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Dull 1Q for JA Solar

JASO

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JA Solar Holdings Co. Ltd. (JASO - Analyst Report) announced first quarter 2012 results. Adjusted loss per American Depositary Share (“ADS”) was 20 cents, wider than our expectation of a loss of 15 cents. Results also came far below the year-ago adjusted earnings per ADS of 43 cents.

Quarterly Performance

JA Solar’s revenues in the reported quarter were $254.4 million, comfortably ahead of the Zacks Consensus Estimate of $229 million. However, revenues decreased 56% from $578.5 million reported in the first quarter of 2011.

Total shipments in first quarter of 2012 were 366MW, above the company's previously provided guidance range of 320MW to 350MW. However, it represents an 18.8% decrease from 451MW in the first quarter of 2011.

Gross profit in the first quarter of 2012 was $5.3 million, far below the year-ago figure of $100.1 million.

Total operating expenses in the quarter of 2012 were $30.5 million, compared with $13.5 million in the first quarter of 2011.

Operating loss in the quarter under review was $25.3 million versus an operating profit of $86.6 million in the first quarter of 2011.

Other income in the first quarter of 2012 was $5.1 million, compared with $8.6 million in the first quarter of 2011.

Financial Condition

JA Solar at the end of the reported quarter had cash and cash equivalents of $676.2 million as compared to $422.2 million at the end of the first quarter of 2011. Total working capital at the end of the quarter was $696.5 million as compared to $711.8 million at the end of previous year quarter. Total short-term bank borrowings were $153.8 million. Total long-term bank borrowings were $697.9 million, among which $226 million were due in one year. The total face value of outstanding convertible bonds due 2013 was $220.7 million.

Outlook

JA Solar expects its cell and module shipments to be in the range of 420MW and 440MW in the second quarter of 2012. For the full year 2012, the company expects total cell and module shipments to be between 1.8GW and 2GW.

Peer Comparison

As a result of tepid module demand in Europe, incurring losses have become a trend for these solar companies. Recently, the company’s peer, Suntech Power Holdings Co. Ltd. posted first quarter 2012 adjusted loss of 74 cents per American Depository Share (EPADS), far wider than the Zacks Consensus Estimate of a loss of 48 cents. The results were a stark contrast to the year-ago adjusted earnings of 17 cents per share.

Our Take

JA Solar is one of the most cost-efficient solar producers with a geographically diversified customer base. However, the loss incurred by JA Solar this quarter reflects industry-wide high inventory levels, rising competition, and the oversupply of solar cells in the market. The company presently retains a short-term Zacks #4 Rank (Sell). We have a long-term Neutral recommendation on the stock.

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