Taiwan Solar Energy Sector: Overheated sector driven by rush orders

Taiwan Solar Energy Sector: Overheated sector driven by rush orders

● Taiwan’s top-five cell makers’ January sales and shipments grew
11% and 16% MoM from December’s 51-month and 20-month
lows. Cell ASP remained flattish in the US$0.50-0.55/Wp range,
suggesting cell makers still have operating losses overall.
● The recovery in January cell shipments was likely driven by rush
orders for inventory rebuild in Europe and increased shipments to
the US and Japan market. Germany could be a concern into 2Q
as the government is now considering further FiT cuts into April.
● The top-five cell makers’ January shipments imply a 55% CUR.
The low CUR continues to cap their pricing power. The recent
poly price rebound, while viewed as a sign for demand recovery,
in fact has further weakened Taiwan wafer/cell makers’
profitability.
● The recent solar stock rally on a bottom-out theme has been
overdone, in our view. Motech and SAS trade at 1.5x 2012E BV,
versus Chinese peers’ below book. We think the Taiwan solar
energy sector is overheated, and recommend profit taking as topline
growth momentum could decelerate into March.

January recovery likely helped by Europe inventory rebuild
Aggregate January sales and shipments of Taiwan’s top-five solar cell
makers grew 11% and 16% MoM from December’s 51-month and 20-
month lows, respectively, with the aggregate capacity utilisation rate
increasing to 55% from December’s 48%. The recovery was likely
helped by rush orders for Europe’s inventory rebuild post December’s
surge of 3 GWp installation in Germany, also partially by the growing
installation in the US and Japan.

Remaining cautious on the overheated sector
CS raised 2011-12E global solar PV installation estimates from 21.9-
23.9 MWp to 27.1-28.8 MWp, respectively, suggesting 6% YoY
growth for 2012. Despite the higher 2012E installation, we remain
cautious on the overheated Taiwan solar stocks. While January
marked a recovery from the trough in December, overall weak cell
capacity utilisation (55% in January) continued to cap cell makers’
ability to raise selling prices. Given the current unfavourable cost
structure for wafer/cell makers, we believe the recent rally is not
supported, as solar companies are likely to stay in losses unless
selling prices increase.