Monday
Nov232009
Barclays Capital Market Review / Cleantech Insights
Monday, November 23, 2009 at 09:40AM (Barclays Capital, Vishal Shah, November 23, 2009)
We are initiating a weekly "Cleantech Insights" series, where we aim to investigate key trends that impact the broader cleantech sector. This series replaces our current "Comps Weekly" product.
- Solar sector view: We continue to expect strong PV demand, particularly from Germany in 1H10 and expect industry data points to remain positive in the near term. However, concerns about potentially significant subsidy cuts in Germany (~70% of global demand in 2H09) could increase sector volatility. Maintain 1-OW rating on YGE, see near-term positive momentum for shares such as CSIQ, TSL.
- Could German Solar Market Exceed 3GW in 2009? Year-to-date German shipments of 5 Chinese solar companies, FSLR and SPWRA are expected to reach 1.3GW and based on the revised Q4 shipments outlook provided by most companies during Q3 season (flat to up shipments in Q4), we now expect 2009 German market to reach 3GW compared to our prior expectations of 2.8GW. Our revised view is based on the following assumptions: (i) Most companies expect Germay to account for over 50% of overall shipments in Q4. Based on the Q4 guidance, we expect German shipments from Chinese and US solar companies to increase from 605MW in Q3 to 640MW in Q4, (ii) We assume market share of US and Chinese companies increases from 44% in 2008 to 64% in 2009 in a conservative scenario for the German market (3GW overall market size) and to 54% in a more aggressive scenario (~3.5GW overall market size).
- Are Cash versus Non-cash Interest Expenses Distorting Solar Valuation? Convertible bond accounting has resulted in a substantial increase in non-cash interest expense for a few solar companies in 2009. Cumulative interest expense of the leading 7 Chinese solar companies for instance is expected to nearly double in 2009 from ~$147 million in 2008. We expect additional 15% increase in interest expense in 2010. Our analysis in the note highlights the following key trends: (i) For companies with relatively high leverage ratios (LDK, STP), interest expense is likely to be as large as 90%-115% of overall EPS in 2010. Companies where interest expense is likely to be less meaningful include TSL, CSIQ and SOLF, (ii) Non-cash interest expense is likely to result in a significant negative earnings impact for STP and JASO. Excluding non-cash interest charges for instance, STP's earnings could likely increase by ~40% and JASO's earnings by ~60%. Companies such as CSIQ, TSL and SOLF are likely to have less of an impact, (iii) For investors looking at P/E valuation, comparisons often do not disclose the underlying cash earnings power. For instance, on our 2010 EPS, STP currently trades at 25x. However on EPS ex-non cash interest charges, shares trade at 18x. Similarly, JASO may appear relatively less attractive on P/E valuation of ~20x. However, valuation ex-non cash interest charges of 12.5x appears more reasonable.
- How Large is the Smart Metering TAM? Approximately 6%-8% of the 2.5 billion worldwide meters are currently automated and we estimate approximately 250 million additional meters could be automated over the next 5 years. Multiple factors are likely to influence the smart meter sector over the next decade: (i) increased awareness among consumers to minimize the environmental impact of polluting technologies, (ii) improving economics of smart metering infrastructure and associated cost savings, (iii) government legislation in an increasing number of countries worldwide. We estimate the global smart metering implementation cycle could represent ~$20 billion revenue opportunity for the metering industry over the next five years and potentially even greater opportunity if the meter is able to capture a greater percentage of the overall smart grid value chain. More importantly, we estimate the electric meter segment to experience rapid growth with over 185 million meters likely to get installed, followed by gas (~50 million units) and water (~15 million units). By region, we expect the US and Canada to lead the smart meter deployment race - currently ~45% of the ~320 million meters in US/Canada have been automated and penetration is likely to exceed 60% by 2015. Within Europe, only ~12% of the meters have been currently automated and penetration is expected to double over the five years as EU member states race to meet 2020 compliance requirements (80% of meters to be automated by 2020).
- Could the Cleantech Sector Potentially Reach/Exceed the Size of Semiconductor or Other Energy Sectors? Annual global cleantech market size is currently ~$150 billion and we estimate the global cleantech market could reach/potentially exceed $850 billion over the next 20 years. Our forecasts currently assume ~7.5GW solar, 33GW wind and ~3GW of geothermal installations in 2010. By 2030, we forecast solar installations to reach 150GW, wind installations to reach 110GW and geothermal installatios to reach 55GW representing a total market size of $195 billion for solar, $220 billion for wind and $110 billion for geothermal. We also forecast the transportation fuel sector to grow from ~$70 billion in 2010 to $320 billioin by 2030. When considering the declining growth rate of semiconductor and other energy sectors, potential exists for cleantech sector to exceed size of semis/some energy sectors.
- CSI Market Share: According to the California Solar Initiative data, Sharp has the leading share of applications received in Q4 wih 18% share, followed by SunPower with 15% and Suntech with 10% market share. Sharp, Kyocera, and BP Solar each gained share in Q4, (Sharp increased share from 15% to 18%, Kyocera from 5% to 8%, and BP Solar from 6% to 8%) whereas SunPower, and Suntech lost share (SunPower from 16% to 15% and Suntech from 11% to 10%) Ytd - Suntech, First Solar, and Solarworld have gained market share compared to 2008 levels (although Solarworld's share has declined sharply over the past 2 quarters). Suntech's share has increased from 5%% to 11%, First Solar's share has increased from 2% to 4%, Solarworld's share has increased from 9% to 12%.
- Since the beginning of the year, the best performing stocks are TSL (up 379%) and CSIQ (up 225%) vs S&P (up 21%). Worst performing solar stocks include ENER (down 58%) and ESLR (down 54%). Since the rally fueled by introduction of Chinese incentives on 3/25/09, best performing solar stocks include TSL (up 413% vs. S&P up 34%), CSIQ (up 335%); underperformers include ENER (down 27%).
Barclays Capital does and seeks to do business with companies covered in its research reports. As a result, investors should be aware that the firm may have a conflict of interest that could affect the objectivity of this report.
Investors should consider this communication as only a single factor in making their investment decision.
For analyst certifications and important disclosures including, where applicable, foreign affiliate disclosures, please refer to the full document(s) contained or included in the link within this email.
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