Wednesday, August 27, 2008

Bookkeeping: Cutting back ReneSola (SOL)

Sticking to our convention of cutting back stocks as they break support, ReneSola (SOL) is being cut down to a 0.3% stake this AM on a break of the 50 day moving average of $17.50. This might be 'early' or 'trigger happy' and the stock might reverse but I am not taking chances here and locking in our profit. I actually like ReneSola's prospects a lot here, but I am simply going by charts until fundamentals are respected in this market. (again this chart is not showing the moving averages in correct spot)

As we wrote last week [Aug 21: Starting to Layer out of some Solar], I expected by the time we got to Solarfun Power (SOLF) earnings this week we'd get a sell the news reaction no matter how positive the news was, and this is coming true with SOLF down 10% in early action.

Energy Conversion Devices and Solarfun Power (SOLF) report next week and that pretty much ends the major names in the sector. If this rally continues into those reports I plan to cut back much more severely as in my mind, it would set up a sell the news reaction. We've had a great run in a very short amount of time and I'll let other people assume the risk from there. Especially in this sort of market.

Solarfun Power (SOLF) actually had solid results but this is a market of charts and sentiment; not fundamentals. Note they actually made money on currency this quarter unlike most of their peers - that's interesting.
  • Chinese solar cell maker Solarfun Power Holdings Co. Ltd. said Wednesday its second-quarter profit nearly tripled on an increase in photovoltaic module shipments.
  • The company reported net income of $11.4 million, or 23 cents per share, for the second quarter of 2007. Net revenue was RMB 1.35 billion (US$ 197.1 million), an increase of 12.7% from the first quarter of 2008, and 192.2% from the second quarter of 2007.
  • Analysts surveyed by Thomson Reuters, on average, expected earnings of 22 cents per share on revenue of $182.8 million.
  • Average selling price (ASP) improved to US$4.17 from US$4.07 in the first quarter of 2008. Business in Europe remained robust, with Germany, Spain and France accounting for 56%, 33% and 5% of net revenues, respectively.
  • Gross margin decreased to 13.7% from 15.8% in the first quarter of 2008. The figure was in line with the Companys guidance and was primarily due to higher polysilicon and wafer costs.
  • "Although near-term supply constraints and higher costs persist, we see visibility for better conditions beginning in the fourth quarter of this year and further improvements throughout 2009," Harold Hoskens, Solarfun's chief executive, said in a statement.
Full report here. Their gross margin is almost 10% worse than some other stocks we own, but no one cares because its the "stock to ride" when solar gets hot. Even their 2009 guidance for gross margins puts it at below rates at some other stocks we own now... yet ours trade at lower valuations. This sector continues to be humorous if nothing else in how it trades.

2009 Guidance for Solarfun
  • Total shipments to rise 50% from the revised full-year guidance range of 175-190 MW for 2008. The Company has good visibility on 200 MW of contracted sales volume for 2009, one-half of which is secured through signed contracts.
  • ASPs to decline 5-10% from the expected full-year 2008.
  • The Companys polysilicon and wafer needs are 100% secured, of which approximately two thirds are in the form of long-term contracts.
  • Through the reduction in polysilicon-related costs and the benefits of vertical integration, the Company foresees the potential to improve gross margins 500 basis points for full-year 2009.
  • Managements current projections call for a further 120 MW of integrated cell and module capacity expansion in 2009. A further 100MW of module capacity will be added and dedicated to the Companys aforementioned arrangement with Q-Cells.
  • These projections assume constant currencies (Euro vs. US Dollar), managements ability to execute its vertical integration ramp, and to a lesser extent, dependence on raw material suppliers meeting contractual obligations for timely delivery.
Long ReneSola in fund; no personal position

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