Roth Comments on China Solar Following Release of China's Updated NEA Policy for DG Solar (CSIQ) (JASO) (JKS) (TSL)

Roth Capital comments on China solar following China's National Energy Administration releasing updated policy details for DG solar.

Analyst Philip Shen comments: Yesterday’s release by the NEA contained policies that we believe will materially and positively shift the solar demand outlook in China. Challenging economics, unreliable and unpredictable FiT payments, and counterparty risk have been sources of concern for investors regarding the DG segment. The new policy emphasizes “full and timely” FiT payments.

Moreover, we believe the economics will improve as DG projects should be able to access the utility FiT of ~1RMB/kWh, and counterparty risk will be mitigated with the State Grid as the offtaker. As a result, the DG segment in China may be able to support securitizations on the back of the stable, 20 year CFs with little counterparty risk.

We expect DG installations to accelerate through YE’14. While it remains unclear how much solar China will install in 2014 (our checks still suggest a wide range of 10-14GW), we believe the market is starting to look beyond 2014 and into 2015. We believe the Chinese market could now represent a 15GW annual market. The impact on module pricing is already being felt. ASPs in China appear to be up ~1-3c/W over the past week or so.

A 1c/W move in China ASPs generally improves 2015 EPS for our coverage universe (CSIQ, JASO, JKS, SOL, TSL, YGE) by +5-15%. With improving visibility in China and the potential near-term compromise on the US/China trade war, we believe there is a positive sentiment cycle developing for our upstream solar stocks under coverage. Looking ahead, we expect solar stocks to move higher from here and would be buyers of Canadian Solar (Nasdaq: CSIQ), JA Solar (Nasdaq: JASO), JinkoSolar (NYSE: JKS), and Trina Solar (NYSE: TSL).

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