When I heard that yet another Chinese solar shop was poised to come public on the U.S. market, my first thought was -- not another one! Clearly, I wasn't the only one to feel that way. The thin-film PV module producer has indefinitely postponed its initial public offering, which had been scheduled for today.
At its anticipated midrange offering price of $10 per American Depositary Share (ADS), Trony would have raised $150 million before fees, plus an additional kicker if underwriters JPMorgan Chase (NYSE: JPM ) and Credit Suisse exercised their green shoe option. This would have allowed the company to pay down a $30 million loan from its chairman/CEO/controlling shareholder, and invest about $100 million in expansion.
Interestingly, JPMorgan, along with Intel (Nasdaq: INTC ) , was poised to sell down half of its private equity stake in Trony. It appears that these guys got in at the ground floor, at an average price per ADS of $0.59. That would have been quite the successful (partial) exit!
Trony exited the third quarter with $8.4 million in cash. That $30 million loan was extended in October. The company will just have to make do with these related-party funds until U.S. investors get their solar appetites whetted again.
At first glance, Trony looks like a solar investor's dream. Like First Solar (Nasdaq: FSLR ) , the company has posted fat gross margins in the 40% range, with most of that dropping to the bottom line. Trony has thus managed to post positive net income each of the past seven quarters, while folks like Yingli Green Energy (NYSE: YGE ) , Trina Solar (NYSE: TSL ) , and Canadian Solar (Nasdaq: CSIQ ) have all had at least one negative income quarter, reflecting the inventory writedowns that were inevitable during the price crash in late 2008 into early 2009.
So is Trony the Chinese First Solar? I have my doubts. Aside from only achieving around 6% efficiencies in volume manufacturing, the firm's financial numbers just don't look sustainable. Look at selling, general, and administrative costs as a percentage of revenue in the last fiscal year: 4.5%!
I know labor is cheap, but that's ridiculous. So is committing just 1% of sales to research and development in this hypercompetitive and fast-changing industry (though Trony is hardly alone in underfunding R&D).
The comparable trailing-12-month figures at First Solar are 12.1% and 3.5%, respectively. At Suntech Power (NYSE: STP ) , they're 9.1% and 1.3%. At Yingli, they're 7.5% and 2.3%. As a public company, Trony's costs are going to have to rise more than in proportion to its sales. I guess that's a moot point for now.