China solar landscape after Q3 earnings

solar_5 Nov. 23, 2009 (Chinavestor) LDK Solar (NYSE:LDK) reported strong third quarter results today before the open, ending a long list of Chinese solar companies doing so. Solar companies reported so far include Trina Solar (NYSE:TSL), Suntech Power (NYSE:STP), JA Solar (NASDAQ:JASO), Yingli Solar (NYSE:YGE), and Solarfun Power Holdings (NASAQ:SOLF). Results from the Chinese solar sector have two important messages for investors:

Every single Chinese solar maker returned to profitability on lower raw material cost & strong revenues.
Smaller players weathered the 2008 downturn better grabbing market shares from former industry leaders.

Following up with LDK Solar's Q3 report today, it is apparent that investors are still not buying 100% the solar success story. While revenue and earnings improved significantly, stock prices haven't!

This leaves investors with options: either solar stocks are undervalued and offer significant stock price appreciation or previous valuations were just way too high and current stock prices are justified. At Chinavestor we are of a view that Chinese solar stocks have significant upside potential and the markets have to believe that this time revenue and earnings growth is here to stay. Assuming solar companies can keep up with current revenue growth for Q4 and beyond, expect Chinese solar plays to go 20%-50% higher by 2010 Q1.

The other important development is the resurgence of smaller solar plays. While many in the industry thought price war will lead to a consolidation where smaller players will go under, current revenue numbers proved this thinking wrong. Long time favorite LDK Solar (NYSE:LDK), Suntech Power (NYSE:STP) and Trina Solar (NYSE:TSL) lost market share to Solarfun Holdings (NASDAQ:SOLF), to JA Solar (NASDAQ:JASO) and to Yingli Solar (NYSE:YGE) as the following chart testifies.