JA Solar (JASO) Catches an Upgrade

Lehman Brothers grows more positive about JA Solar (JASO). One part of the world where incentives are holding up well (at least through fall 2008) is Spain, and the push to sell product there has helped buoy Average Selling Prices (ASPs) across the industry for those who are selling into this country. While potentially a shorter term catalyst as these incentives are probably pulling in a lot of demand in a rush to take advantage of the very favorable structure of these incentives, the market seemingly only looks at the near term...

I believe ASP's will become more of an issue by middle of 2008 but the market generally only seems to look out 3-6 months so it should not be a major drag for the near term for the industry. JA Solar is quite a narrow scope of a company focusing solely on cell production so there carries some risk in such a strategy but at this point they are basically an arms merchant for the industry. Other larger players are taking their cell mfg in house, but it appears a new slew of smaller solar players are being formed by the quarter in Taiwan and China so those companies will be interested in JA Solar's product. Even companies who have made a pledge to bring cell production in house (which helps their margins) are being forced to continue to outsource their buys of solar cells, as today's announcement by Canadian Solar (CSIQ) highlights. Volumes in the industry are just expanding that fast...

That said, JA Solar is relatively capacity constrained in the near term so I am not sure if the company will be able to live up to investors short sighted expectations of massive sequential revenue growth - this will be an issue I have to revisit later in the quarter. With that said, technically the chart for JA Solar has held up very well in this sell off.

• Shares of JA Solar Holdings Co. Ltd. rose in premarket electronic trading Monday after a Lehman Brothers analyst raised his target price, saying the solar cell maker's fourth-quarter sales prices and margins could surpass expectations.
• Vishal Shah, who rates the stock "Equal weight," raised his target to $65 per share from $55. While he had expected JA Solar's sales prices to decline, Shah now thinks they will be equal to third-quarter prices or slightly higher. He attributed the change to greater demand from Spain.
• Shah added that the prices for solar wafers, which JA Solar buys mostly from Jinglong Co., have increased less than he expected.
• "Our recent checks suggest that wafer prices in the spot market are tracking better than our expectations for Jinglong's wafer pricing and consequently JA Solar may not purchase the additional high priced wafers from Jinglong," he said.

Long JA Solar in fund; no personal position