They have just produced some pretty ordinary numbers (as pre-announced) but it the massive changes in their balance sheet that are really interesting.
Trina Solar Limited | ||||||||
Unaudited Consolidated Balance Sheet | ||||||||
(US dollars in thousands) | ||||||||
June 30 | March 31 | June 30 | ||||||
2011 | 2011 | 2010 | ||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ 630,978 | $ 489,820 | $ 639,517 | |||||
Restricted cash | 53,260 | 64,813 | 45,758 | |||||
Marketable Securities | 315 | 426 | 443 | |||||
Inventories | 226,303 | 179,780 | 96,395 | |||||
Project assets | 43,472 | 42,110 | 23,877 | |||||
Accounts receivable, net | 584,046 | 542,967 | 313,042 | |||||
Current portion of advances to suppliers | 64,049 | 82,370 | 42,895 | |||||
Prepaid expenses and other current assets, net | 101,948 | 90,297 | 53,256 | |||||
Total current assets | 1,704,371 | 1,492,583 | 1,215,183 | |||||
Property, plant and equipment | 751,480 | 663,851 | 533,795 | |||||
Project assets- long term | 2,614 | - | - | |||||
Prepaid land use right | 36,661 | 36,854 | 27,139 | |||||
Advances to suppliers - long-term | 129,138 | 94,807 | 87,205 | |||||
Investment in affiliates | 320 | 319 | - | |||||
Deferred tax assets | 14,667 | 15,405 | 10,481 | |||||
Other noncurrent assets | 28 | 196 | 1,352 | |||||
TOTAL ASSETS | $ 2,639,279 | $ 2,304,015 | $ 1,875,155 | |||||
LIABILITIES AND SHAREHOLDERS' EQUITY | ||||||||
Current liabilities: | ||||||||
Short-term borrowings, including current portion of long-term debt | $ 342,953 | $ 153,286 | $ 161,557 | |||||
Accounts payable | 315,004 | 253,223 | 197,789 | |||||
Convertible note payable | 137,870 | 137,065 | ||||||
Income tax payable | 20,139 | 46,656 | 9,436 | |||||
Accrued expenses and other current liabilities | 130,305 | 132,487 | 60,220 | |||||
Total current liabilities | 946,271 | 722,717 | 429,002 | |||||
Long-term bank borrowings | 382,631 | 295,652 | 331,152 | |||||
Convertible note payable | - | - | 134,644 | |||||
Accrued warranty costs | 50,205 | 44,194 | 27,508 | |||||
Other noncurrent liabilities | 17,223 | 18,454 | 14,740 | |||||
Total liabilities | 1,396,330 | 1,081,017 | 937,046 | |||||
Ordinary shares | 40 | 40 | 40 | |||||
Additional paid-in capital | 646,925 | 644,628 | 638,457 | |||||
Retained earnings | 579,183 | 567,423 | 291,572 | |||||
Other comprehensive income | 16,601 | 10,707 | 8,040 | |||||
Total shareholders' equity | 1,242,749 | 1,222,798 | 938,109 | |||||
Non-controlling interest | 200 | 200 | - | |||||
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY | $ 2,639,279 | $ 2,304,015 | $ 1,875,155 | |||||
Cash went up from $490 million to $631 million - an increase of $141 million.
But that was the end of the balance sheet good news.
Short term debt went up from $153 to $343 million. They borrowed $190 million short term.
And long term debt went up from $296 to $383 million. They borrowed another $87 million.
So another way to look at it is that the company chewed through a net (190+87-141=) 136 million despite their (much lower) stated profit.
What gives? Its a widget company with stated profit but cash burn.
Actually we know what gives - the company still can't sell their product to customers that actually pay.
Inventory went up from $180 to $226 million. This company is still shipping to warehouses...
Receivables went up from $543 to $584 million. So they are selling to people who are slow to pay (but who have probably already received irrevocable delivery of solar panels and installed them into levered solar parks. (The project financier almost certainly has the collateral now!)
The rest of the cash burn wasn't really burn - it was (another) large increase in capacity. These increases are happening despite the obvious problems this company has in selling its inventories.
As I said - the banks are very understanding.
And they will need to be because the company has contracted to buy lots more silicon and it needs to increase its output substantially. They tell us that the silicon price will be lowered in accordance with the contract. That is great: they are going to need it.
Today at my office in Sydney I was cold-called by a solar panel installer. Business is quiet so they were drumming up business. They want to sell me panels at an installed price (with inverters etc). The panel price was $1.35 per watt. Not kidding - way below where Trina is currently booking sales.
The brand was Alex Panel - another company which the salesman assured me was "planning to list on the New York Stock exchange".
Trina say next quarter will be better. At $1.35 per watt sold by retail-cold-call in Sydney I don't quite see it.
John
15 comments:
1.35$ is really very cheap.
Don't know what power prices are in your area, but at that solar cost and in your climate - it must be becoming competitive without any subsidy.
