JA Solar Swings to Profit, Hits a 52-Week High - Analyst Blog

The largest solar-cell producer by capacity, JA Solar Holdings Co. Ltd. JASO reported its first quarterly profit in fourth quarter 2013 following ten quarters of reporting in the red. The stock hit a 52-week high of $13.14 on Mar 17 while increasing 2.10% on daily trading.

The company's fourth quarter 2013 adjusted earnings came in at 16 cents per American Depositary Share ADS, handily beating the Zacks Consensus Estimate of a loss of 3 cents. JA Solar had incurred a loss of $2.65 in the year-ago quarter.

In 2013, the company narrowed its loss to $1.55 per American Depositary Share ADS from a loss of $7.05 per ADS incurred in 2012.

The comeback indicates the recovery in the solar industry accompanied with a surge in solar project installations in China.

Quarterly Performance

JA Solar's revenues in the reported quarter were $357.3 million, comfortably ahead of the Zacks Consensus Estimate of $271.0 million. Revenues also increased 29.5% from $275.9 million in the fourth quarter of 2012 and 23.0% from $290.5 million in the third quarter of 2013. Full year 2013 total revenue also increased 6.9% year over year to $1.2 billion. The upcast was mainly due to higher shipments.

Gross profit was $55.3 million or 15.5% of total revenue, compared with a gross loss of $12.7 million or a negative 4.6% in the year-earlier period and a gross profit of $32.8 million or 11.3% of total revenue in the third quarter of 2013.

Total operating expenses declined 33.8% year over year and 19.7% sequentially to $45.6 million.

Shipments

Total shipments in the reported quarter were 665.7 megawatt MW, way above the high end of the company's forecast of 500 MW to 550 MW. Shipments climbed 33.0% year over year as well as sequentially. In 2013, total shipments jumped 21.7% to 2.1 gigawatt (GW).

Increasing shipments came on the back of a strong Chinese market where module shipments increased 1450 basis points sequentially. Japan also remains one of the main revenue drivers for the company despite intensifying competition.

Financial Condition

At the end of 2013, JA Solar had a cash balance of $350.2 million with $216.6 million of total working capital. Total long-term bank borrowings were $411.3 million, of which $154.6 million were due in one year.

Guidance

JA Solar expects to ship 580–610 MW of cells and modules for the first quarter of 2014. For 2014, the company plans to establish its position in Latin America and the Middle East with a goal to increase its shipments by more than 30% this year to 2.7 GW and 2.9 GW in both these regions respectively. It also remains focused on delivering full-year profitability in 2014.

Peer Comparisons

Solar cell manufacturer Canadian Solar Inc. CSIQ reported earnings of 39 cents per share in the fourth quarter of 2013 as against a loss of $2.43 per share in the year-ago quarter. The bottom line, however, came in below the Zacks Consensus Estimate of 49 cents by 20.4%.

JinkoSolar Holding Co. Ltd. JKS reported fourth quarter 2013 results with adjusted earnings per ADS of $1.28 (adjusted earnings of 32 cents per share) coming in ahead of the Zacks Consensus Estimate of 86 cents. The company reversed its year-ago adjusted loss per ADS of $5.06 (adjusted loss $1.26 per share) in the reported quarter.

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 and higher conversion efficiency. JA Solar is steadily expanding its customer base worldwide in several geographic end markets including the U.S., Canada, Italy, Japan, Australia, China and India.

Again, Chinese solar product manufacturers, like JASO, are also speeding up their domestic operations with the government becoming more and more stringent on environmental issues. The electricity generators are implementing new measures to bring down emission levels of greenhouse gases. At present, nearly 70% of China's electricity is generated from coal-fired power plants. The country is taking active steps to idle the high operating cost coal mines. China aims to double its generating capacity by 2030, with half of all new plants having renewable sources of power.

However, tepid module demand in Europe, rising competition and the financial stability of its customers may adversely impact performance over the near term.

Zacks Rank

Shanghai, China-based JA Solar Holdings Co. currently has a Zacks Rank #3 (Hold). Promising companies in the space include Canadian Solar with a Zacks Rank #1 (Strong Buy), and JinkoSolar and Trina Solar Limited TSL, each with a Zacks Rank #2 (Buy).