Solarfun, When Less-Bad Seems Good (SOLF)

Solarfun Power Holdings Co., Ltd. (NASDAQ: SOLF) posted some very mixed results.  On the surface it looks disappointing across the board, but after parsing through the data this seems as though there are no nasty surprises.  All figures have been converted to US dollars rather than Chinese “RMB” for comparison purposes, but the company’s CEO is also resigning.  It may just be based on the hope of a bottom, but shares are trading higher.

Net revenue was $100.1 million, down 43% from Q1-2008, and down 39% from Q4-2008.  The loss attributed to shareholders is -$1.0 million, 0r -$0.02 EPS on a basic basis.  The company made $15.8 million a year ago, but lost $61.3 million for Q4-2008. Its operating loss was -$2.9 million.

Gross profit was $7.2 million, down 74% in Q1-2008, but up from a loss of $55.3 million in Q4-2008.  Gross margin improved to 7.2% from negative 33.7% in Q4-2008, primarily due to a reduction in raw material costs.

On the surface, it seems that Solarfun is a better currency trader than a solar PV maker.  The company reported the opposite of many other companies of late.  It recorded a net exchange rate gain of roughly $5.6 million). The gross loss was $4.8 million as a result of euro:dollar currency changes, but the net result was more than offset through its currency hedging with a gain of $10.4 million.

PV module shipments reached 35.7 MW, down 11.4% from Q1-2008, and down 25% sequentially.  Average selling price continued to fall to $2.78 from $3.37 from Q4-2008. The company ended the quarter with $68.2 million cash and working capital of $213.5 million.

Solarfun’s Board of Directors has accepted the resignation of Harold Hoskens, Chief Executive Officer, effective June 30, 2009.

As far as the outlook, it seems to be more of the same in the ‘less-bad’ sense.  The company said that shipment volumes are expected to improve compared with Q1-2009, but also noted that the average selling prices are expected to decline further. The company also sees gross margins showing some gradual improvement as supply costs decline faster than average selling prices for the quarter and the year.  For the full year, the company sees that its funding is adequate to meet 2009 anticipated spending requirements through a combination of cash on hand and access to commercial bank lines of credit.

It seems that the “less-bad” notion is what is driving things here now as well.  Solarfun shares are trading up 6.5% at $5.40 right after the open.  Its 52-week trading range is $2.27 to $29.17.

JON C. OGG
MAY 19, 2009