JA Solar Buys Chinese Wafer Maker

Leading manufacturer of high-performance solar cells and solar power products, JA Solar Holdings Co. Ltd (JASO - Analyst Report) announced that it has acquired Silver Age Holdings Limited in exchange for 30.9 million of its shares.

Silver Age Holdings Limited is a British Virgin Islands based company that owns 100% of wafer manufacturer Solar Silicon Valley Electronic Science and Technology Co., Ltd. (‘Solar Silicon Valley’).

Located in the Yanjiao Economic & Technology Development Zone in Langfang City, Hebei Province, China, Solar Silicon Valley operates a wafer production facility with an annual production capacity of 485MW. Solar Silicon Valley also manufactures quartz crucibles and its cutting-edge technology can be used to provide high quality wafer substrates for JA Solar’s own high-efficiency solar cell products.

The transaction will help JA Solar in achieving its objective of optimizing its cost structure through selective vertical integration. The acquisition would guarantee a stable supply of low-cost wafers increasing the company’s internal wafer capacity and aiding gross margins.

The acquisition is expected to improve JA Solar's leadership position and enable it to meet strong global demand for high-quality and high-efficiency solar products. JA Solar and Solar Silicon Valley are also expected to benefit from synergies arising from economies of scale, raw material sourcing efficiencies as well as operational optimization.

Based in Ningjin of the Hebei province in the People’s Republic of China, JA Solar Holdings Co. Ltd. is a leading manufacturer of high-performance solar power products. The company sells its products to solar manufacturers worldwide, who assemble and integrate solar cells into modules and systems that convert sunlight into electricity for residential, commercial and utility-scale power generation.

JA Solar is one of the most cost-efficient solar producers in the world, with a geographically diverse customer base as well as silicon wafer supply agreements in place to feed its production. Positive factors include ongoing expansion programs, improving operating efficiencies, rising margins and higher conversion efficiency.

JA Solar is steadily expanding its customer base worldwide. It is experiencing strong growth in several geographic end markets including U.S., Canada, Italy, Japan, Australia, China and India.

Looking forward, JA Solar expects third quarterly solar cell and module shipments in the range of approximately 310 MW–330 MW. However, faced with subsidy cutbacks in key markets like Germany and Italy, the company trimmed its fiscal 2011 shipment outlook to 1.6 GW from the earlier forecast of 1.8 GW.

Thus, we currently have a long-term ‘Underperform’ recommendation on JA Solar. In the near term, apprehensions over tepid module demand in Europe, rising competition, wafer dependency, questionable financial stability of its customers and an oversupply of solar cells in the market will restrain the valuation of the company. The stock, in consort with its peer China Sunergy Co. Ltd. (CSUN - Snapshot Report), retains a Zacks #5 Rank (Strong Sell rating).

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