China's Solar Power Analysts Can't Agree Why Shares Are Plunging

  • Delay in subsidy payments and weak oil prices are cited
  • Panel orders concentrated among a few top manufacturers

China’s solar companies are plunging on stock markets, and analysts can’t agree why.

Since peaking in May, the NYSE Bloomberg Global Solar Energy Index of 127 companies has plunged 47 percent, more than quadruple the pace of the MSCI World Index. Yet panel makers anticipate record installations this year and have mostly recovered from a plunge in prices that slashed margins at the beginning of the decade.

So why are shares not following industry fundamentals? Analysts offer a number of explanations ranging from the slump in oil prices hurting confidence in all energy companies to the fact that developers in China, the world’s biggest market for the technology, aren’t getting paid on time.

“The environment for China’s photovoltaic power market is bad,” said Louis Sun, an analyst at BOCOM International Holdings Co. in Shanghai. “This will spread to the entire industry chain, especially those producers with a larger market share in China.”

Yingli Green Energy Holding Co. is the worst performer among big panel makers in the last quarter, losing two-thirds of its value after saying in August that its outlook for profit and sales would be lower than previously expected for the rest of the year. It hasn’t recovered from the drop in solar panel costs that started in 2009.

Shunfeng International Clean Energy Ltd. is down 57 percent in the past three months and Trina Solar Ltd., the leading panel maker, by 31 percent. Canadian Solar Inc. has fallen 47 percent in the past three months, while JA Solar Holdings Co. is down by 15 percent.

Supply Glut Worries

The industry “is still worried about a continuing supply glut, and competition is intense,” leaving investors less certain the companies will benefit from rising installations worldwide, BOCOM International’s Sun said.

The world may install as much as 61 gigawatts of solar panels in 2015, up 36 percent from the previous year, according to Bloomberg New Energy Finance. The London-based researcher expects installations to rise to almost 70 gigawatts next year.

Net income in JA Solar more than triple in the second quarter from a year ago. Trina in August posted its biggest profit in four years as surging demand prompted the company to boost its shipment forecast by as much as 16 percent.

Even so, China’s solar companies are tumbling because of systematic risks, said Nick Duan, an analyst at New Energy Finance in Beijing.
 
“Orders are concentrated on top manufacturers as demand grows, while one or two of them have cash flow issues,” Duan said.

Oil Prices

The relatively unknown profile of Chinese solar companies may also be behind the declines, some analysts say.

"Overseas investors aren’t familiar with Chinese solar stocks listed in the U.S. and may ignore them" even as some report profit gains, said Steven Han, a Shanghai-based analyst from SWS Research Co.

Oil may also be to blame, according to Karl Liu, an analyst from Bank of China International Ltd. in Hong Kong. Crude has tumbled 24 percent in the past three months as Saudi Arabia declined to cut output in the face of a rising supply glut.

While oil isn’t widely used for power generation, the cost of other fuels used to make electricity such as coal and natural gas are often fixed in contracts linked to crude. So cheap oil translates into cheap energy, which makes more-costly photovoltaics less attractive.

"The entire energy industry is under stress because of weak demand and poor economic performance," with the pessimistic sentiment spreading to solar, said Tang Wenqian, executive vice secretary-general of the Chinese Renewable Energy Industries Association, an organization that acts as a conduit between government policy makers and industry executives.

Subsidies Delayed

Shunfeng and Trina didn’t immediately respond to e-mailed requests seeking comments.

Chinese stocks listed in the U.S., especially new energy shares, aren’t only
impacted by their earnings but also factors including the global and domestic
economic situation, the U.S. and Chinese stock markets, and the crude index,
Yingli’s chief financial officer, Wang Yiyu, said in a statement in response to questions.

Yingli hasn’t returned to profit and suffers from quite a high liability,
adding pressure to share prices, he said. 

"As the company pays its note and profitability gradually recovers, the price will get back to a reasonable range," he said.

China’s solar industry is warning that the government itself is undermining the industry it nurtured by failing to pay for power in a timely manner. At the end of June, the government owed more than 10 billion yuan ($1.6 billion) to operators of Chinese solar farms, according to data from the China Photovoltaic Industry Association.

In August, the government said it expects consolidation to accelerate among solar companies.

— With assistance by Feifei Shen

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