Suntech Power Updates Outlook - Analyst Blog

Solar panel producer Suntech Power Holdings Company Ltd. (STP), on its Analyst Day, updated fiscal 2010 and 2011 earnings guidance. The company also announced its intention to increase its cell capacity through a joint venture.

Guidance for 2010

Suntech expects revenue for the fourth quarter 2010 in the range of $820 million to $870 million, with gross margin of 17% and operating margin in the range of 9% to 10%. Suntech expects to ship more than 1.5 Gigawatts (GW) of solar products in fiscal 2010, resulting in revenues in the band of $2.78 billion to $2.83 billion. The topline is expected to grow by 64% year over year, while the gross margin for the year is expected to be 17% and operating margin 6.5%.

The capital expenditure of the company for 2010 is earmarked at $350 million. Suntech expects to attain 1.8 GW of installed cell and module production capacity and 500 Megawatts (MW) of installed wafer capacity by the end of 2010.

The Year Ahead

Suntech also provided its guidance for fiscal 2011. The company expects to ship 2.2 GW of solar products resulting in total revenue of $3.4 billion to $3.6 billion. The gross margin is expected to be in a range of 20% to 22% while the operating margin is expected in a range of 12% to 14%.

The capital expenditure of the company for 2011 is expected to fall marginally from 2010 levels to a range of $250 million to $270 million. Suntech expects to reach 2.4 GW of installed cell and module production capacity and 1.2GW of installed wafer capacity by the end of 2011.

Suntech expects 2011 earnings per ADS in a range of $1.40 to $1.60, excluding earnings related to the increase in fair value of Global Solar Fund's (GSF) investments in projects.

The expectations for 2010 and 2011 are based on an assumed exchange rate of $1.33 to the Euro.

Joint Venture

Suntech also announced it will form a joint venture (JV) with Wuxi Industrial Development Group and Wuxi New District E&D Group to own and operate a 1.2GW PV cell production facility located in the heart of Suntech's Wuxi campus.

The company will own 40% of the JV and contribute $60 million toward equity investment. The company expects to complete 50% of the cell capacity by mid 2011, while the balance will be brought on line in 2011 or 2012, as and when required.

Our Take

We like Suntech's venture to expand its operations jointly with other parties, thereby reducing the capital outlay in the process.

The positive catalysts of the company are its ongoing expansion program and improving operating efficiencies. However, we expect rising competition and a volatile euro to offset the positives. Hence, we maintain a Neutral rating on the stock.

Based in Wuxi, China, Suntech Power Holdings Company Ltd. is a solar energy company that designs, develops, manufactures and markets a variety of photovoltaic (PV) cells and modules, including a broad range of value-added building-integrated photovoltaic products.