- Solar wafer maker LDK Solar Co Ltd (LDK) expects its net profit to exceed $200 million this year, about a third higher than the company's forecast for net profit of more than $150 million in 2007, its chief financial officer said on Thursday.
- The company, based in China's central province of Jiangxi, aims to quadruple its wafer production capacity to 1,600 megawatts by 2009 from 400 megawatts now to meet robust demand.
- LDK is likely to overtake Norway's Renewable Energy Corporation ASA (REC) to become the world's largest wafer maker in terms of shipment in three years' time, Jack Lai, chief financial officer told Reuters on the sidelines of a solar technology conference in the southern city of Shenzhen, near Hong Kong. "We are growing faster than REC, although REC is growing very aggressively. There is a chance that we could exceed it in three years' time."
- LDK has forecast wafer shipments of 510 megawatts to 530 megawatts in 2008, and 1,050 megawatts to 1,150 megawatts in 2009.
- Thanks to such contracts, LDK has essentially sold out all of its shipments in 2008 and 90 percent of shipment next year, Lai added. "We aim to sell to the top 20 solar cell makers in the world."
- The company's gross margin has been declining due to a tight supply environment for polysilicon, a key raw material which accounted for 80 percent of LDK's costs. Polysilicon prices have shot up recently as solar cell and semiconductor companies scramble to secure supplies of it.
- To better secure the raw material, LDK plans to spend $1.2 billion to build two polysilicon plants in Jiangxi, with a total capacity of 16,000 tonnes by 2009, Lai said. Their combined polysilicon output is expected to be 5,000 to 7,000 tonnes in 2009.
- Some analysts are worried that polysilicon prices will have eased by the time the plants start production, but Lai shrugged it off, saying there was no sign that the price will fall significantly in the near future.
- The company has forecast gross margins between 26 percent to 31 percent in 2008, rising to 42 percent to 50 percent in 2009.
- To match its ambitious expansion plan, LDK will boost its headcount by more than 50 percent to 10,000 by the end of this year from 6,500 now, he added.
LDK Solar (LDK) is an example of a "battleground" stock - a major war between bulls and bears - much like a Crocs (CROX). While I am worried about gross margins across the entire industry, as I wrote a few weeks ago [LDK Solar Publishes Preliminary 2008 and 2009 Guidance] if the company can even reach 40% gross margin, the profit potential will be explosive. But again, much like infrastructure and agriculture we have companies with multi year backlogs and 'visibility'. (LDK has all of 2008 sold out already) Granted, the market is doubting everything right now and saying it's all false and will disappear so you can't really argue with fear. You just have to wait it out.
However, specific to LDK Solar, with so many moving parts and a lot of uncertainty (accounting, polysilicon plant, etc) the stock has not been reacting. I do like the value at these levels, but my cash is spoken for at this time so I won't add more. LDK Solar strikes me as a stock that could be $40 in 2 years or $180. We shall see how management follows through in the coming quarters. Gross margins are everything to me, in this story (and industry)
Meanwhile, back to the fallout shelter...
Long LDK Solar, Crocs in fund; long LDK Solar in personal account
