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价值分析:无锡尚德太阳能PK美国第一太阳能  

2011-10-07 14:59:50|  分类: Finance |  标签: |举报 |字号 订阅

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Suntech Power Vs. First Solar

Suntech (STP) vs. First Solar (FSLR) - These two titans of solar are treading rough waters right now, which is why I'm more excited than ever to invest in them and the solar industry in general. Their recent stock prices have demonstrated that there is some consensus of long term disappointment, which I'm tending to believe is as overstated as the bubble that inflated them. Regardless of your macro views, on either the global economy or on solar, I've made some notes on STP and FSLR that might be helpful when opting back into solar or choosing among its two largest competitors. In addition, I will grade each company (A-D) based on the following factors, including a current and long term grade:

1. Module Cost per Watt

FSLR: Current B+, Long term A-
STP: Current C+, Long term B+

First Solar is clearly the current cost leader, with their much cheaper CdTe-based modules costing around $0.76 per watt. Suntech, on the other hand, produces their c-Si based modules at almost twice that cost, at around $1.30 per watt. FSLR will continue to lower costs, and it's estimated they will reach about $0.69 by the end of 2012 (thus their better grade). Because thin film only makes up about 15-20% of the market and is still in an infancy stage, we haven't seen strains on the telluride market. If and when Cd-Te takes off even further, there could be serious strains on Te prices, since this is a very rare Earth metal.

In general, I think there is underestimated room for improvement for polysilicon-based marginal costs. First, new technologies are enabling cheaper production techniques of c-Si panels (using less polysilicon for the same efficiency), which STP is exploring. Second, polysilicon prices have been free falling. This is going to seriously strain thin film companies, Third, STP's expanding wafer manufacturing capacities will continue to give it greater scale and cost-savings in production, while the fall in polysilicon prices will complement the effects. STP has said they expect to see at least less than $1 per watt by 2013 and I think this seems achievable, perhaps even sooner. Given these considerations, I see a greater upside (though still lower) in cost per watt for STP, but the better grade still goes to FSLR.

2. Efficiency

FSLR: Current C+, Long term B+
STP: Current B, Long term B+

STP has, for the time being, slowed its pace in developing more efficient modules--to around 17-18% (a c-Si average), while FSLR has steadily improved their efficiency to about 13-14% in mass production. I don't see a large long term upside for STP, but instead improvements in production processes and additional technologies that allow them to use less polysilicon and maintain the same efficiencies. In the near term, this will really help with cost as well. CdTe certainly has more growth potential in terms of efficiency and I don't think a 18-19% target by 2013 is unreachable. Overall, I think this factor is less important. A possible upcoming recession, as well as new, undeveloped technologies (such as CIGS) will remain more significant factors than 2-3% differences in current and near term efficiency levels.

3. Geography and Diversification


FSLR: Current B-, Long term B
STP: Current B, Long term A-

FSLR is based in the United States in Tempe, Arizona. It's geographical spread is roughly: 60% Europe, 30% North America, and 10% Asia-Pacific. STP, based in China, has the following market concentrations: 53% Europe, 5% China, 22% United States, and 20% in the rest of the world.

FSLR has a larger US and North American presence, while both firms have large European presence. The fall in European and US subsidies over the next couple years (or more) will hurt both companies, but likely FSLR more than STP because of Suntech's greater diversification. More importantly, Suntech is going to tap heavily into the China market, expecting 20% of its sales from the region within the next couple of years. This will be a large upside for STP's market reach, and given their size and their Chinese roots, they will likely win out over smaller Chinese firms and equally large foreign firms like First Solar (especially with those Chinese subsidies still coming in). FSLR is improving its global reach, but I don't think it will be able to match STP in this category.

4. Debt Issues


FSLR: Current B+, Long term B+/B
STP: Current C-, Long term B-

STP is completely saddled with debt, and I think at a microeconomic perspective, this is one of their largest problems. They have almost doubled their short term debt from $943 million to $1,669 million YoY, while increasing their long term debt from $674 million to $766 million. This gives them a total debt to equity of 1.47, a current ratio of 0.92, and a debt/total asset ratio of 0.45. Their $768 million is a decent sum but won't be enough to remain financially healthy during a recession or worse, especially when EBIT is hovering near 0 (subtracting the losses from one-time shut down operations). Overall, I think having China as a benefactor will be STP's major get-out-of-jail free card if they ever run into serious trouble. In the long run, these debt problems should alleviate when the global economy hurdles our current debt crises.

FSLR is much less debt-saddled, though debt will likely be a future problem and will continue to be a problem in a demand-deflated environment. First Solar has tripled long term debt from $113 million to over $300 million YoY, while leaving short term debt relatively constant at $28 million. This gives them a much healthier total debt to equity of 0.10, a solid current ratio of 3.10, and a debt/total asset ratio of 0.08. I don't see this category improving much for them if they expect to maintain funding to support expensive efficiency-improving and production scaling development projects, at least in the next 2-3 years.

5. Value

This category is a large win for both firms, as they are both undervalued, but STP much more so than FSLR.

FSLR: P/E of 10.8, P/B of 1.5
STP: P/E of 2.3, P/B of 0.2

The market capilizations of these companies is also significantly different: about $393 million for STP and $5,320 million for FSLR. By looking at the balance sheets of these companies and their long term expectations, I don't see First Solar as worth 14 times more than Suntech Power. This gap is going to make for a large correction in the next year or two. At almost $2 a share, I have to consider Suntech a steal, even given its current woes and near term difficulties. At around $60 a share, I also consider First Solar at a bargain price.

"X factor"

Suntech's X factor is their diversification, geographically and by product. Many investors aren't aware that Suntech has also been pouring money into thin film since 2008, and while some of these projects have been put on hold due to the recession and the more profitable c-Si opportunities, Suntech will still be able to develop a foothold in thin film within the next 4-5 years. Additionally, Shi Zhengrong, STP's CEO, spent years at a thin film research firm before founding Suntech Power. He understands thin film (and knows its potential) very well, as does most of his management team, who have also come from thin film backgrounds. This is why I see Suntech not just as Chinese polysilicon solar but as global PV solar.

For First Solar, their X factor is definitely their intellectual property for thin film. FSLR's IP will be a huge boost during these down times, as firms will struggle to compete if they can't copy the rewarding technologies that FSLR is developing on a quarter-to-quarter basis. Although much of the most important property rights are only covered for the next 3-4 years, if another recession occurs, FSLR could find themselves with much less competition to worry and could profit handsomely

Conclusion:


Buy both STP and FSLR if you can in the near term. Expect declines to continue if the economy worsens, but the more they fall the more they will rise in the long term. If you must pick one, I would opt with Suntech Power. They are losing to First Solar in the short term, but I can only see upside for Suntech Power in the long term.

Disclosure: I am long STP.

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