2010_10Oct_05_Solar Rays - Weekly Industry Data Points (Kaufman Bros.)

Industry Report Green TechnologyJeffrey Bencik,CFA 212-292-8134 jbencik@Solar Rays-Weekly Industry Data Points•Weekly Market Performance(9/24/10-10/01/10).U.S.solar-based stocks(AMAT,ESLR, FSLR,SOLR,SPWRA,WFR)were up an average of470bps last week in comparison to the S&P500,which was down20bps.Evergreen Solar,Inc.(ESLR)was the outlier of the group, up21%.The company announced it had hired a new president and CEO earlier in the week. Overall,solar stocks remained relatively positive.We are on the forefront of earnings and continue to have a positive outlook considering industry demand,major project completions and announcements as it relates to further industry growth.Our2011global solar demand forecast of17.7GW may prove conservative.•Chinese solar stocks(CSIQ,CSUN,JASO,LDK,SOLF,STP,TSL,YGE)outperformed U.S. solar stocks as the group was up5.3%vs.4.7%.LDK was one of the top performers,as the stock increased14.7%.We believe the good performance was likely tied to the financing announcement by the China Development Bank Corp.(CDB)of RMB60billion,roughly US $9billion,last week.YGE was also up significantly by10.3%.The company announced the completion of the NFL's largest solar power system,which is attractive from a media standpoint but not meaningful to earnings.•High Short Interest Could Provide Upside.The solar industry continues to be a high beta space,even though the industry as a whole has not recovered as well as the overall market. Importantly,the industry has significantly reduced its costs and is reaching grid parity ex-subsidies in several regions of the world.We expect this trend to continue and as subsidies become less important toward driving sales,the industry could see a revaluation toward higher multiples.While we do not expect this in the near term,there continues to be a high level of short interest in the solar shares,that could drive a short squeeze and a rapid revaluation of the shares.Interestingly,as Exhibit1shows,the U.S.solar stocks are at a significantly higher short interest level in comparison to the Chinese solar stock(14.6%vs.6.4%,respectively).SunPower is at the highest level at24%,followed closely by Applied Materials at21%.Suntech and LDK Solar are the two most shorted Chinese stocks at around 10%of float.The most likely reason for the higher level of short interest is the fact that the U.S.-based companies have larger market caps and can be shorted more easily.Taken together,the solar industry is currently short at roughly10%of the outstanding float.This is down slightly from a peak of12%but within the same short interest range of the past year.October5,2010TECHNOLOGYDelSolar and IBM Sign Joint Agreement to Develop Solar Cell TechnologyDelSolar Co.,Ltd(3599.TW)announced it has signed an agreement to jointly develop compound thin film solar cells with IBM(NYSE:IBM)aimed to surpass next-generation thin film solar cell technology and result in commercial production.The collaboration includes leveraging DelSolar's existing expertise in photovoltaic("PV")technology and process as well as IBM's advanced semiconductor technology and materials science know-how.Source:DelSolar Co.Ltd. PROJECTSSunPower and Etrion Complete Sale of Italian Power PlantsSunPower Corp.(NASDAQ:SPWRA,SPWRB)announced that Etrion Corporation(TSX:ETX),an independent solar power producer,has completed the previously announced definitive sale and purchase agreements to acquire the equity in the first two phases of Montalto di Castro solar park, Italy's largest solar photovoltaic(PV)power park,for approximately€49million.The acquisition of the20-megawatt(MW)first phase of the project was completed in August and the acquisition of the 8MW second phase was completed last week.SunPower will recognize the sale of the first phase of the project as a return of capital,and will recognize revenue on the sale of the second phase, including previously deferred engineering,procurement and construction(EPC)revenue.Media Advisory:Enbridge Announces Grand Opening of the Largest Photovoltaic Facility in the WorldEnbridge Inc.(TSX:ENB)(NYSE:ENB)and First Solar,Inc.(NASDAQ:FSLR)have completed the expansion of the Sarnia Solar Project from20megawatts of capacity to80megawatts(MW)making it the largest operating photovoltaic facility in the world.Source:Enbridge Inc.and First Solar,Inc. New York Jets and Yingli Solar Announce Completion of NFL's Largest Solar Power System at Team HeadquartersYingli Green Energy Holding Company Limited(NYSE:YGE),which holds the brand"Yingli Solar," and The New York Jets announced the completion of a solar power system at the Jets'team headquarters and training center in Florham Park,NJ.This is the largest photovoltaic(PV) installation at a NFL team headquarters,utilizing over3,000Yingli Solar panels.Source:Yingli Green Energy.ACQUISITIONS&INVESTMENTSUnderwriters Exercise Overallotment Option for650,000GT Solar Shares in Secondary OfferingGT Solar International,Inc.