Wednesday, October 27, 2010

JA Solar Holdings (Nasdaq:JASO) May Deliver 440 MW in Fourth Quarter

With JA Solar Holdings (Nasdaq:JASO) reporting delivery of 410 MW for the third quarter, Auriga says they their assumption of 44 MW shipment in the fourth quarter remains in play.

"JA Solar announced Q3 shipments of 410 MW prior to the market opening on Tuesday morning. Our previous model reflected prior guidance of 375 MW, thus we are increasing our estimate for the current quarter. Our model already assumed 440 MW of shipments in Q4; therefore, we see no reason to change our out-quarter estimates. In 2011, our model assumes over 1.8GW of shipments, which substantially exceeds the current run-rate established in Q3; there are no changes to our 2011 model," said Auriga.

"We continue to believe that gross margin will be the likely surprise in the quarter, as the consensus estimates are looking for just 21.2%. Cell pricing has been particularly strong in Q3, and we are modeling a 3% sequential increase to $1.34/W. That said, wafer prices have also been increasing, which will increase input costs and, in turn, will serve as an offset in COGS. We believe gross margin could reach 23% in Q3, and our new $0.38 EPS estimate remains above the consensus. Investors should expect to see a meaningful increase in gross margin dollars, although the gross margin percentage could show a small sequential decline."

Auriga is a little too optimistic concerning the overall solar industry in our opinion, as almost everything depend on the subsidized German market, which is scaling back subsidies, although will artificially grow in the short term.

JA Solar closed Monday at $8.64, gaining $0.19, or 2.25 percent. Auriga as a price target of $8 on them.

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