Suntech Power Holdings Co. Ltd. (STP) failed to live up to market expectations of a revival in its fiscal second quarter. Although EPADS of 6 cents during the quarter surpassed the Zacks Consensus EPADS estimate of a penny, this was a far cry from the year-ago EPADS of 31 cents. Also, the quarterly results included a $17.5 million foreign exchange gain on account of the appreciation of the euro versus the dollar. Excluding this impact, the company swallowed a loss per ADS of 5 cents during the quarter.
On the revenues front, Suntech witnessed a marginal growth of 1.7% sequentially to $321 million. The growth came through higher shipments leading to volume growth over the first quarter of 2009. Suntech’s dependence on Germany continues, with almost half of its sales coming from the country during the quarter, and Italy chipping in a healthy 13%. The company also generated revenues from France, Greece, Benelux ( Belgium , Netherlands and Luxembourg ) and the Czech Republic . Overall Europe generated approximately 78% of total sales during the quarter. Besides, the company generated 11% from Asia, 8% from North America and 3% from rest of the world.
In the second quarter, Suntech witnessed 8% lower average selling price (ASP) from the previous quarter. Still, gross margins rose to 18.6% in the second quarter from 17.8% in the prior quarter. This was due to improvements in the company’s cost structure on account of lower silicon wafer costs.
Wuxi, China-based Suntech is a leading solar energy company in the world. The company designs, develops, manufactures and markets photovoltaic cells and modules. Looking forward, Suntech expects more than 50% spike in shipments in the third quarter over the second quarter. However, the company sees no further room for margin expansion in the near term. The company revised its fiscal 2009 shipment guidance to approximately 600MW from the earlier guidance range of 600MW to 700MW.

At present, Suntech is trading at a premium to its comparable peers in terms of price-to-book and price-to-sales on account of its leadership position in cell conversion efficiency and improving module manufacturing cost. However, falling ASPs, pruned expansion plans in light of lower demand and dilutive stock issuances make Suntech’s valuation unappealing in the near term. Thus, we maintain our Neutral recommendation on the shares.

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