New DoC Antidumping Tariffs Worse-than-Expected for Most Chinese Producers - Roth (TSL) (JASO) (SCTY)

Roth Capital is out with commentary on the solar segment following news that the DoC maintained/increased AD/CVD tariffs for Chinese module vendors, while maintaining/lowering tariffs on the Taiwanese.

Analyst Philip Shen offered the following overall thoughts:

The final determination issued by the DOC yesterday came in worse-than-expected for most Chinese module vendors. Antidumping duties (AD) and countervailing duties (CVD) across the board for Chinese companies were effectively maintained or increased. Moreover, the scope of the determination was also expanded to include any module assembled in China, even if the module contains Korean, Malaysian, and Singaporean cells. Although the Chinese will likely continue to import modules under the 2012 tariff regime (using Chinese cells and module assembly), the step-up in the 2014 final ruling serves as a negative harbinger for the upcoming 2012 tariff regime case review, which we believe is due shortly on 12/31/14.

If the 2012 case review results in a material step-up in tariffs, we could see US margins for Chinese module vendors potentially compress more. Motech appears to be a winner as its AD margin was cut aggressively to 11% from 44%. Canadian Solar (Nasdaq: CSIQ) could be a positive beneficiary given its 500MW Ontario module facility and its potentially cheaper access to Motech and other cells.

As for what’s next, we believe US Trade Representative Froman is meeting with China’s Minister of Commerce Gao on Thursday in Chicago at the US-China Joint Commission on Commerce and Trade (JCCT) to resume discussions for a negotiated solution. It remains unclear to us if a settlement can be reached ahead of the ITC final ruling, which is expected on 1/29/15.

All in, we see this is as an incremental negative (1) for most of our Chinese module manufacturers under coverage, including JA Solar (Nasdaq: JASO) and Jinko Solar (NYSE: JKS) (though it could be a relative positive for companies that have meaningful overseas module assembly capacity, such as CSIQ, ReneSola (NYSE: SOL), and to a lesser degree JKS), and (2) for downstream companies, such as SolarCity (Nasdaq: SCTY).

If a deal is not secured, we see this as a positive for Daqo New Energy (NYSE: DQ) as there would likely not be a settlement secured for the polysilicon industry, as well as for US module vendors, such as SPWR (Not-rated).

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