LDK Solar (LDK) - Good Earnings but Worrying Margins
I can best sum up the LDK Solar (LDK) earnings review with the comment that the dark cloud of shortages of polysilicon continue to act as a dark cloud overhead. While the company beat solidly on both revenue and earnings this quarter, gross margins continue to degrade - down to 27.7% from last quarter's 30.1% [Feb 25: LDK Solar Reports Solid Numbers] - and much worse than the year ago period which was in the high 30%s. This continues to be an issue for the space. Even worse is guidance for 2008 which now is guidance for 23-28% gross margins (this is down from a 26-31% gross margin guidance for the full year given less than 90 days ago). As polysilicon prices stay stubbornly high, the drag on profit margins for these companies continues.
Essentially with lower gross margins you need a much higher revenue number, just to stay "flat" to where you would of been with higher margins. So incremental revenue gains over previous projections simply get washed out by lower margins. At *some point* polysilicon prices will drop and we should see margins stabilize/expand but we've been saying that for a few quarters now, and the target continues to get pushed out into the future. Frankly if I could trade after hours I would of been out on the initial spike to $38 but since I cannot do that in the Marketocracy.com account, I have to see how the stock reacts tomorrow and then re-assess, after thinking it through tonight. This is not of a situation of a lack of growth, but the associated profits with said growth continue to be curtailed - much farther out than originally anticipated. This is not a LDK specific issue and all the players on the polysilicon side of solar are facing the same issues - some can offset it with other efficiencies or scale but it's a drag on profits for all of them. So I suppose the story now is margins will improve..... in 2009.
- Net sales for the first quarter of fiscal 2008 were $233.4 million, up 21.1% from $192.8 million for the fourth quarter of fiscal 2007, and up 218.0% year-over-year from $73.4 million for the first quarter of fiscal 2007.
- Gross profit for the first quarter of fiscal 2008 was $64.6 million, up 11.2% from $58.0 million for the fourth quarter of fiscal 2007, and up 127.5% year-over-year from $28.4 million for the first quarter of fiscal 2007. Gross profit margin for the first quarter of fiscal 2008 was 27.7% compared with 30.1% in the fourth quarter of fiscal 2007 and 38.7% in the first quarter of fiscal 2007.
- Net income for the first quarter of fiscal 2008 was $49.8 million, or $0.45 per diluted ADS, compared to net income of $49.2 million, or $0.44 per diluted ADS for the fourth quarter of fiscal 2007.
- "Regarding our polysilicon plant project, the construction remains on track for completion based on our previously announced schedule. With the recent funding we secured, in addition to our other financial resources, such as advances from customers, LDK is well positioned to pursue its aggressive growth strategy," concluded Mr. Peng.
- For the second quarter of fiscal 2008, LDK Solar estimates its revenue to be in the range of $278 million to $288 million with wafer shipments between 136 MW to 146 MW.
- LDK Solar also revised its outlook for the full year of fiscal 2008: Revenue to be in the range of $1.08 billion to $1.18 billion; Gross margin in the range of 23% to 28%
3 comments:
We have to wonder if the earthquake in China today had an impact on any of the Chinese Solar companies.
yayankee, at the LDK Call today, they specified that there was no damage from the quake. It was far away.
As for LDK, I respectfully suggest that you put margins at the appropriate level of priority, which is quite low. The poly plant plan is the critical part of the future margin equation. As long as they don't stumble on the implementation of that plan, or run out of money before it comes online, it's mostly irrelevant how much profit they're actually making at this time (keep in mind, though that they are in fact making a very respectable margin, and their Revenues and Profits are large, and growing fast.
Pickard,
I dont think margins should be a low priority. While I agree the plant will lead to substantial margin improvement, until it comes online they face pressure, and I believe the stock will. Could lead to stagnation in the stock (range bound) for a while. LDK is probably now more of a 2009 story ... my gut says when people on the inside see the plant is firming up and looking like all systems go the stock will move ahead of that - so the stock will tell us when things improve.
As margins (near term) degrade they need more revenue just to stay flat which is a drag on earnings. That said, upper 20s is still good for the sector, but what I did not like was they gave us 1 set of numbers not 90 days ago and have already retracted that set of numbers. Sort of like what Suntech Power did. I don't like when companies don't stick to their words, I lose visibility.
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