UPDATE 2-Q-Cells 2007 sales rise, to start Asia production

Tue Feb 19, 2008 12:53pm EST

(Adds details, background, share price, analyst comments)

By Eva Kuehnen

FRANKFURT Feb 19 (Reuters) - German solar cell maker Q-Cells QCEG.DE reported strong full-year results and said it plans to invest more than 1 billion ringgit ($263.2 million) in its first production site in Asia.

Q-Cells, which said on Tuesday it had become world's largest solar cell producer by volume, said it plans to build a factory in Malaysia to take advantage of new growth markets and protect against currency fluctuations.

Solar companies around the world are expanding production capacity rapidly to meet growing demand for green energy to counter global warming.

Q-Cells said 2007 sales rose 59 percent to 858.9 million euros ($1.26 billion), which is more than its own target of least 800 million euros.

Q-Cells kept its growth targets for 2008 in place, expecting sales of about 1.2 billion euros ($1.77 billion), which analysts said was a conservative estimate.

Full-year earnings before interest and tax (EBIT) rose 52 percent to 197 million euros, leading to an EBIT margin of almost 23 percent.

"This is impressive since wafer sourcing costs increased while cell selling prices declined. This shows that Q-Cells is very capable of reducing production costs and we see much more still to come," said Benjamin Kluftinger, analyst at Citigroup.

Q-Cells shares, which have fallen more than 30 percent since the beginning of the year after almost tripling in 2007, closed flat at 67 euros in Frankfurt, compared with Germany's technology index .TECDAX which was down 0.2 percent.

Delays at its thin film units dented Q-Cells 2007 performance with a loss of around 8 million euros, the company said. Sales at the new technologies units came in at 0.4 million euros.

WORLD CHAMPION

Q-Cell's net income rose 69 percent to 148.2 million euros which was below its initial target, mainly due to a lower contribution from its roughly 17-percent stake in Norway's solar energy group Renewable Energy Corporation (REC) (REC.OL).

"Q-Cells is staying conservative due to the ramp-up of thin film modules this year which should have a dampening effect on the Group's EBIT margin," Peter Wirtz, analyst at WestLB wrote in a note to clients.

Construction of the polycrystalline solar cell production factory in Malaysia will start in the second quarter of this year and the plant will reach a production capacity of more than 300 megawatt peak (MWp) over several phases of expansion, Q-Cells said.

It's sixth production line at its headquarters in eastern Germany is due to go on stream in the fourth quarter of this year with an initial production capacity of 130 MWp, it added.

Q-Cells said it became the world's largest solar cell producer as its production volume in 2007 rose to 389.2 MWp, which is more than the 370 MWp it had aimed for.

"With this figure, Q-Cells would already have produced a greater total output than its largest competitors Sharp (6753.T) and Suntech STP.N," Q-Cells said, referring to calculations in an earlier media report.

For 2008, Q-Cells expects production of monocrystalline and polycrystalline cells as well as thin-film modules to reach 565 to 590 MWp, of which 25 to 50 MWp would derive from new technologies.

Meanwhile, the world's No. 3, Suntech Power Holdings STP.N said it expects to have 2 gigawatts of capacity by 2010, double its expected total for 2008.

Q-Cells trades at about 20 times 2009 earnings, compared with a multiple of about 31 for Suntech and 20 for Sharp. (Editing by Will Waterman and Erica Billingham)

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