How Will The Slowdown In Chinese Installations Impact Trina Solar’s Q3 Results?

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Trina Solar

Trina Solar (NYSE:TSL), China’s largest solar panel manufacturer, is expected to publish its Q3 results later this month, reporting on a tough quarter that saw pricing for solar modules decline significantly. Below we outline some of the key factors to watch when the firm publishes earnings for the quarter.

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Trefis has a $10 price estimate for Trina Solar, which is in line with the current market price.

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Module Business Could Face Some Headwinds 

The price of solar panels has been on a downtrend in recent months, driven primarily by weaker demand from China, which moved to reduce feed-in-tariffs in June. The country installed a total of about 20 GW of capacity during the first half of 2016, and demand over the second half is expected to slow down significantly. Moreover, solar manufacturing capacity has also been expanding globally, resulting in an oversupply situation in the market. Prices for crystalline silicon panels have declined by close to 29% this year to around $0.40 per watt, with ASPs falling by close to 15% over August and September alone (related: Why The Solar Industry Could Face Headwinds In The Near Term).

That said, Trina does have some advantages in the current market. The company’s manufacturing costs are among the lowest in the industry, and the firm has been making further improvements in recent quarters (in-house manufacturing costs fell 10% year-over-year in Q2). Moreover, the firm could also benefit from a ramp-up in production from its cell manufacturing facility in Thailand, which allows it to circumvent U.S. tariffs, catering to the U.S market more cost-effectively. In August, the firm reiterated its guidance of between 6.04 GW and 6.33 GW of external panel shipments for the full year, implying that it could potentially see relative stability on a year-over-year basis during Q3. The firm has guided for mid-teens gross margins for H2, marking a slight decline from the ~17% margins it posted during H1.

Downstream Assets Are A Concern 

The value of the downstream solar assets held on Trina’s balance sheet rose from just $25 million in Q2’15 to $692 million in Q2’16, driven by an increase in the firm’s build-to-sell project assets in China. Moreover, the company’s progress in monetizing its downstream assets has been somewhat weak, with just about 11.2 MW sold during the second quarter. The company’s ability to sell its expanding project asset base at acceptable rates will be a key factor to watch in the near term, given the declining trend in global solar PPA prices.

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