JMP Securities: Supply Glut To Hurt First Solar's Margins After Chinese Government's Solar Pullback

The Chinese National Development and Reform Commission recently announced a major policy shift that disincentivizes solar companies. Citing the policy shift, an analyst at JMP Securities stepped to the sidelines on First Solar, Inc. FSLR.

The Analyst

Analyst Joseph Osha downgraded shares of First Solar from Outperform to Market Perform and cut his price target from $87 to $46.

The Thesis

The new Chinese policy measures envisage a scale back in solar feed-in-tariff, or FIT, for both utility scale and distributed-generation projects by 0.5 yuan per KwH, Osha said in a note.

The commission has removed its previous target for utility-scale installations and eliminated utility-scale permits, the analyst said. The amount of distributed generation eligible for FIT was also capped at levels that have already been installed this year, Osha said.

These measures will pressure margins after 2019, and pricing pressure will likely accelerate outside of the U.S., according to JMP.

Even in the U.S., pricing pressure is likely to increase, as Chinese suppliers strive to make up for a demand slowdown domestically by selling more in the U.S., Osha said.

The lackadaisical view comes despite JMP Securities commending First Solar for positioning itself for a large-scale transition to Series 6 panel manufacturing.

JMP lowered its 2020 earnings per share estimate for First Solar.