Solar energy adoption has been growing at a rapid clip globally. One of the factors driving this growth is the declining costs of solar panels which has made solar energy a viable alternative to grid power. In fact, according to a report from Statista the global solar power industry is slated to top $160 billion by the year 2020. In the backdrop of this projection, I had taken a look at Canadian Solar (CSIQ, Financial) and maintained a bullish stance. In fact, I have also been bullish on SolarCity (SCTY, Financial) and First Solar (FSLR, Financial) also.
Trina Solar (TSL, Financial) is consolidating its position as a leader in the solar industry. In terms of shipments, it is currently the largest company followed by Canadian Solar. Trina Solar posted estimate-beating first-quarter fiscal 2015 results, and strong results pushed the stock higher. Investors are sitting on year-to-date gains of around 50%, and the ripple effect lifted solar ETFs like Guggenheim Solar ETF (TAN, Financial) and Market Vectors Solar Energy ETF (KWT, Financial). Can the momentum sustain going forward? Let’s take a look.
First-quarter in focus
Trina Solar beat all expectations and its guidance on relevant metrics. For example, despite the declining average selling price, or ASP, the gross margin expanded to 18% versus 15.7% in the year-ago quarter. This was backed by a faster decline in cost per KW than the decline in ASP. For example, cost per KW declined 3.8% year-over-year versus 1.6% decline in ASP.
Carrying the fiscal 2014 momentum forward, Trina Solar shipped over 1 gigawatt, or GW, of panels and further solidified its leading position as the global module manufacturer. This beat company’s higher end of the guidance by over 130 MW. Consolidated sales increased 25.5 year-over-year to $558.09 million, ahead of analysts’ expectations by $48.74 million.
As a result of strong top-line growth and gross margin expansion, net income increased 13% sequentially to $15.7 million, or $0.16 per diluted share. During the comparable period a year ago, the net income was $51 million, or $0.13 per diluted share. EPS beat market expectations by $0.07 per share.
The company exited the quarter with cash and cash equivalent of $682.9 million, and total debt of $912.2 million of which $883.8 million were short-term borrowings. The company’s total liability to total asset ratio remains below 70% that is being viewed favorably by financing institutions.
Growth catalysts
Trina Solar’s cautious approach to capacity expansion is paying rich dividends. The company is working with local partners in Malaysia for setting up a production facility in the country. Also, the company has announced it is setting up a manufacturing facility in Thailand for both cells and modules.
Setting up manufacturing facilities overseas will not only expand the production capacity but also position the company to enhance its competitiveness in the global market. Also, it will facilitate expansion into emerging markets across PAN-Asia region in a cost-effective manner.
Also, Trina Solar is the first Chinese company to figure in NREL’s tracking of the world’s most efficient solar technologies. The industrial production of first high-efficiency modules in slated to begin in 2015.
Growing global demand for solar power is a credible growth catalyst. For example, China had been aiming to get to 35 GW by the end of this year, but it now appears likely to land as much as 10 GW above that figure. According to IRENA, China can increase its use of renewable energy from 13% to 26% by 2030. Trina Solar continues to have a dominating presence in markets like China and the U.S.
Also, India has plans to push up grid-connected solar power from 20GW to 100GW by 2022 under its National Solar Mission plan. India’s solar energy potential has been pegged at 750 GW. Also, what seems to be an interesting plan, Indian Railways is testing coaches with solar panel. Indian Railways is aiming for 10% energy from solar panels mounted on coaches by 2020. In fact, In fact, Trina Solar is specifically involved in PM Modi's massive Indian solar PV plans, and will play an integral role in meeting its 100 GW goal by 2022.
Wrapping up
Trina Solar’s lead in the solar energy market is helping it grow at market-beating expectations. Its geographical diversification is another growth catalyst. Declining cost per KW of solar installations, the demand for solar energy is set on a high growth trajectory. The company is boosting it manufacturing capacity by 700 MW this year to meet the burgeoning demand.
All in all, Trina Solar is a good investment for long-term gains.
