Suntech results shine, stock rallies

LOS ANGELES Tue Mar 8, 2011 8:33pm EST

LOS ANGELES (Reuters) - Suntech Power Holdings Co Ltd, the world's top solar panel maker, posted sharply higher quarterly earnings due to a better-than-expected 62 percent rise in revenue and a $250 million increase in the value of certain project investments.

The Chinese company's shares rose 3 percent in extended trade following the announcement.

Suntech also reiterated its 2011 revenue and earnings outlook, which was above analysts' estimates. The view assuaged investor concerns that a revision in government subsidies for solar power in Italy would hurt demand for panels this year.

"These guys still have some pretty good visibility to come out here and say, 'Hey look, we're going to do better than the Street expected,'" Auriga USA analyst Mark Bachman said. He has a "buy" rating on Suntech shares.

Demand for solar panels has exploded in Europe in recent years due to generous government incentives in Germany, Italy, France, Spain and other large markets. Pullbacks in those subsidies, however, have stoked concerns about a dramatic falloff in demand in the subsidy-dependent sector.

Under a new decree announced last week, Italy's current generous solar incentives will apply only to photovoltaic plants that connect to the grid by the end of May. A new support scheme will be drafted by the end of next month, and Suntech executives said the company's shipments to Europe would continue to grow, though they will make up a smaller percentage of the company's overall sales -- about 50 percent this year. In the fourth quarter, Europe made up 61 percent of sales.

"While we expect near-term uncertainty ... we are confident that Italy will continue to support a healthy market," Suntech Chief Commercial Officer Andrew Beebe said on a conference call with analysts. "Italy really has the perfect conditions for a healthy long term market, and that's why we plan to continue to invest there."

Other European markets including France, Greece, Bulgaria, the United Kingdom and Benelux could help absorb supplies of solar panels this year if the Italian market weakens more than expected, the company said.

Suntech said on Tuesday that net income for the fourth quarter was $383.4 million, or $2.02 per share, up from $33.1 million, or 18 cents per share, a year ago.

Fourth-quarter revenue rose to $945.1 million from $583.6 million last year. Analysts had been expecting revenue of $843.7 million, according to Thomson Reuters I/B/E/S.

The earnings include a $250 million increase in the fair value of the Global Solar Fund's project investments. GSF is a project developer and Suntech customer in which the company has a majority stake.

The value of the GSF projects grew because 95 megawatts of projects were completed in the fourth quarter, Suntech said.

"The eventual sale of these projects should be a source of cash for Suntech going forward," Chief Executive Zhengrong Shi said in a statement.

EXPANDING MARGINS

The results also included $24 million in income from the company's new wafer business. Suntech has been ramping up production of polysilicon wafers, which are used to make cells that are incorporated in the solar modules.

The addition of wafer manufacturing is expected to lift Suntech's gross margins to 20 percent to 22 percent this year and make its costs more competitive with rivals. In 2010, the company's gross margin was 17.4 percent, and investor concerns about Suntech's ability to expand margins have weighed on the stock in the last year.

Suntech shares rose to $9.31 in extended trade after closing at $9 on the New York Stock Exchange. The stock had slid 8.3 percent in the past four trading sessions, and is still 42 percent below its 52-week high of $15.55.

"It's been a long time coming that Suntech has actually been able to report a clean quarter with positive news," Bachman said.

Suntech said first-quarter shipments of photovoltaic solar equipment would be about the same as in the fourth quarter.

The company still expects shipments of at least 2.2 gigawatts of solar products for the year and revenue of $3.4 billion to $3.6 billion, in line with a prior forecast but above Wall Street analysts' average estimate of $3.36 billion, according to Thomson Reuters I/B/E/S.

Earnings are still expected at $1.40 to $1.60 per share, Suntech executives said on the call.

For the first quarter, the company forecast a margin of 20 percent.

Also on the call, Shi said the company had selected a new chief financial officer, but was waiting for him to transition out of his current role before disclosing him publicly.

(Reporting by Nichola Groom; Editing by Richard Chang)