Bloomberg News

Trina Leads Solar Slump on German Tariff Cut: China Overnight

February 24, 2012

Feb. 24 (Bloomberg) -- Trina Solar Ltd. led declines in Chinese solar stocks traded in the U.S. as the company reported a larger-than-expected net loss and as Germany plans to cut subsidies for the industry, dimming the outlook for sales.

China’s fifth-largest solar-panel supplier, Trina sank the most in a month after reporting an increased fourth-quarter loss that exceeded analysts’ estimates. Yingli Green Energy Holding Co. and Suntech Power Holdings Co. also helped drive a 0.3 percent drop in the Bloomberg China-US 55 Index of the most- traded Chinese stocks in the U.S. Online book retailer E- Commerce China Dangdang Inc. tumbled to a five-week low.

Germany, the world’s biggest solar market, will cut federal aid to the panel industry by as much as 29 percent from March 9 and further scale back subsidies each month beginning in May, Environment Minister Norbert Roettgen said yesterday. The cuts are deeper than the 15 percent reduction ordered Jan. 1 and may hurt manufacturers in Germany and China, where the world’s three largest panel makers are based.

The tariff cut came sooner than the market was anticipating and the reduction is deeper, said Chris Kettenmann, a New-York based energy analyst at Miller Tabak & Co. who covers the biggest Chinese companies in the sector.

“Chinese solar makers sold an average 25 percent to 30 percent of their output to Germany in the last quarter,” Kettenmann said. “That percentage has been declining and markets are more concerned in the longer term with growth in China and in the U.S. markets.”

Falling Prices

The subsidy cut is the most severe since Germany began supporting the solar industry with a feed-in tariff in 2004, which granted above market-rates for renewable power. Solar panel prices fell 46 percent last year after manufacturers in Asia led by Suntech Power boosted production. European countries including the U.K., Italy and France have accelerated subsidy curbs for solar energy in the past year to adapt to falling panel prices.

The iShares FTSE China 25 Index Fund, the biggest Chinese exchange-traded fund in the U.S., slid 0.4 percent to $40.14 yesterday after gaining 1 percent on Feb. 22. The Bloomberg China-U.S. 55 Index fell to 107.41 yesterday in New York, while the Standard & Poor’s 500 Index added 0.4 percent to 1,363.46.

American depositary receipts of Melco Crown Entertainment Ltd., a casino operator in Macau, the world’s largest gambling hub, retreated 0.1 percent to $12.42, trading 1.8 percent below its Hong Kong stock. The discount was the most since Feb. 14. Each ADR represents three common shares.

Trina slumped 12 percent to $8.63 in New York, the lowest level since Feb. 7. The decline trimmed its gain this year to 29 percent, after the stock slumped 71 percent in 2011.

Supply Agreements

Based in Changzhou in China’s eastern Jiangsu province, Trina incurred a net loss of $65.8 million in the fourth quarter of 2011, compared with net income of $145.3 million in the same period a year earlier, the company said in a statement yesterday.

Trina expects first-quarter gross margin will be in the “low teens in percentage terms” after negotiating new lower- cost supply agreements for silicon, the raw material in its panels. The margin, a measure of profitability, was 7.1 percent in the fourth quarter.

“A dramatic slowdown in Germany, which accounted for 30 percent of global demand last year, and at such short notice will be negative for pricing across the solar value chain in an industry already suffering from overcapacity,” Timothy Arcuri, a solar analyst at Citigroup in San Francisco, wrote in a research note yesterday.

Dangdang Drops

Suntech, the world’s biggest solar-module maker also based in China’s Jiangsu province, fell 8.3 percent to $3.21, the biggest drop since Jan. 19. Yingli, based in Baoding in northern China, declined 11 percent to $3.85, the weakest level this year. LDK Solar Co. slid 2.9 percent to $5.97 in New York.

Kettenman at Miller Tabak downgraded Yingli to “sell” from “neutral” on Feb. 22 after the company said it expected fourth-quarter shipments to fall more than previously estimated.

E-Commerce China Dangdang, China’s biggest Internet-based book seller known as Dangdang, sank in U.S. trading after reporting that its net loss in the fourth quarter widened from the previous three months as profit margin shrank and marketing expenses rose amid competitions.

Beijing-based Dangdang’s loss in the last three months of 2011 was 129.8 million yuan ($20.6 million), compared with a loss of 81.9 million yuan in the third quarter, and net income of 14.8 million yuan a year earlier, the company said yesterday in a statement. The fourth-quarter loss exceeded the 85 million- yuan average estimate of five analysts surveyed by Bloomberg.

Hang Seng

Dangdang dropped 3.9 percent to $6.65 in New York, the lowest level since Jan. 18. Piper Jaffray Co. analyst Eugene Munster cut his 12-month price target for Dangdang’s ADRs to $12 from $16, while Wallace Cheung at Credit Suisse Group lowered the goal to $8.60 from $8.80 yesterday.

The Shanghai Composite Index climbed for the fifth day, rising 0.3 percent to 2,409.55, the highest level since Nov. 29. The Hang Seng China Enterprises Index of shares traded in Hong Kong retreated 0.9 percent yesterday to 11,714.29, falling from a six-month high reached on Feb. 22.

Qihoo 360 Technology Co Ltd., a Chinese computer security software developer, jumped to the strongest level in almost three weeks after saying fourth-quarter net income more than tripled.

Beijing-based Qihoo said net income in the last three months of 2011 increased by 274 percent from a year earlier to $15 million, in a statement released on Feb. 22 after U.S. markets closed. The results exceeded the $9.9 million average estimate of five analysts in a Bloomberg survey.

Leading Indicators

ADRs of Qihoo gained 4.7 percent to $18.32, the highest price since Feb. 3, after earlier surging as much as 6.9 percent to $18.70.

Analysts at RBS Asia Ltd. and Stifel Nicolaus & Co. reiterated their “buy” recommendations on Qihoo stock yesterday.

The Conference Board’s leading indicator index for January, which is designed to capture prospects over the coming six months, is scheduled to be published in China today.

--With assistance from Stefan Nicola in Berlin and Marc Roca and Louise Downing in London. Editors: Marie-France Han, Emma O’Brien

To contact the reporter on this story: Belinda Cao in New York at lcao4@bloomberg.net

To contact the editor responsible for this story: Emma O’Brien at eobrien6@bloomberg.net


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