- Piper Jaffray made comments on the stock this afternoon. The firm said, "We have confirmed that the LDK financial controller recently left the company.
- We are also aware of the former controller's allegations of poor financial controls and a 250MT inventory discrepancy; allegations were made to both the SEC and the external auditor KPMG.
- We have spoken to the LDK CFO about these claims and have found no reason/proof to dispute management\'s claim of 1000MT of polysilicon in inventory/WIP. News of the departure may pressure the stock near term."
- The firm noted that LDK management reaffirmed 2008 production guidance of 510-530MW and doubling of production capacity in 2009.
- It also restated its poly production target of 7000t in 2009 - overly aggressive and destined to push out, in our opinion.
- The firm said they continue to be confident of LDK\'s near-term execution with stable industry leading margin.
Takeaway: What a wild day in this name. The stock fell in late afternoon to $60, than rebounded to $65, than free fell (17% drop) in the last 20 minutes - here is a 1 day chart if you care to view. Not much you can do about this type of news event - these stocks are so volatile that you come to expect a 10% drop as 'normal' in this solar sector as it happens a few times a quarter; but in this case it foreshadowed news that was happening behind the surface.
Specific to LDK Solar it is a bit confusing. When I first read it, I thought the controller was the one who was trying to hide something and was pushed out the door. Upon re-reading it, it appears the controller was trying to notify auditors / SEC and hence was shown the door. That is a lot more troubling (if true).
But to the larger picture of trust - this could be an interesting moment or the precursor to an interesting moment. Various articles I have read re: Chinese accounting standards claim that if earnings were in US GAAP, we'd have a whole different outlook on what was actually being earned. This along with the fact that much of the earnings in the major companies in the past year were 'investment related' rather than 'operational' opens up a few can of worms. Aside from massive valuations what really started bringing down the dot com market was a lack of trust. Worldcom, Tyco, Enron, and the auditors than enabled them (Arthur Anderson anyone?) The human condition is the same across the globe. When people see riches just out of their reach they can push some boundaries and skirt some rules to try to get to that pot of gold. This is what really started happening at the end of the last bubble in US markets - so it will be interesting to see if this eventually becomes a lever for the 'prick' in the China bubble.
On that note everyone (and their mother) says Chinese stocks are 'safe' to buy until the Olympics. Well if EVERYONE knows that - than that tells me people will start selling well in advance ( generally 3-6 months) - so perhaps late winter/spring 2008 will bring some interesting times to the China market.
For now, this appears to be an isolated incident - don't want to read too much into it. But the solar stocks are getting trashed in after hours across the board. Once again, without trust you don't have much in this market. So let's see what LDK Solar says in the days to come - hopefully an explanation comes overnight. It definitely looks like it is bringing some interesting buying opportunities in 'related' names (other solar stocks) - but still too tough to figure out where LDK Solar itself will wash out without more info.
And yes I am glad I sold at $70, and up to a few hours ago was not a shareholder, but unfortunately am now part of the circus with my late day buy. Bah.
Long LDK Solar in fund; no personal position
