Trina Solar's Go-Private Deal Gives Investors A Light At The End Of The Tunnel

The Solar industry is struggling with oversupply and a more challenging regulatory environment in many key markets, Morgan Stanley’s Sheng Zhong said in a report. She maintained an Equal-Weight rating on Trina Solar Limited (ADR) TSL, while raising the price target from $11.10 to $11.60.

Analyst Sheng Zhong mentioned that although Trina Solar’s fundamentals were weak and the company faced challenging years ahead, it had entered into a definitive privatization agreement, which called for the Equal-Weight rating.

Weak Fundamentals

Trina Solar has been the world’s largest module supplier. However, in 2015 the company transitioned to “an asset-light module manufacturing strategy,” involving greater outsourcing, which has resulted in its production costs being higher than its peers, Zhong commented. She explained that this was not a great model in a market that would likely face oversupply and pricing pressure.

Related Link: Morgan Stanley Says Regulatory Environment Will Make 2017 A Challenging Year For Solar Sector

“It has been trying to transition from solar project operations to asset sales in 2016, but this approach has challenges given unattractive project locations and long delays in subsidy payments in China,” the analyst wrote.

On August 1, Trina Solar inked a definitive privatization agreement. “We think the deal is plausible and therefore remain EW and set our price target at the offer price,” Zhong stated.

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