Solargiga (757 HK, HK$1.22) – Have only just begun

Highlight. China will announce bidding results recently for its largest pilot solar power station (10MW in Dunhuang). The central government will probably release subsidy and tariff policy to support development of solar industry.

Our view. Fundamentally, we believe 2009 is a transition year for solar industry with the market changing from supplier-led to buyer-led. Polysilicon price crash will hurt most participators’ top line and earnings. The market may resume normal growth trend in 2010. Nevertheless, in short term, we expect some positive news flow to come out recently, which might catch investors’ attention, creating trading opportunity. These news will probably include:

• China’s industry policy and developing strategy
• Approval of more solar projects in China
• More US cities to adopt feed-in tariff
• Positive results from the company's negotiation for long-term sales contracts

Have only just begun

Update on Friday, March 27, 2009 at 2:45PM by VAYUE.com Team

Solargiga (757 HK, HK$1.61) – Price shot after positive policy released

Highlights. Share price rebounded sharply in these two days after the Chinese government released “Temporary Measures on Management of Subsidy Funds for Application of Solar PV Technology on Construction” (“太陽能光電建築應用財政補助資金管理暫行辦法”) on 23 Mar. According to this document, the government will basically:

• Offer subsidy to solar PV systems applied in buildings at maximum of RMB20/Wp; and
• Encourage local government to launch supporting polices for solar industry, including feed-in tariff, subsidy and related regulations and standards.

Our view. The major direct beneficiary of the said subsidy scheme should be thin-film technology, which can be easily adopted in buildings (e.g. the curtain wall). Nevertheless, this new document will surely bring out more supporting policies from both central and local governments, and stimulate the whole solar industry. We believe, as discussed in a previous note (26 Mar), the continuous positive news flow (domestically or overseas) is in expectation, which creates trading opportunities for Solargiga. We maintain this view at the moment. The stock price might soften somewhat later on after surging ~30% within two days, which might provide another entry point.

Update on Wednesday, April 1, 2009 at 10:50AM by VAYUE.com Team

Solargiga (757 HK, HK$1.63) - Local governments to make moves

Chat with LDK. We talked with LDK Solar (LDK US) yesterday. The company expects solar market in 2009 to be driven by the incremental demand in China and Japan. The prior has just released “Temporary Measures on Management of Subsidy Funds for Application of Solar PV Technology on Construction” (“太陽能光電建築應用財政補助資金管理暫行辦法”) on 23 Mar. Meanwhile Japanese market is anticipated to reach 500-1,000MW this year after the government committed to offer subsidy in Jan.

Our view. Beijing’s attitude might encourage local governments to release more aggressive policies to support solar industry. We expect confirmation of these policies to become short-term catalysts for the sector. In particular, as the only sizable solar company in Liaoning province, we expect Solargiga to draw major attention and benefit the most from prospective provincial policies.

Update on Tuesday, April 28, 2009 at 11:02AM by VAYUE.com Team

Highlight. Turnover dropped 48.4% to RMB176.3m in 1Q FY12/09A. A net loss of RMB68.6m was reported, versus RMB95.1m net profit in the same period last year. The retreat was mainly due to: 1) weak demand amid the backdrop of global economy slowdown; 2) write-down in inventories, especially pollysilion, as selling price has been sliding down further since 4Q last year.

Our view. The decline should be within the market expectation given the apparent contraction in global PV market. As discussed in our last update (“Local governments to make moves”, 1^st Apr), we expect local government to release supporting policy following the central government’s move on 23 Mar, which might drive investors’ sentiment towards the whole solar sector. Accordingly we maintain the counter in our trading call list.

Update on Monday, May 4, 2009 at 9:49AM by VAYUE.com Team

highlight. We talked with the company last Friday following its 1Q FY12/09A results announcement on 27 Apr. According to the management, the RMB68.6m net loss occurred in 1Q should be attributed to: 1) low utilization rate (~40%) due to weak demand and improper pricing strategy (the company adopted relatively strong selling prices with intention to protect gross margins); 2) write-down in polysilicon inventory (from ~US$130/kg in 4Q FY12/08A to ~US$100). For the second quarter, the company has reviewed its pricing strategy and made corresponding adjustment to regain market share. Utilization rate in May has returned to near full level.

Our view. We expect the company to register a continuous loss in 2Q given: 1) potential time lag between necessary operation adjustments and drastic price cut; 2) further decline in polysilicon price (although the price has been largely stabilized, it is still lower than which in 1Q). Nevertheless we reiterate our views towards the counter:

• Renewable sector is drawing market’s attention.
• As the leading solar enterprise in Liaoning province, we expect Solargiga to be the major beneficiary of supporting policies from local government.

Accordingly, we maintain it in our trading call list for the time being.