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Suntech powers up profits for China Economy

By Jim Trippon

China’s solar stocks took a beating recently on news that Germany will be cutting subsidies for solar power installations, and that some other European nations might follow suit. But the company widely considered to be China’s top solar power firm, Suntech Power Holdings (STP) has beaten the skeptics.

Suntech says it has moved to a stronger-than-expected profit of nearly $50 million as it benefitted from cost-cutting and unexpected growth in Germany. Suntech believes that sales in Germany shot up as solar power generators rushed to install new capacity before subsidies were cut.

Suntech reports fourth-quarter earnings of $49.9 million, or 27 cents a share, more than doubling expected EPS. In the same quarter a year ago, Suntech lost $109.1 million, or 69 cents a share, partly due to a major inventory write-down.

Revenues rose to $583.6 million, from just $414.4 million last year. That’s more than $100 million better than the consensus of analyst’s expectations.

The news has pushed the stock up more than 8% over the past five trading days, creating a bullish trend.

The next obvious question is, what happens to Suntech revenues when Germany enacts its subsidy cut in July. Fortunately, China will take up some of the slack with its concerted push for leadership in the green energy field.

Chinese power distributors will be required by law to accept energy from wind and solar producers rather than from conventional power plants, when green energy is available to the grid.

In the long run, the Chinese market for solar indicates exponential growth. Beijing has set a goal to increase solar capacity from 50 megawatts in 2008 to between 10 and 20 gigawatts by 2020. That’s a jump from 20 million watts to 50 billion.

The U.S. is also increasing its emphasis on solar and Suntech is looking to exploit the American market with a new plant being built in Goodyear, Arizona. That factory will begin shipments in seven months.

Looking ahead, the firm expects first-quarter shipments to increase by 5% to 10% compared to the fourth quarter of 2009. Consolidated gross margin in the quarter is expected to be in the range of 18% to 20%.

Any increase in solar subsidies in the U.S. could be key to Suntech’s success as the company tries to cut costs, in the ongoing effort to make solar power competitive in cost per kilowatt hour, compared to conventional power prices on the grid.

For more information regarding Suntech Power and its incredible profit potential, visit: http://www.chinastockmarketreports.com/china-stock-market-research.html

Jim Trippon,
China Stock Digest Editor-in-chief

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