JA Solar Holdings Company Ltd. (JASO) entered into an agreement to acquire privately held Shanghai Jinglong Solar Technology Co. Ltd. from Ningjin Jinglong PV Investment Co. Ltd., a company controlled by JA Solar’s Chairman, Mr. Baofang Jin. Under the terms of the agreement, JA Solar will acquire the company for a cash consideration of approximately $29.3 million (RMB 198.96 million). The transactions have been reviewed and approved by the two companies’ boards of directors.
 
The acquisition will enhance JA Solar’s ability to further expand its manufacturing operation to better support its growing markets. Through the acquisition, JA Solar would acquire land, building and facilities located in the Minhang Export Processing Zone within the Fengxian district of Shanghai, China. The deal includes 206,590 square meters of land, 58,706 square meters of buildings and related facilities. JA Solar already uses the facility for contract manufacturing of its solar modules.
 
JA Solar caters to a geographically-diversified pan-continental customer base, which spans China, Germany, Sweden, Spain, South Korea and the U.S. The company also effectively uses its location advantage in China with Chinese low-cost solar module manufacturers contributing a substantial portion of its revenue.
 
At the end of the first quarter of 2010, JA Solar raised its shipments guidance for fiscal 2010 to over 1 GW from its prior guidance of more than 900MW. Shipments in the second quarter of 2010 are expected to be approximately 275MW.
 
Currently, the Zacks Consensus Estimate for full fiscal 2010 earnings is 75 cents per share, which would be a significant improvement over the fiscal 2009 loss of 12 cents.
 
JA Solar is one of the most cost-efficient solar producers with silicon wafer supply agreements in place to cater to its production. Positive factors include ongoing expansion programs, subsidy program in China, improving operating efficiencies, rising margins and higher conversion efficiency.
 
However, apprehensions over the tepid module demand in Europe, rising competition, financial stability of its customers and the company’s high research and development expenses may adversely affect performance over the near term. Hence, we maintain our long-term Neutral recommendation on the Zacks #2 (Buy) Rank stock. In the near term, the stock shows greater prospect than its Zacks #3 (Hold) Rank peers like Evergreen Solar Inc. (ESLR) and First Solar Inc. (FSLR).
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