LDK Solar on the Horizon

LDK Solar Co.’s (LDK - Snapshot Report) revenue and earnings for the second quarter continued to show strong growth, which again exceeded market expectations. We think LDK will continue to grow quickly in the next few quarters due to its aggressive capacity expansion and strong growth of solar power industry worldwide.

For the second quarter ended June 30, net sales stood at $441.7 million, up 89.2% from $233.4 million for the first quarter of 2008, and up 345.9% year-over-year from $99.1 million for the second quarter of 2007.

LDK is well positioned to leverage the growth prospects of solar power industry. According to Photon International, global crystalline solar cell or module production will increase from 1.5 gigawatts in 2005 to 12 gigawatts in 2010. Additionally, the company uses a wide range of silicon feedstock material in its manufacturing process, which lowers its cost basis compared with companies that use a higher percentage of high-cost virgin polysilicon.

LDK has a well-diversified custom base, which enables the company to encounter the risk of losing business from a single area. It has solid supply agreements for raw polysilicon and equipment, which cover more than 70% of the company’s revenue estimates in 2008. Finally, LDK has higher profit margin than its Chinese peers because it is in the ingot/wafer manufacturing sector.

However, we are concerned its gross margin will continue to decline due to rising pre-sold orders and increasing competition in the wafer segment. In addition, the current capital market situation may limit its stock price upside potential in the near future. Therefore, we are maintaining our Hold rating on LDK.

Read the full analyst report on LDK