Stock Preacher

LDK Solar Co. Ltd. (NYSE: LDK)

LDK Solar Co. Ltd. (LDK), through its subsidiaries, engages in the manufacture and sale of multicrystalline solar wafers to the manufacturers of solar cells and solar modules in the People’s Republic of China and internationally. The Company offers multicrystalline solar wafers between 180 and 220 microns in thickness. It also provides wafer processing services to monocrystalline and multicrystalline solar cell and module manufacturers. In addition, LDK manufactures polysilicon materials, which include ingots and polysilicon scraps. It has a joint-venture agreement with Q-Cells SE to develop solar power generation systems.

The Company was founded in 2005 and is headquartered in Xinyu city, the People’s Republic of China.

Source: Reuters.com, SEC Filings.

Financial Summary

Net sales for the third quarter of fiscal 2009 were $281.9 million, compared to $228.3 million for the second quarter of fiscal 2009, and $541.8 million for the third quarter of fiscal 2008. For the third quarter, LDK earned $29.4 million, or 27 cents per American depositary share (ADS), compared with earnings of $88.4 million, or 77 cents a share, last year. The Company’s financial results for the third quarter reflect the recent improvement in the operating environment for the solar industry.

LDK ended the third quarter of 2009 with $67.8 million in cash and cash equivalents and $72.7 million in short-term pledged bank deposits. The Company ended the second quarter with $265.7 million in cash and cash equivalents and $123 million in short-term pledged bank deposits.

For the fourth quarter, LDK forecast sales between $280 million and $310 million, way above analysts’ estimates of $258.7 million, according to Thomson Reuters.  The Company expects higher wafer shipments of between 320 megawatt (MW) to 340 MW, compared with the 320.5 MW it shipped in the third quarter of 2009.

Source: Yahoo! Finance, SEC Filings.

Shares of the Company were up 10% at $8.77 on November 23 morning. The stock had closed at $8 Friday before Q3 2009 earnings release.

Analyst Consensus

Analysts polled by Thomson Reuters expect LDK to “Outperform.

Source: http://www.reuters.com/finance/stocks/recommendations?symbol=LDK

Investment Highlights

LDK reported a surprise third-quarter profit and guided toward better-than-expected fourth-quarter sales and sequentially higher shipments, sending its shares up nearly 10% in pre-market trade on November 23. Considering also the third quarter of 2009 higher-than-expected earnings reported by Suntech Power Holdings Co. Ltd. and Trina Solar Ltd., the demand for the renewable energy systems is likely to rebound.

LDK is a pure-play manufacturer dedicated solely to the design, development, manufacturing and distribution of multicrystalline solar wafers used to produce solar cells. LDK made its first commercial shipment of solar wafers in April 2006 and have quickly become one of the leading manufacturers in the industry, with quarterly production volumes ranging around 300 megawatts as of the third quarter of 2009.  The Company developed a proprietary manufacturing process that utilizes both virgin and recyclable polysilicon for ingot production. Through this proprietary process, LDK is able to offer its global solar cell and module manufacturer customers considerable cost advantages while maintaining quality and performance. The Company is also providing wafering services to both multicrystalline and monocrystalline solar cell and module manufacturers.

During third quarter of 2009, LDK reported significant progress in diversifying its business. In China, the momentum in the local solar industry has continued to be encouraging and the Company was awarded initial contracts to develop PV power projects in buildings, plants and integration systems, totaling up to 2 GW in various provinces. The Company cooperates with Best Solar on downstream PV projects, such as solar cell or module manufacturing, solar panel assembly or provision of certain solar utility services. In addition, the Company announced a supply contract with Enfinity for the largest rooftop solar energy installation project in Benelux (an economic union comprising Belgium, the Netherlands and Luxembourg). LDK will provide approximately 18,000 solar modules to be installed on the Balta Group’s factory rooftop in Sint-Baafs-Vijve, Belgium. The project will be the largest solar installation project in Benelux, with a capacity of 4.2 megawatt peak (MWp) and total panel surface of more than 30,000 square meters. The solar panels will deliver an average power output of 3.6 million kW (kilowatt) hours per year, which is equivalent to the power consumption of approximately 1,200 families.

In September, LDK announced that it has successfully completed the first production run and initiated production ramp-up of operations of its first 5,000 metric ton (MT) train in its 15,000 MT annualized capacity polysilicon plant in Xinyu, China. Besides, the Company’s 1,000 MT polysilicon plant is in full scale production and the wafer plant is running at full capacity.

In November, LDK announced that it has entered into an agreement to sell a 15% ownership stake in its 15,000 MT annualized capacity polysilicon plant in Xinyu City, China. Jiangxi International Trust and Investment Co., Ltd. has agreed to purchase this interest for approximately RMB1.5 billion (equivalent to approximately $219 million). The transaction was completed on November 20 and proceeds from the sale have been received by the Company.

With government support in more than 40 markets, end-customer demand for solar power significantly exceeds production capacity. CLSA Asia-Pacific Markets estimates a volume growth of at least 30% annually through 2010. The result is a sector poised to grow 4x from 1.5GW in 2005 to at 6GW in 2010. At the same conclusion came the European  Photovoltaic Industry Association in their outlook of global PV (solar photovoltaic) market. The EPIA/Greenpeace report reveals an average annual growth rate of the worldwide PV market to be 26% between 2010 and 2015. Between 2016 and 2025, the market will slowly consolidate at a high level, growth rates going down to 19% until 2020 and 11% between 2021 and 2025. Although initial growth is expected to be fastest in the grid-connected sector, by 2010 the off-grid sector will play an increasing role.

Technical Analysis

Source: http://stockcharts.com/h-sc/ui?s=LDK

LDK is trading above its 13-day moving average. This is considered to be the sign of a bullish trend. There is added weight to this indication because the moving average is rising and suggests that there has been buying interest in this stock.

LDK’s MACD is currently indicating a weak bullish signal. Although the MACD is trending above the signal line, the indicator is still below 0, which suggests that the underlying moving averages are bearish.

LDK’s recent volatility has been greater than normal. This is evidenced by the increased distance between the upper and lower Bollinger Bands. These bands measure volatility using standard deviation and a large width is due to high volatility. Additionally, LDK is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

Comparative Analysis

The lack of profitability is making the Company to trade with discount to peer group P/S multiples. With the demand for the renewable energy systems poised to rebound, we expect a better valuation for LDK.

Source: Thomson Financial

Insider Trading Activity

Source: Yahoo Finance

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