Roth Affrims Trina Solar (TSL) at 'Neutral'; Industry Supply-Demand Imbalances Mar Visibility
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Roth Capital affirms Trina Solar (NYSE: TSL) at Neutral with a price target of $10 following Q2 results on Tuesday morning, saying supply-demand imbalances within the industry hampers visibility.
Analyst Philip Shen offered the following overall thoughts on the quarter and outlook:
TSL posted a strong Q2 driven by a rush to complete projects ahead of the June FIT cut in China. Management reiterated 2016 shipment guidance despite weakening demand. We continue to believe that TSL will be able to meet its 2016 shipment targets, though we expect margins to compress in H2 as a result of oversupply driving faster ASP declines.
Notably, TSL indicated on the call that ASPs could decline by 12-15% in the second half vs. Q2 and outpace cost reduction efforts. TSL sees mid-teens margins for the second half, which is consistent with our expectations as the company's increasing exposure to the U.S. market, enabled by a ramp up of capacity in Thailand, and higher margin electricity revenue could provide some support to margins.
Looking ahead to 2017, we see oversupply impacting earnings power as it currently appears unlikely that competitors will make material cuts to expansion plans despite potentially flat YoY demand. Given the deteriorating industry fundamentals we reiterate our Neutral rating, though we see the buyout offer for $11.60/ ADS providing a support to the stock price and limiting volatility in the near term, the analyst noted.
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