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Solar cliffhanger 2012
Solar’s global winners and losers
To help investors navigate the rapidly changing solar sector, our global team
collaborated to provide an overview of our most and least preferred stocks. The
volatility of solar stocks remains very high and could increase further, as oversupply
is expected to return with a vengeance in 2011 and 2012.
Abrupt shift in end markets ahead
We forecast European end demand to stagnate in 2011 at 13GW, but to fall by 29%
to below 10GW in 2012. Unlike previous years, we think there is little upside surprise
potential to the 2012 forecast, given hard caps on new installations enacted in nearly
all major European countries except Germany. Policy risk in the remaining uncapped
European markets is clearly to the downside. We remain bullish on emergence of
the US and China, but this growth will be just enough to offset the European decline.
At the same time as European end markets decline, global solar module supply is
forecast to increase by 43% to 32GW in 2012. To absorb all the additional supply,
end demand in all markets outside of Europe would have to more than treble to
22GW in 2012 from 6GW in 2011, a highly unlikely scenario in our view.
Global demand could stagnate for the first time
It’s tough to see global demand growing much in 2012. We are highly confident
about continued strong US market growth and the emergence of China as a major
demand source, but think that for the first time ever global solar demand could
stagnate instead of grow for an extended period of time this year and next.
Renewed margin pressure in the transitional period
ASP pressure is mounting as ‘gold rush’ effects in several markets ahead of key
subsidy deadlines are less pronounced than initially thought. We feel that the 2H11
geographic demand shift to lower-priced end markets will further necessitate price
decreases in excess of 10% in 1H11. Given the drastic oversupply in 2012, we
anticipate ASP declines of up to 25% for many companies in our coverage next year.
Our top long ideas should benefit from the shakeout
Our top global picks are the two polysilicon sector leaders Wacker Chemie and OCI.
Relying on our ‘Theory of Solar Relativity’, our favored names also include Trina and
Hanwha SolarOne in China and SunPower in the US. We see these stocks as bestprepared
to weather the transitional period towards low-subsidy markets through
industry-leading cost positions, strong exposure to the fast-growing US market, and
sales visibility. Moreover most have compelling valuations below the global median.
The least preferred stocks are ill-equipped for the storm
We are most bearish on Q-Cells, REC and SolarWorld. Each predominantly relies on
the European markets, where they enjoy ASP premiums that partially offset higher
manufacturing costs. Relatively speaking, we think Canadian Solar and JA Solar are
apt to underperform their peers and expect below Chinese average margins for both.
India Equity Research Reports, IPO and Stock News
Visit http://indiaer.blogspot.com/ for complete details �� ��
Solar cliffhanger 2012
Solar’s global winners and losers
To help investors navigate the rapidly changing solar sector, our global team
collaborated to provide an overview of our most and least preferred stocks. The
volatility of solar stocks remains very high and could increase further, as oversupply
is expected to return with a vengeance in 2011 and 2012.
Abrupt shift in end markets ahead
We forecast European end demand to stagnate in 2011 at 13GW, but to fall by 29%
to below 10GW in 2012. Unlike previous years, we think there is little upside surprise
potential to the 2012 forecast, given hard caps on new installations enacted in nearly
all major European countries except Germany. Policy risk in the remaining uncapped
European markets is clearly to the downside. We remain bullish on emergence of
the US and China, but this growth will be just enough to offset the European decline.
At the same time as European end markets decline, global solar module supply is
forecast to increase by 43% to 32GW in 2012. To absorb all the additional supply,
end demand in all markets outside of Europe would have to more than treble to
22GW in 2012 from 6GW in 2011, a highly unlikely scenario in our view.
Global demand could stagnate for the first time
It’s tough to see global demand growing much in 2012. We are highly confident
about continued strong US market growth and the emergence of China as a major
demand source, but think that for the first time ever global solar demand could
stagnate instead of grow for an extended period of time this year and next.
Renewed margin pressure in the transitional period
ASP pressure is mounting as ‘gold rush’ effects in several markets ahead of key
subsidy deadlines are less pronounced than initially thought. We feel that the 2H11
geographic demand shift to lower-priced end markets will further necessitate price
decreases in excess of 10% in 1H11. Given the drastic oversupply in 2012, we
anticipate ASP declines of up to 25% for many companies in our coverage next year.
Our top long ideas should benefit from the shakeout
Our top global picks are the two polysilicon sector leaders Wacker Chemie and OCI.
Relying on our ‘Theory of Solar Relativity’, our favored names also include Trina and
Hanwha SolarOne in China and SunPower in the US. We see these stocks as bestprepared
to weather the transitional period towards low-subsidy markets through
industry-leading cost positions, strong exposure to the fast-growing US market, and
sales visibility. Moreover most have compelling valuations below the global median.
The least preferred stocks are ill-equipped for the storm
We are most bearish on Q-Cells, REC and SolarWorld. Each predominantly relies on
the European markets, where they enjoy ASP premiums that partially offset higher
manufacturing costs. Relatively speaking, we think Canadian Solar and JA Solar are
apt to underperform their peers and expect below Chinese average margins for both.
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