Solar Companies – China

I have been negative on the smaller Chinese solar companies such as Daqo and China Sun Energy, as these companies have not got the scale and size to effectively compete. Though their share prices have shot up drastically with the rest of the solar sector, their fundamentals have not improved at the same rate. This stark fact was brought up harshly when CSUN lowered its solar panel shipment guidance in its most recent quarterly conference call. The company attributed its poor performance due to the liquidity tightening by Chinese banks. Note most solar companies are heavily indebted, as they went on a capacity expansion spree in 2010 and 2011. However, the huge downturn in the industry led to large losses leading to a spiralling debt burden. LDK and Suntech are already bankrupt due to this issue. Other companies such as Trina, Yingli and Renesola have managed the downturn better and are now reaping the fruits of the upturn.

Read more about the Chinese Solar Industry here.

Some smaller Chinese solar companies too have survived but they are facing the Chinese government wrath, which wants to consolidate the industry and is putting the squeeze on the smaller players. The bigger Chinese solar companies like Renesola, Yingli have continued to get loans from the banks while the smaller ones are finding it difficult to fund working capital. The stock price of both CSUN and Daqo fell sharply yesterday after the results. The solar industry is a difficult one to invest in and requires balls of steel and excellent judgement not to speak of luck. Despite the strong stock performance Solarcity (SCTY) and First Solar (FSLR) continue to remain in my negative list. Unless the structural and valuation problems with these stocks are solved, I would advise investors to stay away from them.