Trina Solar’s Year In Review

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TSL: Trina Solar logo
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Trina Solar

Trina Solar (NYSE:TSL), China’s largest profitable solar panel manufacturer, had a reasonably good year, driven by strong demand growth, stabilizing average selling prices and its increasing focus on the downstream solar market. The company’s revenues are poised to rise by around 20% for the full year, while margins are also expected to see an improvement. However, the company’s stock remained volatile, declining by about 35% through the year, due to concerns about lower oil prices. In this note, we take a look at some of the key factors that impacted Trina Solar this year.

Trefis has a $13.50 price estimate for Trina Solar, which is significantly ahead of the current market price.

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Strong Demand Drives Shipment Growth: The global solar markets are expected to have seen demand rise by over 20% during 2014, rising to as much as 52 gigawatts (GW), aided by lower prices, greater availability of financing and relatively stable incentives. [1] Trina Solar, for its part, is projecting shipments of around 3.6 GW for the year, up from around 2.6 GW in 2013, translating to a growth rate of close to 40%. During Q3, the company shipped more than 1 GW of solar panels, making it one of the few companies in the industry to have shipped over a gigawatt in a single quarter. Despite the strong growth, the company’s CEO has mentioned that it is still unable to fully meet demand as its factories are already running at close to full capacity.

Module Manufacturing Capacity Expansion: The company has been aggressively expanding its module assembly capacity, adding 1 GW of capacity this year, bringing its total capacity to 3.8 GW. Trina intends to boost module capacity to as much as 5 GW in 2015. [2] The company has been expanding in a relatively capital efficient manner (capex for 2014 stands at below $250 million), by forging joint ventures to access manufacturing capacity while also taking over operations of smaller and weaker solar companies. However, wafer and cell capacity still trails module capacity significantly. While wafer capacity stands at around 1.7 GW, cell capacity is about 3 GW, which means that the company will have to depend on outsourcing and asset leasing in order to fill the capacity gap. [2]

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Increasing Sales To Japan Help Soften ASP Decline: While Trina has traditionally counted on markets such as China, the United States and the E.U. for much of its shipments, the company has gained significant ground in Japan, the world’s second largest solar market. The company projects that Japan will account for about 22% of total shipments in 2014, up from around 7% a year ago. [3] This could prove advantageous to Trina, since the Japanese market is less sensitive to pricing, with panel ASPs being among the highest in the world. The favorable geographic mix in shipments has helped the company reduce the impact of the decline in average selling prices. As of Q2, the company’s ASP stood at around $0.65 per watt.

Push Into Downstream Solar Space: Like most other large Chinese solar players, Trina Solar has been increasing its exposure to the downstream solar space, with plans to complete between 330 MW to 360 MW of projects through 2014. Unlike the panel business, which has become largely commoditized, the projects business offers higher margins. The company currently has about 260 MW of projects under construction and about 357 MW of projects under development. While most of the company’s projects are located in China, the company has also been expanding overseas, partnering with companies in markets such as Japan and the U.K. to gain access to project resources and obtain necessary certifications to build out projects. Trina could have an edge over its Chinese peers in the project development space, given its stronger balance sheet and lower financial leverage, which could be valuable in gaining project financing. Earlier this year, the company raised close to $240 million through a convertible bond and  follow-on stock offering, and a part of this funding is likely to be used towards expanding the downstream solar business.

Stock Remained Volatile: The company’s stock continued to witness significant volatility through 2014, rising from levels of around $14 per share in January to about $18 in March after which it gradually fell to current levels of around $8.50. Much of the decline is attributable to falling crude oil prices. Benchmark crude oil prices have declined by over 40% since mid-June, amid concerns of sluggish consumption growth and strong supply from North American shale fields. While crude oil and solar energy are not direct substitutes, the markets count oil prices as a proxy for the cost of energy in general, and solar stocks have historically responded to fluctuations in oil prices. However, we do not expect oil prices to weigh on panel shipments or ASPs. In the long run, solar demand is likely to be determined by government policy, environmental standards and the price of fuels such as natural gas and coal, which power a bulk of global electricity generation.

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Notes:
  1. Solar Makers Set for Record 2014 Sales on Strong Demand, Bloomberg, August 2014 []
  2. SPI 2014: Trina Solar targeting major module capacity expansion,PV Tech,October 2014 [] []
  3. Q2 2014 Supplemental Earnings Call Presentation, Trina Solar, August 2014 []