Strong Numbers from JA Solar

JA Solar Holdings Co. Ltd. (JASO) announced adjusted earnings per American Depositary Share (EPADS) of 41 cents in its first quarter of 2011, which beat the Zacks Consensus Estimate of 33 cents. Results also comfortably beat the year-ago adjusted earnings per ADS of 24 cents.

Quarterly Performance

JA Solar’s revenues in the reported quarter were $556.4 million ahead of the Zacks Consensus Estimate of $555 million. Revenues also were greater by 91.2% versus $290.9 million reported in the year-ago period. However revenues fell 5.5% from $588.9 million in the fourth quarter of 2010.

In the reported quarter, JA Solar’s total shipments were 451MW, compared with shipments of 463MW in the fourth quarter of 2010, representing a sequential decrease of 2.6%. However year-over-year shipments grew 65.8% from 272MW.

JA Solar’s gross profit in the first quarter of 2011 was $96.3 million, compared with $113.1 million in the fourth quarter of 2010 and $67.0 million in the first quarter of 2010. Gross margin was 17.3% in the first quarter of 2011, compared with 19.2% in the fourth quarter of 2010 and 23.0% in the first quarter of 2010.

Total operating expenses in the first quarter of 2011 were $13.0 million, compared with $22.9 million in the fourth quarter of 2010 and $12.9 million in the first quarter of 2010. Total operating expenses represented 2.3% of net revenue in the first quarter of 2011, compared with 3.9% in the fourth quarter of 2010 and 4.4% in the first quarter of 2010.

Operating income in the first quarter of 2011 was $83.3 million, compared with $90.2 million in the fourth quarter of 2010 and $54.1 million in the first quarter of 2010. Operating margin was 15.0% in the first quarter of 2011, compared with 15.3% in the fourth quarter of 2010 and 18.6% in the first quarter of 2010.

Financial Condition

JA Solar at the end of the reported quarter had cash and cash equivalents of $422.2 million and total working capital of $711.8 million. The company’s total long-term bank borrowings were $321.5 million. The aggregate face value of the convertible bonds outstanding, due 2013, was $228.2 million at March 31, 2011.

Outlook

JA Solar expects its cell and module shipments to exceed 2.2GW in fiscal 2011, representing an increase of approximately 50% versus fiscal 2010. Solar cell and module shipments for the second quarter of 2011 are expected to exceed 400MW.

Our Take

JA Solar is one of the most cost-efficient solar producers in the world, with a geographically diverse customer base as well as silicon wafer supply agreements in place to feed its production. Positive factors include ongoing expansion programs, improving operating efficiencies, rising margins and higher conversion efficiency.

JA Solar is steadily expanding its customer base worldwide, with strong growth in several geographic end-markets including, U.S., Canada, Italy, Japan, Australia, China and India. The company had already signed supply agreements with multiple customers to meet 2011 product demand that exceeds 2 GW, and has received prepayments associated with these supply agreements, further improving its future order visibility.

We currently have a long-term Neutral recommendation on the JA Solar stock. In the near-term however, apprehensions over the tepid module demand in Europe, rising competition, wafer dependency, financial stability of its customers and oversupply of solar cells in the market will restrain the valuation of the company. Thus for the short-term, in line with its peer Canadian Solar Inc. (CSIQ), we assign a Zacks #5 Rank, (Strong Sell rating) to the stock.

CANADIAN SOLAR (CSIQ): Free Stock Analysis Report

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