Fri, Feb 29, 2008 - Page 12 News List

Sunny or cloudy skies for solar cell manufacturers?

CONTRASTING VIEWS While Citigroup touted Gintech's and Motech's growth prospects, Taiwan Ratings said aggressive expansion had led to key material shortages


Workers at the Taipei International Furniture Show display a specially designed glass table that doubles as a fish tank yesterday. The annual event opened at the Taipei World Trade Center Exhibition Hall yesterday and runs through Sunday.


With the demand for solar cells surging in the wake of soaring oil prices, photovoltaic (PV) cell makers have become one of the hottest traded stocks on the local bourse. Analyst view on the sector's prospects vary, however, with Gintech Energy Corp (昱晶) and Motech Industries Inc (茂迪) garnering "buy" ratings from Citigroup, while Taiwan Ratings Agency warned of the credit risks facing the sector.

The solar cell sector has enjoyed a compounded annual growth rate of approximately 30 percent in recent years on the back of strong demand supported by government subsidies and incentives, Citigroup Global Markets said in a client note on Wednesday.

But many of the local PV cell makers have also seen growing margin pressure in recent quarters owing to a shortfall of key raw materials and pressure from rising polysilicon prices, the note said.

Even so, Gintech is likely to outperform its local peers and expand its output by 270 percent to 220 megawatts this year from a year earlier thanks to stable supplies, Citigroup analyst George Chang (張家麒) said in the note.

Chang said Gintech, aided by its robust growth, would close the gap with market leader Motech to become the nation's second-largest and possibly one of the world's top five suppliers by the end of next year.

Motech is the nation's largest and the world's fourth-biggest solar cell maker.

The analyst recommended a 12-month target price of NT$300 for Gintech. He expected earnings per share to soar 250 percent year-on-year to NT$15 this year.

Gintech closed limit-up at NT$196 on Wednesday. The stock market was closed yesterday because of a public holiday.

In addition to ample material supply from MEMC Electronic Materials Inc, Chang said Gintech offers diversified business model, strong earnings prospects and attractive valuations compared with its global peers.

While Chang also has a buy rating on Motech, he reduced his price target for the stock to NT$250, from NT$400, citing tight material supply as the company's long-term contracts will not start until the second half of the year.

Motech's earnings per share are likely to rise 14 percent to NT$13.9 this year from last year, he said.

Motech shares closed up 3.6 percent at NT$200 on Wednesday.

Taiwan Ratings Corp (中華信評), a local arm of Standard & Poor's, however, warned that rising credit risks may weigh on the solar cell industry's prospects.

In a report issued on Tuesday, Taiwan Ratings said many domestic companies had rushed to join this emerging industry, with some aggressively expanding their capacities between 2005 and last year.

But "success has not come without a price," it said.

"The industry boom has led to severe shortages of key raw materials and bottlenecks in supply chains have in turn created high financial and business risks for solar cell companies," Taiwan Ratings credit analyst Raymond Hsu (許智清) said in the report, titled Risks Cast Shadow Over Taiwan's Solar Cell Industry.

Hsu said many Taiwanese companies had ventured into the solar business given the low entry barrier in terms of capital and technology.

However, this has given rise to a highly fragmented domestic industry, compared with that of other countries, he said.

Consequently, "competition is intensifying with little product differentiation among companies," coupled with the deterioration of operating margins as companies are "unable to fully pass on higher raw material costs to customers owing to concerns about increasing competition."

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