Given their last loan facility previously discussed was at 10% over best lending rates in China, how the hell do you fund yourself at 7x debt/EBITDA if you borrow at 13-14%? I guess this is policy lending in China....
Really the convertibles here are super dooper cheap. Unlikely they default if the state still loves them and its a cheap option with free carry.
Alternately, well, they're screwed.
Why did they borrow $190 short-term when they have $630 in cash on the balance sheet?
How many people pre-pay suppliers to the tune of $200 Million?
For accuracy's sake might be noted that listed nominal output could be misleading the same way car engine's top HPs - it's the curve that actually matters. About a year ago I talked to oil/gas guys, they among other thing tried small bits of solar power here and there and found that actual, round-clock output including weather conditions was not directly proportional to listed capacity - some leaders-on-paper would drop output too sharply when light goes below perfect. They said even suppliers weren't able to explain or accurately predict those effects with various brands.
But that's of course low-two digits % difference, not times, so underlying point stands.
Same Russian guy who was happy with Guanxi explanation,
Dmitry.
$1.35 AUD or USD? Because $1.35 USD is well above the current market price (around $1.20 USD currently)
AUD $1.35 a watt sold retail by someone cold-calling - that is interesting...
J
Hey John,
Have you checked out the company that is quoting the $1.35 figure? If something sounds too good be true, then it should be worth checking out whos behind it.
Cheers,
Alex Solar?
You mean this?
http://www.alex-newenergy.com/index.html
They got an agent in Australia in June, according to their News page.
By best guess is that Trina Solar is being financed by subsidies from the Chines government, or through a bank intermediary to expand capacity. If global solar demand tanks because of an economic contraction in Europe, the Chinese government will be the buyer of last resort since it needs to diversify away from its coal only energy policy and It wants to rapidly grow local green energy suppliers. So watch out for the Chinese government put on solar stocks...
I read an article about Evergreen Solar (R.I.P.) that was written before their bankruptcy. The author of the article was wondering aloud why the bondholders hadn't closed them down, as they had defaulted.
Then I remembered the Lehman debacle... the bond holders were loaned shares of Evergreen as part of their convertible debt deal. They were completely hedged. So, I'm bringing this up because maybe Trina's banks are short the equity or are hedged perfectly somehow. Maybe they have some off balance sheet puts or something funky.
cough *political influence* cough
Trina's CEO is also a politburo member of Changzhou city politburo.
Trina is based in Changzhou.
this is not about guanxi/connections, political influence is one step above guanxi.
(1) on the inventory increasing, you have to remember that Solar sales have a lot of seasonality (sales come in Back-end loaded throughout the year and there was a lot of uncertainty in key mkts ie. Europe over last few months, so I expect inventory to deplete..this phenomenon happened last year too)...plus goldman says the sector is bottoming out..so cant be too bearish (2) No one in their right mind would sign a contract for $4b of poly over however many years @ a certain price without outs, and im sure they can get out of it (ie. how STP got out of their MEMC contract this qtr)...so i disagree with the "they have to grow like crazy or go bust" thesis(3) Could it be possible that this $1.35/W you recieved would be net of subsidies? And if so, have you worked out how many years it would take for you to breakeven on your investment in a solar panel?...that could be very interesting..in my humbe opinion, once it gets to about 3yrs or even 5yrs...these panels will sell like hotcakes. Your thoughts appeciated.
What's so different about Trina?
Almost all the Chinese panel makers are running high debt/cap with a significant portion of the debt being short-term, and at implied interest rates more commonly found amongst the senior secured investment grade bonds of U.S. utilities than commodity manufacturers in the midst of a supply glut and economic challenges in their main markets.
They almost all have massive off balance sheet purchase obligations that swing wildly from year to year. It's more common than not for these guys to either be integrating vertically or making strategic investments in, or advance payments to, the same poly-si makers they have the purchase commitments with.
It looks and feels like a coordinated strategy to create national champions. It's opaque as hell. Clearly the culture of the industry is promotional.
If anything, the difference with Trina is the presence of those LOCs in the hands of suppliers you pointed out the other day. But how can you be sure that what you see is real?
I don't know how a person can value companies like these. You don't know if the inputs to the financial statements are real. There is so much happening behind the scenes that's not knowable.
If I know one thing that's actionable it's that FSLR and SPWRA are on the business end of this activity and by the time China gets done with them they probably won't be trading above book.
John, it seems to me that you're making your bet primarily based on that $14.5 billion 5-7 year poly-si supply purchase obligation. So, you believe that number (and contract), but don't believe other numbers (and/or comments). What gives? Although your reasoning makes sense - if you can believe what you read in those numbers - how on earth do you make a massive bet with such uncertainty in the sources? If you don't believe one number or comment, how can you believe the others?
Sounds like you might owe your investors an explanation, eh?
Thanks for the posts, nonetheless...:)
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