Solar Weekly Notes: Trina Solar’s Debt Offering, First Solar’s German Ambitions

The solar sector had a relatively rough week, with most solar stocks shedding recent gains owing to falling oil prices, new equity and debt offerings and also due to speculation that Japan will cut its solar subsidies. The Guggenheim Solar ETF was down by close to 4% through Thursday. Here is a brief overview of the news that mattered in the solar industry.

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First Solar’s German Ambitions

First Solar (NASDAQ:FSLR), one of the world’s largest panel manufacturers and solar project developers, is targeting new projects in Germany, as the country is expected to issue tenders to develop about 600 megawatts of large-scale solar capacity next year. ^[1] The German solar market has seen a lull over the last year, with new installations in 2013 falling by over 50% due to a scale-back in the country’s solar incentives. However, the market for large-scale solar power in Germany could see some revival, with the launch of the tender process next year. Germany wants to derive as much as 60% of its power from renewable sources (inducing hydropower) by 2035, as it plans to close all nuclear reactors by the year 2022. ^[2]

• We have a $68 price estimate for First Solar, which translates to a market cap of around $6.4 billion. Our price estimate is slightly ahead of the current market price. We are modelling revenues of about $3.7 billion for FY 2014 with an EPS estimate of around $3.08. This compares to a consensus EPS of around $2.60 according to Reuters.
• First Solar’s stock dropped by around 5% through Thursday before making up some of those declines Friday morning.

Trina Solar Raising Capital

Trina Solar (NYSE:TSL), one of China’s largest solar companies, will sell $100 million of convertible senior notes and issue additional shares. The company plans to sell 2 million American Depositary Shares (ADS) and will also lend about 5 million shares to affiliates of the underwriters of the offering. Although the company will not receive any proceeds through the offering of the borrowed ADS, it will receive a lending fee from the borrowers. While Trina notes that it intends to use the capital raised for general corporate purposes, some specific areas where the funds could be deployed include the company’s growing solar projects business and the expansion of manufacturing capacity. This is the second time Trina is raising capital via convertible bond offerings this year. The company had a $150 million convertible notes issue in June.

• We have a $14.50 price estimate for Trina Solar, which translates to a market cap of around $1.2 billion. Our price estimate is about 25% ahead of the current market price. We are modelling revenues of about $2.56 billion for FY 2014 with an EPS estimate of around $0.83. This compares to a consensus EPS of around $0.92 according to Reuters.
• Trina Solar’s stock fell by close to 19% through Thursday owing to the company’s capital raising and other industry-specific issues.

Japanese Solar Incentives Could Be Scaled Back

There have been increasing concerns of a scale-back in government incentives for solar power in Japan, which is the world’s second largest solar market. According to the country’s Yomiuri newspaper, the government may revise solar subsidies which were introduced in July 2012. ^[3] Most Chinese solar companies have been counting on Japan to drive panel sales of late. For instance, Trina solar projects that Japan will account for about 22% of total shipments this year, up from around 7% a year ago. Yingli Green Energy (NYSE:YGE) noted that its shipments to Japan during H1 2014 have exceeded the total shipments to the country for FY 2013. A pullback in Japanese demand could hurt solar companies, given that the Japanese market has among the highest average selling prices for solar products and is important to most manufacturers from a margins perspective.

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1. First Solar targets Germany’s 600MW large-scale solar revival, PV Tech, September 2014 [↩]
2. Renewables Take Top Share of German Power Supply in First, Bloomberg, October 2014 [↩]
3. Trina Drops as Japan Outlook Sinks Chinese Solar Makers, Bloomberg,October 2014 [↩]