Solar Company Shares Jump On Chinese Energy Subsidy

MARCH 26, 2009

Shara Tibken

NEW YORK (Dow Jones)--Shares of solar companies soared Thursday after the Chinese Ministry of Finance said on its Web site that it will offer a subsidy for solar energy.

The subsidy will provide RMB20 ($2.93) per watt for projects over 50 kilowatts, according to analysts. Raymond James analyst Pavel Molchanov said the subsidy is comparable to what California is paying as part of its solar-rebate program.

Analysts called the subsidy generous and some estimated it could cover more than half the cost of a solar panel.

"This is the first time we've seen a national solar subsidy in China," Hapoalim Securities USA Inc. analyst Gordon Johnson told Dow Jones Newswires. "China is a huge market, and there's a lot of energy consumption done in China. The assumption behind this is that the government will support a lot of these companies that need help."

Johnson added he believes the market reaction is overdone because the subsidy's impact on demand for solar projects is going to be relatively minor.

Chinese-based solar companies gained the most Thursday, as Cowen & Co. analyst Robert Stone told Dow Jones Newswires that these companies stand to benefit the most from any Chinese subsidies. He added that the Chinese companies also advanced more than others because they had been trading at a discount to U.S. and international stocks.

"The valuation gap is closing somewhat today," Stone said.

In recent trading, Suntech Power Holdings Co. Ltd. (STP) soared 47% to $11.50, and Yingli Green Energy Holding Co. Ltd. (YGE) rose 44% to $5.98. LDK Solar Co. Ltd. (LDK) jumped 40% to $8.25, and Trina Solar Ltd. (TSL) rose 46% to $12.65. China Sunergy Co. Ltd. (CSUN) climbed 34% to $3.35, and JA Solar Holdings Co. Ltd. (JASO) gained 43% to $3.79.

Meanwhile, SolarFun Power Holdings Co. (SOLF) jumped 28% to $4.58 as Canaccord Adams analyst Jonathan Dorsheimer upgraded SolarFun's stock rating to hold from sell, saying margins have likely bottomed out. On Wednesday, the company reported it swung to a fourth-quarter loss on inventory write-downs and falling prices.

Non-Chinese companies also traded higher, though they are less likely to benefit from the subsidies.

First Solar Inc. (FSLR) gained 13% to $151.43, while SunPower Corp. (SPWRA) rose 16% to $27.95. Both are U.S. companies.

Analysts at Piper Jaffray said the Chinese subsidy is a long-term positive, but "it is premature to bid up solar stocks significantly on this news alone."

And some analysts expressed caution over how much the subsidy would help the companies.

Cowen's Stone said it's unclear whether the subsidy is restricted to building-integrated PV, or BIPV, cells - which means the modules have to be an element of the building structure - or whether it could also be used for retrofit modules, which are less expensive and can be put on an existing building.

Hapoalim's Johnson said BIPV solar panels are a small niche market in China and account for only about 2% to 3% of solar demand.

Barclays Capital analyst Vishal Shah said in a note the program is applicable for both BIPV and regular solar module applications, but analysts at Piper Jaffray said in a note only building owners and manufacturers of PV products can take advantage of it.

In addition, analysts at both Piper Jaffray and Barclays said the new subsidy program likely won't be capped.

Click to see original