Roth Capital Highly Concerned About JA Solar

Upstream manufacturers could be heading into a tough 2H, given the threat of overcapacity in 3Q due to decelerating demand in China. JA Solar Holdings Co., Ltd. (ADR) JASO could be under greater pressure, given its high exposure to China.

Roth Capital Partners’ Philip Shen downgraded the rating for the company to Neutral, while reducing the price target from $12 to $8. He cited cyclical downturn and accelerating declines in ASPs in the back half as major causes of concern.

1Q And 2Q

JA Solar reported its 1Q revenue and EPS at $538mn and $0.31, respectively, ahead of the consensus and Roth expectations. The revenue beat was driven by higher-than-expected external module shipments. The company also achieved better-than-expected gross margins. Management has guided to a strong performance in 2Q.

Visibility Impaired

Analyst Philip Shen mentioned that there was limited visibility into JA Solar’s 2H bookings, especially since the company has high exposure to China, which contributed 60 percent of shipments in 1Q. This has created greater uncertainty related to earnings power in Q3 and Q4.

“As a Tier 1 manufacturer, we believe the company will be able to sell all the product it produces. The issue will be one of ASPs, in our view…Notably, JASO’s earnings are highly sensitive to a decline in ASPs as a 1c decline in pricing in the back half vs. our forecast could lower JASO's 2016 earnings by ~40c, all else equal,” Shen elaborated.

Posted In: Philip ShenROTH Capital PartnersAnalyst ColorDowngradesPrice TargetAnalyst Ratings

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