Bottom line: Solar shares are likely to remain volatile over the next year, with current trends continuing that see Chinese companies open more offshore plants and stronger players steal share from weaker rivals.
After a brief rally to kick off the week on upbeat guidance from sector leader Canadian Solar (Nasdaq: CSIQ), Chinese solar stocks have quickly given back most of their gains on a more ominous signal from money-losing ReneSola (NYSE: SOL), which says its CFO has resigned after just over a year on the job.
Timing of the departure of Daniel Lee is somewhat coincidental, as it comes just a week after I met him and he detailed his strategy for keeping output stable and paying down debt. That strategy helped ReneSola to shrink its net loss to $2.3 million in the second quarter from a much larger $18 million in the first quarter. But that loss-cutting didn’t come without a price, as ReneSola’s solar module shipments also dropped by a third over that period.
The ReneSola announcement was the most recent in a trio of headlines this week in China’s struggling solar sector. Signals at the start of the week were strong, with Canadian Solar announcing it would post shipments and revenue that were far stronger than earlier forecasts. Smaller rival JA Solar (Nasdaq: JASO) also sounded an upbeat note when it announced the launch of a major new production facility in Malaysia.
But ReneSola’s CFO resignation dampened the recent rally, perhaps signaling a shift from Lee’s strategy of controlling capacity and reducing debt. ReneSola’s own shares dropped 5 percent, leading a broader sell-off for the sector. Yingli (NYSE: YGE), considered the weakest of the major players, dropped by an even steeper 6.4 percent.
Even Canadian Solar dropped nearly 5 percent, giving back all the gains from a rally the previous day after announcing its updated guidance. According to those latest estimates, Canadian Solar said it expected to post third-quarter revenue of $805-$815 million, or about 35 percent higher than its previous guidance. (company announcement) Module shipments were expected to come about 20 percent higher than previous forecasts, indicating prices were rising.
Reinforcing those signals was JA Solar’s announcement that it had formally launched a new offshore plant in Malaysia with capacity of 400 megawatts of panels per year. The facility was its first outside of China, and is part of a recent trend for offshore production by Chinese manufacturers to avoid anti-dumping tariffs imposed by Washington and being considered by the European Union. (previous post)
ReneSola’s announcement certainly put a damper on the upbeat sentiment, though the company didn’t provide any details on the reason for Lee’s departure. It said the company’s vice president of financial control will become interim CFO, and that Lee’s departure was not related to any issues involving ReneSola’s operations or accounting or financial practices. (company announcement)
Lee’s departure just a year after joining ReneSola seems to indicate that his strategy of debt reduction and keeping capacity steady weren’t running as smoothly as he envisioned, which may have produced the big recent shipment declines. All that seems to indicate that competition remains fierce in the sector, and that perhaps the strongest players like Canadian Solar are gaining share at the expense of the weaker names.
So, what’s the bottom line in this mixed bag of news? The answer seems to be that current trends are largely continuing as the sector stands on the cusp of a second round of needed consolidation. Those trends could see stronger names like Canadian Solar steal share from some of the shakier players, and could also see more construction of offshore manufacturing facilities by companies that have enough cash for such development. At the end of the day the stocks are likely to stay volatile, with sharp rises and drops likely as new upbeat and downbeat news emerges.
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