Sales of solar PV modules recovered in the last quarter of 2011 driven mainly by installations in Germany. The world’s largest market saw installations shoot up in December as utilities rushed to finish projects before impending subsidy cuts in January. Around 4 GW of capacity was added in the month of December, and the country added a total of 7 GW in 2011 as panel prices dropped faster than the subsidy cuts. German feed-in-tariffs are subject to periodic review based on capacity additions. The year-end rush should boost the sales volumes of major PV manufacturers including Suntech Power.
Additional jumps in sales are also expected from the U.S. and China in Q4 2011. Dropping panel prices have resulted in increased cost effectiveness of solar installations in the emerging markets. The U.S. market also saw strong growth in sales volumes in 2011. However, going ahead, Suntech’s CEO Zhengrong Shi, among other industry executives, has pinned hopes on increasing demand from China to set right the industry overcapacity situation and the expected drop in European demand.
Low margins
Falling solar prices will eat into the margins enjoyed by solar companies in the last quarter of 2011. Suntech and other solar manufacturers are being forced to lower panel prices to adapt to falling subsidies and increasing manufacturing capacity. However, low polysilicon prices could lessen the impact of declining margins.
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