Bright News Lifts Weary China Solar Market

More good news is coming from the battered solar panel sector, with mid-sized player ReneSola (NYSE: SOL) sharply boosting its revenue and margin forecasts for the current quarter in the latest sign of a sector rebound. ReneSola isn’t forecasting a return to profitability just yet, but the latest signs do seem to indicate the sector’s strongest players could return to the black by the end of this year if current trends continue. Some could also interpret this upbeat news as reflecting growing confidence that the EU and China could soon reach an important compromise that would prevent the former from imposing anti-dumping tariffs on Chinese solar panels.

ReneSola’s upbeat forecast sparked a rally for its shares, which soared nearly 20 percent on the news to levels not seen in more than a year. Still, at $3.44 per share, the stock trades at less than a quarter of highs seen before the current downturn. On another interesting note, ReneSola’s upbeat news didn’t help other solar shares, which were unaffected by the news. That could mean that despite a recent broader rally for solar shares, investors may become more selective about their purchasing in the months ahead, rewarding the companies that can return to profitability the quickest.

Let’s look at the details in ReneSola’s latest forecast, which have it sharply raising both its revenue and margin outlooks for the current quarter. The company said it now expects to ship 760-770 megawatts worth of products in the second quarter, up about 8 percent from its previous forecast. It boosted its revenue forecast by an even stronger 15 percent to $365-$370 million, reflecting improving margins as prices finally stabilize and after two years of steady declines. It estimated gross margins for the quarter will come in at 5-6 percent, again a strong improvement over its previous guidance for 3-5 percent.

As an interesting footnote, ReneSola was more conservative in revisions to its full-year forecasts, raising its shipment estimates by just 3.5 percent. That seems to indicate it’s far from certain that the unexpected strength in the current quarter will last for the rest of the year. While some of the uncertainty is based on whether or not prices will remain stable, I suspect a bigger part is based on the uncertainty in the EU that is the industry’s largest export market.

ReneSola’s upbeat forecast is just the latest piece of positive news for a sector that had become far more used to negative reports as prices plummeted and profits evaporated in the current downturn. Canadian Solar (Nasdaq: CSIQ) predicted earlier this month that it would report a profit for all of 2013, and Trina Solar (NYSE: TSL) said around the same time it had sufficient resources to pay off $138 million in bonds coming due this year. Those upbeat reports followed news in May that the industry was seeing some of its first sustained price increases in more than two years.

The positive news follows a recent downsizing that saw former industry superstar Suntech (NYSE: STP) sharply reduce its operations following a bankruptcy filing earlier this year. Struggling LDK (NYSE: LDK) has also sharply cut back operations, as it slowly sells off assets and stock to avoid a similar fate. Beijing has also stepped in by encouraging construction of new solar plants, providing an important new source of demand for these export-dependent companies.

I’ve wrongly predicted an end to the current downturn at least a couple of times over the past two years, mostly based on overly optimistic remarks by industry executives. Accordingly, I think it’s still too early to predict the industry is poised for a rebound just yet. But the signs do look increasingly encouraging, and I do expect we’ll see some of the big names finally return to profits as soon as the third quarter.

Bottom line: ReneSola’s raised guidance reflects an improving market for solar firms, but major risk remains due to an EU anti-dumping probe.

This blog was originally published on Young’s China Business Blog and was republished with permission.

Lead image: Good news via Shutterstock

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Doug Young has lived and worked in China for 15 years, much of that as a journalist for Reuters, writing about publicly listed Chinese companies. He currently lives in Shanghai where he teaches financial journalism at a leading local university. He also writes daily on his blog, Young’s China Business Blog (www.youngchinabiz.com), commenting on the latest developments at Chinese companies listed in the US, China and Hong Kong. He is also the author of an upcoming book about the media in China, The Party Line: How the Media Dictates Public Opinion in Modern China.

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