Trina Solar’s Q3 Earnings Driven By Demand In China, U.S.

Trina Solar (NYSE:TSL), the world’s largest solar manufacturer, published its Q3 2015 earnings on Monday, reporting record panel shipments of 1.7 GW , driven by growing demand in  China, the United States and emerging markets. However, despite the strong growth, the company posted a GAAP net loss, owing to a $45 million one-time expense related to a legal settlement with Solyndra LLC.  ((Trina Solar Earnings Press Release)) Demand is expected to remain strong during Q4 as well, with the company raising its full year shipments guidance by about 10% to 5.5 GW to 5.6 GW. Below is a brief review of the results and what to expect going forward.

Trefis has a $13.50 price estimate for Trina Solar, which represents a significant premium over the current market price. We are currently revisiting our price estimate to account for the earnings release.

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China And U.S. Drive Demand

Trina’s total external shipments (which exclude shipments to its downstream projects) grew by 27% year-over-year to 1,353 MW. China continued to be the key driver of demand, with shipments standing at 484 MW. The country recent increased its official photovoltaic installation target for 2015, targeting as much as 23 GW of new capacity. Installations in the first half of the year were sub par, standing at just 7.7 GW on account of some grid capacity concerns and seasonality, implying that installations are being ramped up meaningfully in the second half in order to meet the new target. Separately, Trina might also be benefiting from the current weakness of its key rival Yingli Green Energy, which indicated that it would be scaling down manufacturing in order to deal with its debt commitments. The United States was also a big driver of the company’s results, with shipments growing by 39% sequentially to 450 MW. Installations in the U.S. are expected to remain strong over the next year, as installers take advantage of the U.S. Solar Investment Tax Credit (ITC) which is expected to be reduced by the end of 2016. Trina has noted that it was fully booked for Q4 and has a strong backlog for Q1 of next year. ^[1]

Gross Margins Trend Lower On Less Favorable Geographic Mix

Gross margins for Q3 fell by 2.6% sequentially to about 17.4%, despite some internal manufacturing improvements, owing to weaker average selling prices and the need to outsource some modules from third parties. Average selling prices fell from $0.60 per watt during the first half of the year to about $0.57 per watt in Q3, on account of higher sales to China and other emerging markets such as India where selling prices are lower. The unfavorable geographic mix also negated the positive impact of the growth Trina has been seeing for its high-end offerings such as the Duomax, Honey and Trina mount, which accounted for about 18.2% of the company’s total quarterly shipments. Additionally, margins may also have been weighed down by the company’s manufacturing capacity constraints (4.7 GW of module capacity vs. 5.5+ GW full year guidance), which have required it to source modules from third parties. While the company’s internal manufacturing costs for panels have fallen to about $0.38 per watt, blended costs (all-in) stood at $0.47 per watt due to the outsourced panels.

Key Earnings Data And Updated Guidance

• Quarterly revenues grew by 28.5% year-over-year to $792.6 million.
• Non-GAAP net income attributable ordinary shareholders stood at $18.3 million, or $0.21 per diluted ADS.
• Total of 251.9 MW (38.9 MW distributed) of projects connected to grid, taking the company’s total tally of retained projects to 610 MW.
• Q4’15 shipment guidance of 1,500 MW to 1,650 MW (50 MW-300 MW to internal projects).
• FY’15 shipments projected at 5.5 GW to 5.6 GW, with 4.6 GW to 4.7 GW to be shipped to third parties. This represents a 50.3% to 53.0% increase over 2014.

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1. Trina’s (TSL) CEO Jifan Gao on Q3 2015 Results – Earnings Call Transcript, Seeking Alpha, November 2015 [↩]