Trina Solar Q4 Preview: Revenue Growth Will Continue, Margins Could Decline

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Trina Solar

Trina Solar (NYSE:TSL), China’s largest profitable solar panel manufacturer, is slated to release its Q4 2014 earnings on March 4, reporting on a reasonably strong quarter for the broader solar industry that saw panel revenues soar to three year highs. For this quarter, we expect the company’s revenues to grow on a year-over-year basis on the back of strong demand for panels (the company has guided shipments of over 1 GW for the quarter), although margins could decline slightly owing to a smaller mix of project sales and a possibility of higher sales to China. During Q3, the company saw revenues grow by 19% sequentially to $617 million, while gross margins expanded to 16.7% from 15.4%. Here is a brief look at what to expect when the company reports earnings Wednesday.

Trefis has a $13.50 price estimate for Trina Solar, which is significantly ahead of the current market price. We will be revisiting our model and price estimate following the earnings release.

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Panel Business: Average Selling Prices Could Decline

Trina’s sales mix has been weighted towards higher value markets such as Japan over the last few quarters. During Q3 2014, Japan accounted for 23% of quarterly shipments, compared with just about 7% during the same period a year ago, helping to mitigate the impact of the falling average selling prices in the global solar markets. However, we believe that ASPs could decline in Q4, as a greater percentage of the company’s shipments are likely to be targeted towards China and other low-ASP regions. The company is also likely to face some headwinds in the United States going forward, owing to the anti-dumping and countervailing duties that it faces along with most Chinese solar manufacturers. The U.S. International Trade Commission recently finalized the updated tariffs for Chinese solar modules, which would close loopholes that allowed Chinese solar companies to circumvent duties.

We will also be watching the company’s progress on the cost front. While Trina has been able to bring down its manufacturing costs by over 50% over the last three years – largely due to the decline in polysilicon costs –  the cost trajectory appears to be gradually flattening off. The company’s blended cost per watt averaged around $0.53 through the first half of 2014. We believe that there is a possibility that the number could reduce during Q3 owing to greater economies of scale and higher operating efficiencies.

Watching for Progress Of The Projects Business

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. [1] The growth could continue further as more capital flows towards solar projects. Chinese state-owned banks have been increasingly providing funding for PV projects while investors are becoming more comfortable with solar generation assets as an investment class. In early February, the company noted that it had signed a framework investment agreement with PingAn Trust and Jiangsu Jiuzhou Investment Group to jointly develop 500 MW to 1,000 MW of solar power plants in China over the next three years. 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 to obtain necessary certifications.

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Notes:
  1. Trina Solar Q3 2014 Supplemental Earnings Call Presentation []