Friday, November 4, 2011

Trina updates guidance (part 1)

Trina issued updated guidance yesterday. This unsurprisingly included an earnings downgrade and a decline in margins. Somewhat more surprisingly it included a massive shipment volume downgrade.

To quote:

The Company estimates its solar module shipments in the third quarter of 2011 to be in the range of 372 MW to 375 MW, compared to the Company's previous guidance of 480 MW to 520 MW for the reasons discussed below.

And the reasons discussed below are:

A deflationary pricing environment impacted by challenging financing conditions for some of our customer's European projects resulted in the shortfall of our targeted shipment volumes.

This guidance was for the period ended 30 September 2011.

The decline was - unsurprisingly blamed on challenging financing conditions in Europe.

The reason why a huge shipment volume downgrade was surprising was because the last guidance was given in a conference call on 23 August 2011, in other words when the quarter was more than half done.

And in that conference call they actually saw a pickup in demand in Southern Europe. To quote:

Mark Kingsley (COO): I have been waiting for Italy since I got here. So, we are actually seeing some good activity finally. And we have some pickup in activity. We see it. Obviously, our historic Italian account is at the utilities. We also see Spanish accounts that a lot of them actually served projects there. So, after much waiting and unclarity, we are seeing some pickup in demand. There is – we still have a mix of utility projects in commercial rooftop there. And so what we are seeing moved quicker was the stuff that was utility that was finishing off and now it’s blending into commercial rooftop.

Now Mark Kingsley's comment was not forward looking. They were "actually seeing some good activity" in Italy and "some pickup in demand" in Spain. These were historical comments not protected by the various safe-harbors in the securities law. So they must be true or Mark Kingsley is going to be subject to securities fraud claims. And Mr Kingsley is not a Chinese executive - he has to live with his historical comments so I figure he must be telling the truth.

Whatever: volume came in more than 20 percent lower than an estimate made in the last half of the quarter. 

Presuming as I do that Mark Kingsley was telling the unvarnished truth as it was on 23 August then demand in Europe must have fallen close to zero for the remainder of the quarter.

That is even worse than I thought.



Jim said...

That makes sense, from a UK perspective anyway. UK subsidies for solar panels were cut on 1st August this year for the largest schemes, so most will have been completed, or the panels already shipped, prior to that. After August demand would have nosedived as only the smaller schemes were still being subsidised at the higher rate.

More recently the UK government has announced that subsidies for even the smaller schemes will be halved as well fairly soon, so while there might be a boost in orders for people trying to get schemes up and running before the deadline, after that demand will slump even more.

the management said...

Not impossible that trade financing notes fell through.

Anonymous said...

So why is the stock acting as if it's business as usual?

I think the collective thinking is they are too big to fail?

Anonymous said...

John, i have a question on the industry, as you seem to have a good handle on it. As opposed to outright shorting a few select names (which may or may not work well), why are not you shorting worst one(s) against the best one(s) in the whole industry (maybe cell vs cee, wafer vs wafer, etc, but still good vs bad)?

Or, put it differently, what are your picks and pans?

Further, similar problems has been forming/there for shipping (drybulk, tanker and container, all 3 segments), paper (especially coated, newsprint, etc), and chinese property developers, among others as well. Did you look into them? The reason I am asking is that, in my portfolio, me being a generalist and event driven, got tired of following tens of individual companies to short individually and decided to put good vs bad in each sector i hate and so far it's working quite well.

your feedback is much appreciated.

Mr. Orange said...

@anonymous 10:06 A.M.

I'm not John obviously but I like David Einhorn's argument against pairs trading.

Only go long 9 and 10's and short 1 and 2's (stocks, on a scale of 1 to 10). Going long a 6 or 7 or short a 4 or 5 just to hedge out market or industry risk (or for some other pair's trade related reason) is generally not a good idea as you bring in more risk than you hedge, since your portfolio is now full of low conviction picks that you wouldn't normally own.

Plus it eats up capital or margin, and time, from stocks that would otherwise be higher conviction.

Burrite said...

I think the truth is actually stranger than you think. The definition of what counts as a "sale" in this sector is fluid. Note that it took TSL 5 weeks after the close of the sep qtr to "realize" that they'd missed the guidance by 30%. several times this year ive seen companies (ldk and csun come to mind) lower rev's for a given qtr AFTER the qtr had been reported. They have these framework purchase agreements with customers, and they seem to count as "sales" anything that leaves the dock pursuant to an agreement...but the agreements contain no meaningful penalties for the companies are left to argue for weeks after the close of the qtr (while pdt is at sea) whether or not it was a sale.

Anonymous said...

there have been dark clouds on the outlook for demand in europe for some time, even prior to the most recent turmoil. In June 11, a research outfit (EuPD Research) noted demand for roof-top PV systems in Germany was falling, according to them, as consumers deferred purchases in anticipation of falling prices.
It would seem the whole industry is between a rock and hard place - given falling prices are cited as key to obtaining grid parity, and falling prices are cited as contributing to purchase deferrals, this might explain why there might not be a long-short play on the best/worst players in the industry.

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