Trina Solar (NYSE:TSL) is expected to publish its Q1 2016 earnings in the coming weeks. We expect the company’s results to improve on a year-over-year basis, driven by stronger shipments to markets such as the U.S. and the E.U, lower module manufacturing costs and sequentially stable ASPs. Here are some of the key trends to watch when the company reports earnings.
We have a $12 price estimate for Trina Solar, which is significantly ahead of the current market price.
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Module Shipments Could Expand 60% Y-O-Y On U.S., E.U Demand
Although Q1 is usually a seasonally weak quarter for the solar industry, Trina Solar has guided for module shipments of about 1.37 GW-1.45 GW, marking a year-over-year improvement of 58% at the mid-point. While the U.S and China are likely to account for a bulk of the shipments, we will be closely watching the firm’s progress in expanding into emerging markets, such as India and countries in South America and Africa. Trina’s average module selling prices stood at about $0.57 per watt, per our estimates, during Q4 2015, and we expect the number to remain relatively flat driven by strong demand. Trina’s ASPs could also benefit from specialized products such as Space-Max panels targeted at the Japanese residential market as well as the Duo-Max modules targeted at China.
Manufacturing Costs Should Remain Stable Sequentially
Trina Solar has been making reasonably good progress in bringing down its module manufacturing costs, driven by economies of scale and some conversion efficiency improvements. As of Q4 2015, the company’s in-house module manufacturing costs stood at $0.36 per watt, marking a 20% year-over-year decline.  The company has indicated that manufacturing costs are likely to remain at similar levels over Q1 as well. That said, the company’s blended costs could be higher, since it has been sourcing panels from third parties in order to meet demand. Trina’s module production capacity is slated to grow from 5 GW in 2015 to 6 GW by the end of this year, while its shipments are projected to rise to as much as 6.55 GW.
Project Business Updates
Trina’s strategy for its downstream business has been twofold. While the firm typically constructs and sells international projects – classified as build-to-sell assets on its balance sheet and valued at about $531 million as of Q4’15 – it has largely held on to projects in China, choosing to generate income in the form of electricity sales. However, there could be a shift in this strategy this year, as the firm has indicated that it may begin selling its Chinese projects, enabling it to free up funds while mitigating operational risks. That said, these projects are unlikely to aid revenue growth, since they are classified under plant, property and equipment and the profit component associated with any sales is likely to be recorded under net other operating income on the firm’s income statement. Trina held a total of roughly 900 MW of projects on its books (PP&E and built-to-sell) across various stages of completion as of Q4’15.Notes:
- Trina’s (TSL) CEO Jifan Gao on Q4 2015 Results – Earnings Call Transcript, Seeking Alpha, March 2016 [↩]