Margin fears take shine off solar shares
BANGALORE (Reuters) - China's JA Solar Holdings Co and Solarfun Power Holdings Co Ltd posted solid results and signaled strong demand, but their shares fell amid concern that margins may have peaked.
Solar firms' sales have surged this year on strong demand, especially in Germany, which consumes over half the world's supply of the modules that turn sunlight into electricity.
But declining subsidies in Germany and other European countries threatens to compress profit margins as solar companies cut prices for their products.
First Solar, the leading photovoltaic company, last month posted higher quarterly profit, but weaker margins and rising costs drove its shares down 7 percent.
JA Solar's third-quarter profit comfortably beat estimates, with gross margin above the company's forecast at 22.5 percent, helped by higher average selling prices (ASP).
But analysts said margins, and profit, would slip in 2011.
"Because of escalating wafer costs, gross margin is set to decline further in the fourth quarter," Raymond James analyst Pavel Molchanov said. "Given that gross margins seem to have already peaked, we see a small EPS decline in 2011."
JA Solar, which shipped 418 megawatts (MW) in the quarter, raised its full-year shipment view for a second time in three months.
Smaller peer Solarfun also raised its annual shipment forecast, but said fourth-quarter shipments would slip sequentially. It also announced a secondary share offering, which weighed on its shares.
Oppenheimer analyst Gary Hsueh said Solarfun had a solid third quarter, but investors would soon see that fourth-quarter guidance was not as positive as at some peers. He also noted the dilutive impact of a second equity raise in as many quarters.
Solarfun shares slumped as much as 10 percent to $10.36, erasing earlier pre-market gains. JA Solar shares, which rose 4 percent in early trade, were down 3 percent at $9.13.
Other Chinese solar stocks, including Suntech Power Holdings Co Ltd, Canadian Solar and LDK Solar also turned. LDK, which posted strong results on Monday, rose 11 percent to a year-high in morning trade, but were later up just 3 percent.
The WilderHill Clean Energy index, which includes U.S. solar giant SunPower, First Solar and Suntech, and has risen more than 11 percent in three months, eased 1.5 percent.
SunPower reports on Thursday and Canadian Solar a day later.
While both JA Solar and Solarfun reported estimate-topping results, smaller solar company Energy Conversion Devices Inc offered a revenue outlook for the first time in a year, indicating better visibility.
To cash in on solid demand, solar companies around the globe, particularly in China, are racing to build capacity for cells and modules. Chinese firms have been among the fastest growing in the world as they win market share in Europe and North America.
Both JA Solar and Solarfun indicated they would look to expand capacity going into next year.
JA Solar said its annual cell manufacturing capacity rose to 1.8 GW at end-September, while solar capacity rose to 1.9 GW, ahead of its expansion schedule.
Solarfun expects its module manufacturing capacity to increase by two-thirds to 1,500 MW by 2011. It expects solar cell capacity to more than double to 1,300 MW.
(Reporting by Adveith Nair and Vaishnavi Bala in Bangalore, Editing by Ian Geoghegan)
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