Suntech Worth $2.70 Despite Falling Sales And Tariffs

by Trefis Team
0.21
Trefis
STP
Suntech Power
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Suntech Power (NYSE:STP) recently came out with its Q1 earnings, reporting a 27% sequential decline in PV shipments. [1] Gross margins fell to 0.6%, impacted by a $19.2 million provision for the countervailing duties imposed by U.S. customs. The company said that it expected shipments to grow by 20% in Q2 and was focusing on cost cuts and improving its cash position. Suntech and other panel manufacturers have been hit by falling demand in PV modules in major markets and Chinese companies are also having to contend with tariffs imposed by the U.S. Department of Commerce. Suntech has been slapped with a 31% duty on its sales in the U.S., which makes its panels costlier than those from competing players like First Solar (NASDAQ:FSLR). Suntech is also following First Solar in limiting production to adapt to the changing market conditions. We have lowered our sales estimates and margins forecast for the company in light of the recent developments.

Click here for our full analysis of Suntech Power.

Changing conditions

Despite worsening conditions, Suntech has managed to shore up its cash position over the past quarter. Our new model reflects the decrease in the company’s debt level and an increase in its cash holdings. The company has cut down on inventory levels and has lowered production to adjust to the lower demand outlook.

Sales have dropped by 35% over the past quarter to $409 million, and Suntech managed to lower production costs by 6% in the period and is looking to implement more cuts in the future. The panel maker said that it will continue to streamline its wafer and module manufacturing business to lower production costs. The company is also focusing on further improving its cash position, which will be crucial going ahead as industry conditions continue to remain tough.

Future outlook

Suntech said that it expected sales to shore up in Q2 as the industry focused on high end and reliable products and expects sales to rise in all markets. Gross margins in the second quarter will be between 3 to 6% according to the company’s outlook. Suntech is looking to ship between 2.1 to 2.5 GW of solar panels in 2012 and will look to keep production capacity at present levels. Its competitors like First Solar have already announced steps to lower production capacity in light of lower demand for solar equipment in 2012. We have lowered our sales estimates, pricing estimates and margins for the company over the next few years in light of the challenging industry conditions to lower our price estimate for the company to $2.67.

We recently revised our price estimate for Suntech to $2.67, which is still a premium of more than 30% to its current market price.

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Notes:
  1. Suntech Reports First Quarter 2012 Financial Results, Suntech []
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