Final Results of First Administrative Review of 2012 Tariffs Rule Worse than Expected - Roth (YGE) (FSLR) (TSL)

Roth Capital is issuing commentary on the solar segment Thursday following the DOC's first administrative review of the 2012 tariffs.

Analyst Philip Shen and his team offered the following commentary:

Overall Thoughts: Over the past few months, many companies were pricing contracts based on a 17.5% tariff. With the tariff now at ~31%, we believe these contracts may now represent meaningful liabilities as they are likely underwater, and the companies may have limited legal options for improving economics. Winners from this decision include FirstSolar (Nasdaq: FSLR), SolarWorld (SWVK), SunPower (Nasdaq: SPWR), and to a lesser degree YGE (NYSE: YGE) with its company-specific tariff of only ~22%. We believe the companies investing in overseas facilities, such as JinkoSolar (NYSE: JKS), Trina Solar (NYSE: TSL), and Canadian Solar (Nasdaq: CSIQ), will now more aggressively push these non-Chinese footprints given the more attractive economics. Additionally, we would expect module ASPs in the U.S. to increase modestly.

Moving Forward: The next administrative review of the 2012 tariffs has already begun, and the preliminary results could be as early as Sep'15, but we believe the result is more likely to be released at YE'15 as results are often delayed. We believe the second review will cover 2014 for AD and 2013 for CVD. The time period of the first administrative review was believed by insiders to have been an easier period for lowering the tariffs. There is now concern in the industry that tariffs could go even higher and be more economically painful in the second review. Additionally, while well-positioned Tier 1s, such as JKS, are expanding capacity to Southeast Asia to side-step the U.S. tariffs, the facilities require meaningful capex, and the U.S. could ultimately expand the scope to include Malaysia and other Southeast Asian countries. As a result, we believe there now could be greater incentive for the U.S. and China to reach a trade settlement, and we see the potential for reenergized efforts to reach a negotiated settlement. If there were a deal, we would expect it to include poly, which could be an incremental negative to DQ.

Shen commented, The U.S./China trade case directly or indirectly impacts nearly every solar company in our coverage universe: (1) Equipment manufacturers (CSIQ, ENPH, JASO, JKS, SEDG, SOL, TSL, and YGE); (2) Polysilicon producers (DQ); and (3) Downstream companies (CAFD, HASI, SCTY).

You May Also Be Interested In

• Evercore ISI Upgrades First Solar (FSLR) to Outperform
• AZZ, Inc. (AZZ) Announces Proposed 4M Share Offering
• Compass Minerals International (CMP) PT Lowered to $15 at Deutsche Bank