Shares of solar power products manufacturer JA Solar (JASO) are sliding after the company reported a mixed quarter, with weaker than expected earnings per ADR share and revenues that beat estimates. Commenting on the announcement, Roth Capital analyst Philip Shen told investors that supply chain costs could continue to pressure margins ahead.
RESULTS: JA Solar reported 13c per American Depository Share, which was below consensus. Revenue rose 4.3% from a year ago to $652.6M, beating two analysts’ average forecast of $609.8M, but gross margin fell 4.3% to 11.8%. Shipments of solar modules and cells were 1.64 GW with external shipments rising 30.6% year over year. “We are seeing some uncertainties around the ongoing trade cases in the U.S. and India, which could impact global solar demand in the mid-term. Additionally, accelerated capacity expansion in the industry is reshaping the competition landscape. That being said, we remain confident that our balanced global footprint and flexible business model will enable us to adjust to evolving market conditions as in the past cycles,” said Baofang Jin, chairman, and CEO of JA Solar.
SUPPLY CHAIN COSTS TO PRESSURE MARGINS: In a post-earnings note, Roth Capital’s Shen reiterated a Neutral rating and $6.70 price target on JA Solar, citing uncertainty around 2018 earnings power. The analyst noted that JA Solar delivered a mixed third quarter and “strong” fourth quarter shipment guidance. While global module supply/demand appears to be in balance for 2017, the company highlighted potential for meaningful capacity expansion in the industry in 2018. Shen argued that a lot will depend on demand in China and whether demand of about 50GW can be achieved next year. The analyst added that he sees supply chain costs, such as for polysilicon, continuing to impact margins.
PRICE ACTION: In afternoon trading, shares of JA Solar have dropped over 13% to $6.97.
