LDK Solar (NYSE:LDK) is expected to release its Q1 earnings on June 11, reporting on a quarter that saw many Chinese solar equipment manufacturers indicate that selling prices were stabilizing. LDK has had a rough set of quarters, posting losses of over $1 billion last year alone.
In Q4 2012, LDK missed its guidance by a wide margin with revenues declining by around 54% sequentially to $135 million and operating losses widening from around $76 million to $408 million due to impairments and lower gross margins. Considering the uncertainty, LDK has set a very low bar for itself for Q1, guiding revenues between $80 million and $100 million (less than half its Q1 2012 sales). Cell and modules shipments are expected to be between 30 MW and 40 MW (at least 75% lower than Q1 2012) while wafer shipments are expected to pick up to around 260 MW and 270 MW (around 70% higher year-over-year).
Three key factors we will be watching when the firm releases earnings include the average price realizations for panels and wafers, plans to manage the debt load as well as the progress in the Chinese market.
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1) Average Selling Prices: While the entire Chinese solar industry has been beset by overcapacity which has led to falling average selling prices (ASPs), LDK’s case has been particularly bad. We estimate that LDK’s module prices fell by around 50% through 2012 to around $0.60 while wafer prices dropped by nearly 40%.
However, during Q1, Trina Solar (NYSE:TSL) indicated that its ASP had fallen at a slower rate than last year while Yingli Green Energy (NYSE:YGE) mentioned that it actually saw a rise in ASP this quarter (Read: Higher Panel Prices Brighten Yingli’s Prospects). While it seems quite unlikely that LDK will see its ASP increase given its weak bargaining power and capacity underutilization, we will watch for any significant decrease in pricing. On an annualized basis, LDK has a panel manufacturing capacity of around 1,700 MW while wafer manufacturing capacity is around 4,800 MW, which means that capacity utilization for Q1 based on volume guidance is likely to be less than 25%.  In order to offset any potential decline in sales, LDK will need to focus on further developing its business in China. China is expected to become the world’s largest market for solar power this year. The Chinese government already provides attractive incentives for solar installations and has set a target of installing 10 GW of solar capacity this year.
3) Balance Sheet And Debt Payment Plans: LDK has the most overstretched balance sheet by far among Chinese solar companies. It defaulted on a $7.2 million bond payment in April and has around $2 billion in debt that matures over the next year (Related Read: LDK Defaults On $7.2 Million Payment). The company’s cash position as of Q4 2012 was around $98 million while total debt was over $2.7 billion. Despite the firm’s success in raising some additional equity funding (around $50 million), shareholders’ equity was wiped out during Q4, falling from around $29 million in Q3 to a negative $452 million. The firm has also been divesting some of its assets to free up cash, but this is unlikely to be very helpful since most of the firm’s capital is tied up in manufacturing equipment, which is likely to have little demand (and value) in the Chinese market, which already has an excess of manufacturing capacity.Notes:
- Form 10-K))
2) Growth In China: Europe and China have traditionally been LDK’s largest markets each accounting for nearly one-third of overall revenues. However, the business in E.U. could be challenging going forward as the company’s products could face anti-dumping duties of around 55% beginning August. ((PV Magazine [↩]