Trina Solar Q1 Preview: Production Costs And Downstream Business In Focus

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TSL: Trina Solar logo
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Trina Solar

Trina Solar (NYSE:TSL), the largest solar module manufacturer, is expected to publish its Q1 2015 earnings on May 21, reporting on a quarter that saw robust installations in China, the company’s home market. During Q4 2014, quarterly revenues grew by around 34% year-over-year to $705 million, while net income attributable to the company declined by 31% year-over-year to $10.6 million. [1]. Here’s a quick look at what to expect and what we will be watching when the company publishes earnings Thursday.

Trefis has a $15 price estimate for Trina Solar, which represents a 20% premium to the current market price. We will be updating our price estimate for the company post the earnings release.

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Module Shipments To Decline, Chinese Shipments Could Surprise

Trina Solar emerged the world’s largest solar panel manufacturer last year, shipping a total of 3.65 GW. For this quarter, the company has guided shipments of between 840 MW to 870 MW (including 60 to 70 MW to be shipped to its internal projects). While the company has guided that just 24% of FY 2015 shipments will be directed towards the low-ASP Chinese market (compared to 48% in Q4), we believe that the number could be larger during Q1, given the strong installation growth in the country. All else being equal, a higher shipment mix to China typically results in lower ASPs and margins for the company. Official figures from China’s National Energy Administration show that the country installed a stronger than expected 5.04 GW of new solar capacity over Q1. For perspective, Chinese installations stood at under 11 GW for FY 2014.

High-End Panels, Cost Reductions Could Help Margins

Trina Solar’s Q4 2014 gross margins stood at 15.7%, about 1% lower on a sequential basis. There is a possibility that the number could improve this quarter owing to lower costs and a more favorable sales mix. The company’s premium and high efficiency products – such as Double Glass, Trinasmart and Honey Plus modules – have been seeing a reasonably strong uptake in markets such as the E.U., the U.S. and Japan. Trina has been making progress on the manufacturing cost front as well, benefiting from better utilization levels, economies of scale, higher levels of automation and technological improvements.  In-house production costs stood at $0.46 per watt during Q4 2014, down by about $0.02 sequentially. [2] Trina expects costs to decline to about $0.41 to $0.42 per watt by the end of this year.

Manufacturing Capacity Expansion

Trina Solar intends to increase module manufacturing capacity from 4 GW to about 4.8 GW this year, while increasing cell capacity from 3 GW to 3.5 GW. [3] It is also looking to bring down costs further by setting up manufacturing plants outside China – potentially in markets such as Southeast Asia, India and South America. The company recently announced that it would be investing about $160 million in a new facility in Thailand, capable of producing 500 MW of solar panels and 700 MW of solar cells annually. The plant should be functional by late 2015 or early 2016. Although management did not say, the facility could help the company circumvent anti-dumping duties it faces in the E.U. and the U.S. on its Chinese-made solar products.

Downstream Project Business

Trina Solar completed construction of over 337 MW of systems projects during 2014 with plans to connect 700 MW to 750 MW worth of projects to the grid during 2015. While Trina has been selling most of its overseas projects upon completion, the company has adopted a strategy of holding several projects  – particularly in China – on its balance sheet while choosing to sell electricity and generate long term cash flows from these projects. During Q4, the company grid-connected a 90 MW solar power plant in Toksun, Xinjiang Province and 120 MW utility project in Jiangsu Province. The 90 MW project has been granted a 20-year feed-in-tariff of roughly $0.15 per KWh. The company has indicated that it expects gross margins of above 20% for its overseas project business (projects sold outright) and margins of about 50% for projects in China that it operates to sell electricity.

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Notes:
  1. Trina Solar Press Release []
  2. Trina Solar’s (TSL) CEO Jifan Gao on Q4 2014 Results – Earnings Call Transcript, Seeking Alpha, March 2015 []
  3. Trina Solar Q4 2014 Earnings Presentation []