The Chinese solar market can be extremely competitive, and it's very difficult for a company to differentiate itself. But Trina Solar (NYSE: TSL) is emerging as an industry leader because of its high quality, large footprint, and strong balance sheet, and it's beginning to leave competitors in the dust.
It's also beginning to generate value from the downstream business that has made Canadian Solar (CSIQ +2.11%) a market darling over the past year. As it does, revenue will grow and Trina Solar's reliance on the ups and downs of module demand will subside.
Projects like this one in Quinghai, China will drive Trina Solar's growth. Image source: Trina Solar.
The numbers
Depending on what you're comparing it to, Trina Solar's first quarter may look like a blowout or a disappointment -- but make no mistake, the numbers are impressive. Sequentially, shipments were down 27.5% to 558 MW and revenue was off 15.4% to $444.8 million. But remember that there's a lot of seasonality in solar demand, so the first quarter is normally weak for module manufacturers.
Where the numbers get really impressive is in comparison to a year ago, which has shipments up 42.1%, revenue up 70.9%, and the company swinging from a $63.7 million loss to a $26.5 million profit. Gross margins jumped to 20.6%, among the highest in the industry, as Trina sold more panels into high-margin markets like Japan.
Gross margins show pricing power as well as costs for solar manufacturers, so I use them as a proxy for underlying health. It's worth noting that Trina even beat out Canadian Solar's gross margin of 14.7% in the first quarter, and is ahead of the 15.5% to 16.5% competitor Yingli Green Energy (NYSE: YGE) expects to report.
Trina Solar is also one of the suppliers to U.S. residential solar leader SolarCity. Image source: SolarCity.
What to do now
There are a few reasons to like Trina Solar over competitors right now. First, it clearly has low costs in manufacturing and is beating Canadian Solar and Yingli Green Energy in the race for high-margin sales.
It's also starting to generate value from downstream projects, like the sale of a 50 MW power plant last quarter. In 2014, Trina expects to develop 400 MW to 500 MW of solar projects, copying the success Canadian Solar has had. On that front, Canadian Solar is still a leader, with 452.9 MW of projects in Canada and another 432.7 MW in Japan, but Trina Solar is catching up.
Let's also not overlook the balance sheet, which is becoming extremely important for solar companies. Trina Solar has $982.5 million in debt offset by $577.7 million in cash, and with positive cash flow both figures improve each quarter. This allows Trina the flexibility to build projects on its balance sheet as well as invest in next generation technology when the time arrives. Buyers are also starting to consider the balance sheet when making purchasing decisions because they want to work with partners who will be around for the long haul.
When compared to Yingli Green Energy this is Trina's biggest advantage. Yingli had $2.4 billion in debt at the end of 2013, and that not only saps the income statement with high interest rate costs, it leaves less flexibility to build projects or expand.
If you're looking to get into Chinese solar, Trina Solar is a top pick, and the company proved that with great performance in the first quarter.
