Before markets opened today, ReneSola Ltd. (SOL) reported fourth quarter and fiscal 2010 results. In the reported quarter the company clocked adjusted Earnings Per American Depositary Share (EPADS) of 69 cents per share, in line with the Zacks Consensus Estimate and beating the year-ago quarterly loss of 33 cents.

Fiscal 2010 EPADS of $1.93 however came below the Zacks Consensus Estimate of $1.95.  Earnings in the reported fiscal were way ahead of the 98-cent loss per ADS digested by the company in fiscal 2009.

Operational Results

In the reported quarter, ReneSola’s revenues rose to a company record of $386.4 million, increasing by 7.7% from $358.7 million in the third quarter of 2010 and by 114.8% compared to $179.9 million in the year-ago quarter. Revenue in the reported quarter also comfortably beat the Zacks Consensus Estimate of $368 million.

The upside in results came from higher wafer average selling prices and increasing module shipments. Fiscal 2010 revenue of $1.2 billion beat the Zacks Consensus Estimate by $17.6 million and fiscal 2009 revenue by 136.2%. The upside in revenue during fiscal 2010 was driven by higher wafer ASPs and strong growth in the company’s module business.

ReneSola’s product shipments were 349.4 MW versus 324.9 MW (up 7.5%) in the third quarter of 2010 and 202.9 MW (up 72.2%) in the year-ago quarter. In the reported quarter, solar wafer and module shipments were 222.6 MW and 126.8 MW, respectively.

ReneSola clocked a gross profit of $119.3 million and a gross profit margin of 30.9%, compared to $116.7 million and 32.5% in the third quarter of 2010. The sequential decrease in gross margin was primarily due to higher proportion of low-margin module sales. In the year-ago quarter the company digested a gross loss of $1.1 million.

Overall, ReneSola recorded net income of $61.0 million compared to net income of $60.1 million in the third quarter of 2010 and net loss of $28.1 million in the year-ago quarter.

Financial Condition

ReneSola at fiscal-end 2010 had cash and cash equivalents of $290.7 million, compared with $106.8 million at fiscal-end 2009. Long-term borrowings decreased to $121.5 million from $189.3 million at the end of fiscal 2009.

The company generated strong operating cash flows of $403.2 million in fiscal 2010 compared to $55.7 million used for operating activities in fiscal 2009.

Guidance

Reflecting the robust market demand for solar products, ReneSola for the first quarter of 2011 expects total solar wafer and module shipments to be in the range of 320 MW–330 MW, revenues to be in the range of $310 million–$330 million and gross profit margin to be between 30%–32%.

For fiscal 2011, ReneSola expects total solar wafer and module shipments to be in the range of 1.6 GW to 1.7 GW, representing an increase of 35% to 44% year over year.

Our Take

The fortunes of ReneSola look greener with a geographically-diversified customer base, ongoing expansion programs, subsidy programs, improving operating efficiencies, rising margins and material cost savings through its vertically-integrated production structure.

Till date ReneSola has over 20 long-term wafer contracts totaling 1.3 GW for 2011. To cater to the growing demand ReneSola expects to spend $350 million in fiscal 2011 to expand annualized wafer production capacity from the current 1.3 GW to 1.9 GW.

Simultaneously the company plans to increase annualized module production capacity from the current 400 MW to 600 MW and polysilicon capacity from the current 3,000 MT to 8,500 MT.

ReneSola at the same time is proactive on cost control. The company’s prudent control over raw material procurement coupled with increasing in-house polysilicon capacity has provided protection against rising polysilicon spot prices. In the reported quarter the company was able to reduce its non-silicon wafer processing cost per watt to 24 cents and keep its polysilicon raw material cost in the range $55/kg–$60/kg.

ReneSola also has developed a new multicrystalline wafer, the Virtus Wafer. The Virtus Wafer, which achieves an average cell conversion efficiency rate of 17.5%, more than 1% higher than the industry standard. The company expects to commence pilot production of the wafer in fiscal 2011 itself.

We feel the Zacks #1 Rank (Strong Buy) stock would open up a small window of opportunity for investors in the near term (1 to 3 months). Over the longer run we are Neutral on the company in line with its peers like SunPower Corporation (SPWRA) and Evergreen Solar Inc. (ESLR).

 

 
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