Trina Solar’s Q1 Results Should Improve On Utility Scale Projects, Better ASPs

Chinese Solar bellwether, Trina Solar (NYSE:TSL), is expected to publish its Q1 2014 earnings later this month, reporting on a quarter that saw global demand for photovoltaic products soar to record levels. During Q4 2013, the company’s revenues grew by around 73% year-over-year to around $525 million, while operating income rose to about $14 million compared to a loss of about $70 million a year ago. ^[1] Here is a quick look at what to expect and what we will be watching when the company releases earnings.

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Trefis has a $18 price estimate for Trina Solar, which is about 60% ahead of the current market price. We will be revisiting our price estimate for the company following the earnings release.

Expect Earnings To Improve On Demand, ASP Growth

We expect the company’s adjusted earnings for the quarter to rise (on a year-over-year basis), driven by strong global demand and favorable pricing conditions in the solar market. According to research firm NPD Solarbuzz, global demand for solar panels during Q1 grew by 35% year-over-year to around 9 gigawatts (GW). Trina Solar expects total shipments for Q1 to stand at around 540 megawatts (MW) to 570 MW, out of which around 20 MW to 30 MW will come from its downstream projects. ^[2] This compares to shipments of around 393 MW during Q1 2013.

Trina Solar reported panel average selling prices of around $0.66 per watt during Q4 2013. We expect to see some improvements to this metric in Q1, since solar panel supply is expected to grow at a slower pace compared to demand for this year. According to GTM research, global average selling prices for panels increased by around 14% year-over-year to $0.70 per watt, and this broader market trend should reflect on Trina’s results as well. ^[3]  The company is also expected to see better margins, aided by its project sales, ASP growth and possibly better manufacturing costs. The company is projecting  gross margins of between 18% and 20% for Q1, compared to around 2% during the same quarter last year.

Watching The Utility-Scale Projects Business

Despite the operational and market developments in recent quarters, Trina Solar’s panel manufacturing business remains quite commoditized and has proved to be a drag on the company’s operating margins (which stood at under 5% as of Q4 2013). Like many other Tier-1 Chinese manufacturers, Trina Solar has been looking to bolster its presence in the lucrative solar projects space in order to drive long term earnings growth (see The State of The Chinese Solar Market). The company indicated that it would be shipping around 400 MW and 500 MW of panels to downstream projects for this year. ^[4] For this quarter, we will be interested to hear of the status of the company’s potential 1 GW project in Xinjiang, in western China. Trina signed the strategic framework agreement for this project towards the end of last year, indicating that it would be building out the first two phases by the end of 2014, subject to regulatory approvals.

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1. Trina Solar Announces Fourth Quarter and Fiscal Year 2013 Results, Trina Solar, March 2014 [↩]
2. Trina Solar Updates First Quarter 2014 Guidance, Trina Solar, April 2014 [↩]
3. GTM: Very large price variation across markets, rising prices for solar PV modules, Solar Server, May 2014 [↩]
4. Trina Solar Q4 Earnings Call Transcripts, Seeking Alpha, March 2014 [↩]