Roth Positive on Trina Solar (TSL) Following Yunnan Metallurgical New Energy Transaction

Roth Capital affirms Trina Solar (NYSE: TSL) at Buy with a target price of $25 after announcing earlier that it has entered into a share purchase agreement and acquired a 90 percent stake in Yunnan Metallurgical New Energy Co., Ltd from Yunnan Metallurgical Group Co., Ltd., Kunming Yeyan New Material Co., Ltd., and Kunming Engineering & Research Institute of Nonferrous Metallurgy Co., Ltd.

Analyst Philip Shen commented made the following observations:

• TSL announced that it will build/own one of the largest projects in China. Construction is slated to begin in Q3, and the project could be online as soon as Jun'15. The strategy for the company is to hold on to the project with plans to potentially pursue a yieldco (though nothing has been decided).

• B/S impact. We estimate that the 300MW project will require TSL to post ~$122mn of equity (300MW x $1.50/W x 30% equity x 90% ownership by TSL). This compares to TSL's cash balance of $450mn as of Q2. Recall, TSL has one of the best B/S in its peer group with a net debt/cap ratio of ~26% as of Q2 vs. peer average of >50%. Our model assumes 410MW of on B/S projects over the next 12 months. We believe this is conservative, especially considering the Yunnan project alone represents 300MW.

• EPS impact. By holding the project on B/S, this project will not generate module shipment revenues. Starting in Q3'15, we could see the company generate electricity revenue. Our back-of-the-envelope analysis suggests the 300MW project could generate ~4c of quarterly EPS or ~16c of annual EPS vs. our 2015 forecast of $1.38. (Recall, one of the challenges facing Chinese solar projects is that FiT payments are not yet predictable and reliable. They are currently paid approximately once every six months. We expect this to improve over time, but the market is not there yet).

For an analyst ratings summary and ratings history on Trina Solar click here. For more ratings news on Trina Solar click here.

Trina Solar closed at $12.53 yesterday.

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