Trina Solar Q4 Preview: Expect Another Good Quarter On Shipment Growth, Stabilizing Prices

March 3rd, 2014 by Trefis Team
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Trina Solar (NYSE:TSL), one of China’s largest solar panel manufacturers, is expected to release its Q4 2013 earnings on March 4, reporting on a quarter that saw strong global solar demand. We expect the company’s earnings to improve on a year-over-year basis, driven by strong demand in the Chinese market, stabilizing solar panels prices, as well as some improvements on the cost front. During the third quarter, the company’s net revenues grew by around 84% year-over-year to $548.4 million while net income stood at $9.9 million, a significant improvement over the prior year’s loss of $57.5 million. Here’s what to expect when the company releases earnings.

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Volume Growth Could Come From China

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The global solar market has been witnessing strong growth over the last several quarters as a combination of better economics of solar power generation, government incentives and growing environmental concerns increased the demand for solar panels. For Q4 2013, NPD SolarBuzz reports that a record 7.6 gigawatts (GW) of modules were shipped by the top 20 solar panel suppliers. This growth is likely to be evident in Trina Solar’s numbers as well, since the company has guided shipments of between 760 to 790 MW for the quarter, which would be at least 80% higher than last year’s number.

Chinese Shipments: We expect China to continue to be the key driver of the company’s sales, since the market is expected to account for as much as 30% of the company’s shipments in 2013. We will be particularly interested in hearing of the company’s progress in the utility scale solar space in China, with these projects expected to account for over 40% of the country’s 14 GW installation target for 2014. The company has a project development pipeline of over 500 MW. [1] We will also be watching the company’s price realizations in the Chinese market,  since panel prices in the country have typically been slightly below the global average.

New Capacity Expansions: Trina has been running its factories at over its full stated module manufacturing capacity of 2.40 GW (as of Q3 2013). However, the company has been taking steps to ramp up capacity through its recent joint venture agreements. In December, the company added around 500 megawatts (MW) to its panel manufacturing capacity by taking over the operations of NESL Solartech, a mid-sized Chinese module manufacturer. In February, the company said that it would be adding around 420 MW of new cell manufacturing capacity by mid-2014 through its acquisition of a majority stake in Hubei Hongyuan PV Science and Technology. [2]

Margins Will Be Aided By Stabilizing Prices, Better Costs

Manufacturing Cost Improvements: We expect the company to continue to reduce its per-watt manufacturing costs, given its continuing panel conversion efficiency improvements, better controls in the company’s supply chain as well as the increased utilization of in-house manufacturing capacity. Higher utilization levels help panel manufacturers better allocate their fixed production costs over a larger number of units and improve their margins. However, these improvements could be partially offset by higher polysilicon input costs.

Panel Price Stabilization: During the third quarter, the company’s average selling prices (ASP) stood at around $0.64 per watt and we expect prices to remain relatively stable in Q4, given the closing supply-demand gap in the industry. In late 2014 we believe that pricing could actually rise, since global solar demand is expected to grow to as much as 49 GW. [3] However, effective manufacturing capacity is expected to remain at around 45 GW since capacity expansions have been slow.  During 2013, spending on photovoltaic manufacturing equipment fell to an 8-year low of around $1.73 billion down from a peak of about $13 billion in 2011. [4]

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Notes:
  1. China Solar: China’s New Policy Creates Downside Risk, Says Nomura, Marketwatch, November 2013 [↩]
  2. Trina Solar adding 420MW in solar cell capacity with JV, PV-Tech.org, February 2014 [↩]
  3. Global solar PV demand to reach 49 GW in 2014, say NPD Solarbuzz, PV Magazine, December 2013 [↩]
  4. New Solar PV Capital Expenditure Cycle to Start in 2015, According to NPD Solarbuzz, SolarBuzz [↩]