(NASDAQ:SOLR),announced that the underwriters for the recently announced secondary offering of GT Solar common stock have exercised in part their over-allotment option to purchase an additional650,000shares of GT Solar's common stock.The 11,650,000shares of GT Solar common stock in the secondary offering,including the650,000 shares subject to the over-allotment option,were sold at a price to the public of$7.39per share. Source:GT Solar Inc.COMPANY&MARKET NEWSEvergreen Solar Appoints Michael El-Hillow President and Chief Executive Officer Evergreen Solar,Inc.(NasdaqGM:ESLR)announced that it has appointed Michael El-Hillow to the position of president and CEO effective immediately,replacing Richard M.Feldt who has accepted the position of Chief Executive Officer with a privately held company.The company will immediately begin a search for a Chief Financial Officer.Paul Kawa,corporate controller,will serve as interim Chief Financial Officer.Source:Evergreen Solar Inc.California Municipal Utilities Association Applauds ARB Adoption of a33%Renewable Energy Requirement by2020The California Municipal Utilities Association(CMUA)applauds the California Air Resources Board (CARB)for its adoption of a requirement that utilities and other electricity providers get a minimum of 33%of their power from renewable energy sources by2020.Source:California Municipal Utilities Commission.Solarbuzz Defines U.K.Photovoltaic Market Opportunity as Demand AcceleratesThe solar photovoltaic(PV)feed-in tariff(FiT)program introduced by the United Kingdom in April 2010has catapulted the U.K.into the mainstream of global PV market activity.According to the results of the Solarbuzz®U.K.PV Market2010report issued,the U.K.'s emergence could not be better timed,when taking into account the uncertain prospects for the dominant German market next year.With FiTs as high as41.3pence per kWh paid over25years,the foundations are in place for rampant PV market growth ernment incentives yield immediate installed PV system Internal Rates of Return between8%and11%over the next12months.Despite this,the U.K. market is already exposed to significant potential policy risks—more so than most other European markets—even though the FiT is only six months old.Source:Solarbuzz LLC.IMS Research:PV Cell Capacity Continues To Climb But Margins Will Fall in2011 Annualized PV cell production capacity increased once again in2Q10,reaching over25GW according to a recent report from IMS Research.IMS Research forecasts that capacity will reach33 GW by the end of the year,over80%of which will be for crystalline cell technologies and warns that gross margins will fall in2011.Megawatt shipments of PV modules grew15%in the second quarter of2010over1Q10according to IMS Research's latest market report.This growth marked six consecutive quarters of increasing shipments and took total modules shipped for the first half of the year to over8GW,only slightly less than the whole of2009.Revenues generated by PV modules in the same period amounted to over$15billion.Source:IMS Research.Solar Market Keeps Shining in2011Despite extreme shifts in pricing,demand and governmental subsidies,the global photovoltaic market in2011will experience robust growth,with installations rising by42.3%for the year, according to the market research firm iSuppli Corp.iSuppli forecasts that worldwide solar installations will reach20.2Gigawatts(GW)next year,up from14.2GW at the end of2010. Germany,the world's leading Photovoltaic(PV)market,will continue to play a key role and account for half of the total installations,at9.5GW.While an impressive growth total for the year,the expansion will be down significantly from the97.9%increase in2009.Source:iSuppli Corporation.Exhibit1:Average Short InterestExhibit2:Solar Stock Weekly Performance(9/24/10-10/01/10)Ticker Close Change% Change Short Interest$ -0.2%$ (2.43)S&P 5001,146.24$ 0.7%21.43%$ 0.08AMAT11.71$ 0.13$ 21.3%9.68% ESLR0.74$ 0.1%13.66%$ 0.14FSLR147.23$ 0.31$ 3.9%8.93% SOLR8.32$ 0.12$ 0.9%24.05% SPWRA14.06$ 1.4%9.62% WFR11.96$ 0.17Average US Solar 4.7%14.6% CSUN 4.40$ 0.9% 4.11%$ 0.04$ 4.5% 6.93% JASO8.68$ 0.37$ 14.7%10.29% LDK10.15$ 1.30$ 4.0% 1.58%$ 0.48SOL12.35$ 4.3% 4.90% SOLF12.61$ 0.52$ -2.6%10.56%$ (0.25)STP9.25$ 6.4% 5.69%$ 1.78TSL29.46$ 10.3%7.07%$ 1.25YGE13.39Average Chinese Solar 5.3% 6.4% Source: Thomson One, BloombergExhibit3:Global Solar Demand ForecastsAnnual Installations (MW)20032004200520062007200820092010E2011E% Market Germany6038638301103150538008500700040% Italy571370197700115015008% US101103145207342475900200011% Japan2722902872102304846509005% Czech Republic0003504116005503% Spain1124985912671605608505% China4710204730055010006% France571113441854008505% Canada572755503% Belgium01217502923004002% Korea352143274992005003% Portugal100145060901501% India45122040501253002% Australia7810121330752001% Israel751501% ROW861001641692462203508005% Total5941102142016032492575972231480017700100% Growth85.5%28.9%12.9%55.5%131.1%25.4%104.9%19.6%CAGR52.9%Cumulative