Analysts See Little Upside from China Solar Subsidies

Posted by Tiernan Ray
barrons.com

Another dim view is offered today on the solar tech industry in China from FBR Capital analyst Mehdi Hosseini in a note he sent to clients.

Hosseini, writing about a pronouncement from China’s Ministry of Finance, says solar subsidies from the government are good PR for solar tech companies, but already baked into his estimates for the industry. In brief, the Ministry said it would subsidize solar projects of no less than 500 megawatts over a period of two to three years, and perhaps pay for half the cost of solar installations and transmission equipment.

“We are already assuming 300MW of installation in China in CY09, 750MW in CY10 and well over 1GW/yr after CY10,” writes Hosseini. “Thus, the real material impact from the China market may be already baked into our industry estimates!” Hosseini says the hyper-inflated expectations for demand in China, and subsidies, must not distract from a massive “de-leveraging” of the balance sheets of Chinese solar tech firms. Hosseini reiterates his “Underperform” rating on shares of First Solar (FSLR), Suntech (STP), and Trina Solar (TSL), with price targets of $110, $8, and $16 on those stocks, respectively.

Hosseini seems not to be alone in his lack of enthusiasm. Collins Stewart analyst Dan Ries writes in a note today that the implied solar demand was also baked into his own estimates. “Our forecast assumes that China’s demand for solar modules will be 250MW in CY09 and will grow to 700MW in CY10 and to perhaps over 1,000MW by 2011,” writes Ries. “Our forecast had assumed additional subsidies such as the one announced today, and is therefore unchanged by the announcement.”

“In our view this announcement is a modest positive for the Chinese solar shares, as it makes it clear that the Chinese government has the intention to provide the subsidies needed to drive solar adoption throughout the country and is rolling out the programs to do so.” Ries has a “Buy” rating on Trina and also on Yingli Green Energy (YGE), and he thinks Chinese solar tech manufacturers will be the primary beneficiaries of the programs.

Today, First Solar shares are up $7.50, or 5%, at $154.10, Suntech is up $1.44, or 9%, at $17.63, Yingli shares are up 83 cents, or 7.5%, at $12.25, and Trina is up $1.30, or 5%, at $27.70.