Friday, April 20, 2007

Calls of Note Part 2

- TWP is positive on Suntech Power (NYSE:STP) after meeting with Amy Zhang, CFO of STP. Firm views the highlights from the meeting: pricing trends are in line with expectations (5% to 7%); demand remains strong, which they believe could drive upside to their forecast in 2007; MSK, high-priced silicon and currency will weigh on margins in 1Q07; and the sales channel is shifting toward direct sales to installers/integrators.

Ms. Zhang indicated that pricing trends for solar modules are largely in line with previous guidance of down 5% to 7% in 2007 from the $3.84 average price seen in 2006, and these declines are occurring gradually q/q.

Zhang was confident that demand for solar modules is strong at the pricing levels discussed above. In fact, it appears that STP is contemplating purchasing cells from third parties to meet strong customer demand that exceeds is current in-house cell production capabilities. This factor coupled with STP's previous commentary that it has more than enough silicon to reach its 2007 production target of 280MW gives the firm a high level of confidence in their current estimates and suggest there could be upside in 2007. TWP believe sSTP's production could approach 300MW in 2007, which they estimate would add roughly $0.05 to $0.10 in EPS to current 2007 GAAP estimate of $1.04 ($1.17 non-GAAP).

Maintains Overweight: While the margin message is not new, the firm had previously underestimated the magnitude of the impact in the near term, and they believe they are not alone in this area. They are, however, encouraged by the positive data points on pricing they have heard of late that were supported by STP and the positive commentary on demand trends. The STP shares are currently trading at 20.8x 2008 non-GAAP EPS estimates, respectively below the wafer/cell/module supplier average of 23.4x.

Notablecalls: Nice comments by TWP. I only wish the chart would agree more with the bullish tone of the call.

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