Installations20032004200520062007200820092010E2011EGermany1034189727273830533591351763524635Spain21451437343405346540254875Japan11321422170919192149263332834183US3764796248311173164825484548Italy313850120318101821683668China6370801001474479971997Korea91435783524516511151France263344571012866861536Portugal3331868128218368India1419315190140265565Czech Republic01145446510651615Belgium22422713636631063Australia5261708396126201401Israel75225ROW11341233139915651812203223823182Total389753176920941215171223373686254012Growth36.4%30.1%36.0%61.2%47.2%65.0%46.5%Source: SEIA, EPIA, Photon International, Kaufman Brothers, L.P.Rating and Price Target Historyhttps:///charts/large/AMAT.pnghttps:///charts/large/ESLR.pnghttps:///charts/large/FSLR.pnghttps:///charts/large/JASO.pnghttps:///charts/large/LDK.pnghttps:///charts/large/SOLR.pnghttps:///charts/large/SPWRA.pnghttps:///charts/large/WFR.pngGuide to Kaufman Bros.Ratings-Distribution and Definitions*IB Serv./Past12Mos. Rating Count Percent Count Percent BUY[B]3959.1000.00 HOLD[H]2436.4028.33 SELL[S]3 4.5000.00BUY:We believe the stock will outperform its peer group over the next12months due to superior fundamentals and/or positive catalysts.HOLD:We believe the stock will perform in line with its peer group over the next12months due to full valuation and/or lack of catalysts.SELL:We believe the stock will underperform its peer group over the next12months due to overvaluation,deteriorating fundamentals,and/or negative near-term catalysts.*Excludes stocks with ratings under review.Analyst CertificationI,Jeffrey Bencik,CFA,hereby certify that the views expressed in this research report accurately reflect my personal views about any and all of the subject securities or issuers referred to in this document.Furthermore,no part of my compensation was,is or will be,directly or indirectly,related to the specific recommendation or views expressed in this report. Research DisclosuresKaufman Bros.,L.P.makes a market in AMAT.Kaufman Bros.,L.P.makes a market in ESLR.Kaufman Bros.,L.P.makes a market in FSLR.Kaufman Bros.,L.P.makes a market in SOLR.Kaufman Bros.,L.P.makes a market in SPWRA.DisclaimersThis report is for informative purposes only.Under no circumstances is it to be construed as an offer to sell or a solicitation to buy any security.The information contained herein has been obtained from sources believed to be reliable,but its accuracy and completeness,and that of the opinions based thereon,are not guaranteed.Kaufman Bros.,L.P.,its affiliates and subsidiaries,and/or its officers and employees may from time to time acquire,hold,or sell a position in the securities mentioned herein.Kaufman Bros.,L.P.may also perform investment banking or other services for,or solicit investment banking or other business from,any company mentioned in this report.The analyst(s)responsible for preparing this report may receive compensation based upon various factors including the firm's overall profitability,a portion of which is derived from investment banking revenues.Our equity research product is deemed to be a consulting service.Valuation MethodologyKaufman Bros.,L.P.,methodology for valuation analysis,including the assigning of ratings and price targets,may take into account many factors including,but not restricted to,the following:market capitalization,maturity of business,volatility of business and security,analyses of market risk,growth rate,revenue stream,discounted cash flow(DCF),EBITDA,EPS,cash flow(CF),EV/EBITDA,P/E,PE/growth,P/CF,P/FCF,premium(discount)/average group EV/EBITDA,premium (discount)/average group P/E,sum of the parts,net asset value,dividend returns,and return on equity(ROE)over the next12months.Risk Relating to Our Price Target and RatingThe financial instruments discussed in this report will not be suitable for all investors and should generally be viewed as speculative.Investors must make their own financial decisions based upon their specific investment objectives and financial situation.Past performance of the financial instruments discussed in this report should not be taken as an indication of future results.The price,value of and income from any of the financial instruments mentioned in this report can rise as well as fall and could be affected by many factors including but not limited to changes in economic,financial and political factors, competitive dynamics,and any event that impacts the company being discussed including overall market conditions.If a financial instrument is denominated by a currency other than the investor's home currency,fluctuations in exchange rates could adversely affect the price of,value of or income derived from the financial instruments described in this report.In addition,investors in securities whose values are affected by the currency of the underlying security,effectively assume currency risk.©2010KAUFMAN BROS.,L.P.All rights reserved.Reproduction without permission is prohibited.Additional information available upon request.。