LDK Solar (LDK) – Part 1 - Introduction

LDK Solar (LDK) a manufacturer of multi-crystalline solar wafers had its Initial Public Offering (IPO) on May 31, 2007 and 17.384M shares were offered at $27 per share. In the subsequent months the price elevated to peak at $73.95 on September 27, 2007 until allegations of an inventory discrepancy surfaced. Ever since then, the stock has experienced high volatility along with a seesaw ride.

The inventory allegation stems from the fact that the company considers scrap silicon lacking immediate use as part of its inventory. LDK’s contention is that the expectation is for the company to use its entire inventory, and deferred use as such does not call for a write off.

An independent audit cleared LDK off the allegations, but the issue resurfaced after LDK introduced a new classification for “inventory to be processed beyond one year” in its 4th quarter report. Several analysts sounded skeptical about this transformation in reporting during the conference call following the 4th quarter report.

LDK’s operating niche is right at the beginning of the photo-voltaic (PV) module supply chain. Currently, the company manufactures wafers from a raw material mix of virgin and recycled polysilicon. This setup is expected to switch to a structure where polysilicon is also manufactured internally. Gross margins are expected to soar as the production ramp-up bears fruition. Operating in the polysilicon and wafer production areas in the photo voltaic (PV) module supply chain translates to a higher margin and is a coveted position when compared to PV manufacturers operating in the cell and module businesses.

Despite the negative attention associated with the inventory issue, LDK has managed to snag numerous large long-term wafer supply contracts. LDK was able to include favorable terms as ‘10% prepayment’ and ‘fixed pricing’ in some of these contracts. Below is a summary of LDK Solar’s recently announced wafer supply contracts:

























Announcement DateCompanyTermInitial ShipmentComments
02/22/2008Hyundai8 yearsLate 2008More than 450MW total with prepayment for a portion of contract value.
01/17/2008Neo Solar Power (NSP)10 years2009More than 500MW total with 10% contract value prepayment and fixed pricing.
12/10/2007Q.Cells10 yearsNRMore than 6GW. 10% prepayment.
10/22/2007Canadian Solar3 years50MW in 2008Total Value of about $540M
10/16/2007Solarfun3 yearsNRFixed pricing with a total value of about $270M
10/10/2007ChinaLight3 yearsNRFixed pricing with a total value of about $135M


LDK has indicated that 80% of polysilicon requirements for 2008 have been secured. This projection includes 5% in-house production, which takes the output assumption to be around 175MT, and inline with its 2008 guidance of polysilicon production of 100MT-350MT. This is another area that has left various analysts unconvinced. Their argument is that buildup for polysilicon production has historically taken much longer and that these projections are overly optimistic.

To compensate for about 880MT of polysilicon, LDK’s plan is to employ framework contracts with fixed quantities, but at a discount to market prices. The company hopes to supplement this with spot market, auction, and recycled silicon purchases on an as-needed basis.

LDK Analysis:

1. LDK Solar (LDK) - Part 1 - Introduction.
2. LDK Solar (LDK) - Part 2 - Business Issues.
3. LDK Solar (LDK) - Part 3 - Outlook.

Related Posts:

1. Trina Solar (TSL) - Stock Analysis - 08/08.
2. LDK Solar (LDK) - Stock Analysis - 03/08.
3. Solar Manufacturer Comparison (STP, TSL, YGE, CSIQ) - 11/07.
4. Suntech Power Holdings (STP) - Stock Analysis - 09/07.

No comments :

Labels

401k ( 15 ) Abad Turtle Beach ( 1 ) Abrams Capital Management ( 5 ) Acoustic Electric Guitars ( 1 ) Acoustic Guitars ( 1 ) ACT ( 1 ) Activist ( 4 ) Address Change ( 2 ) Advanced Placement ( 4 ) air asia ( 2 ) airlines ( 2 ) Akre Capital Management ( 15 ) Alex Roepers ( 5 ) AP ( 4 ) apartments ( 2 ) Appaloosa ( 15 ) ARIUS ( 1 ) Arlington Value Capital ( 3 ) Atlantic Investment Management ( 5 ) Ayemenem ( 1 ) Bangalore ( 3 ) Bangkok ( 2 ) Bannerghatta National Park ( 1 ) barbuda ( 2 ) Battery Park ( 1 ) Baupost ( 2 ) Baupost Group ( 17 ) bay area ( 2 ) BDCs ( 3 ) Benjamin Graham ( 2 ) Benjamin Graham Model ( 2 ) Berijam Lake ( 2 ) Berkshire Hathaway ( 28 ) best sites ( 9 ) Bill & Melinda Gates Foundation ( 10 ) Bill Ackman ( 19 ) Bill Gates ( 11 ) Blue Ridge Capital ( 10 ) Blum Capital Partners ( 12 ) books ( 4 ) Boone Pickens ( 2 ) BP Capital Management ( 2 ) Brave Warrior ( 3 ) Brave Warrior Advisors ( 12 ) british honduras ( 2 ) Bruce Berkowitz ( 19 ) Bruce Fund ( 9 ) Camcorders ( 3 ) canada ( 4 ) cancun ( 3 ) CANROYs ( 7 ) Cantillon ( 12 ) carl icahn ( 9 ) Carl Ichan ( 8 ) casino ( 3 ) Casio ( 2 ) CBRE ( 2 ) CEF ( 2 ) Charles Akre ( 13 ) Charlie Munger ( 10 ) Chase Coleman ( 10 ) Chou Associates ( 15 ) Christmas gifts ( 7 ) Christopher H. Browne ( 7 ) Chuck Akre ( 10 ) Cisco ( 2 ) Class Action Settlements ( 2 ) CLEP ( 1 ) Coatue Management ( 10 ) Cochin ( 2 ) coin collecting ( 266 ) collectibles ( 266 ) Consumer Product Reviews ( 29 ) cook islands ( 2 ) coonoor ( 2 ) Covered Calls ( 2 ) credai ( 4 ) Daily Journal ( 10 ) Dalal Street ( 8 ) Dan Loeb ( 10 ) DAT ( 1 ) David Abrams ( 5 ) David Einhorn ( 22 ) David Swensen ( 17 ) David Tepper ( 15 ) David Winters ( 15 ) DCF ( 2 ) Digital Piano ( 3 ) Dinakar Singh ( 10 ) Donald Yacktman ( 10 ) dry bulk shipping ( 2 ) Duquesne ( 15 ) Education ( 37 ) Edward Lampert ( 11 ) Egerton Capital ( 10 ) Egypt ( 3 ) Elementary Education ( 10 ) Elementary School Textbooks ( 5 ) eReaders ( 2 ) Eric Mindich ( 10 ) ESL Investments ( 7 ) ESPP ( 6 ) ETF ( 2 ) ETN ( 2 ) Eton Park ( 10 ) Everyday Musings ( 58 ) Exam Prep ( 7 ) Exiting the rat race - how to? ( 19 ) EXPLORE ( 1 ) Fair Value Estimates ( 4 ) Fairfax Financial ( 4 ) Fairfax Financial Holdings ( 14 ) Fairholme ( 19 ) Fairpointe ( 10 ) Family Office ( 3 ) FD Laddering ( 1 ) Financial Independence ( 93 ) Fisher Asset Management ( 10 ) Flash Camcorders ( 3 ) flat ( 4 ) flats ( 2 ) Flip ( 3 ) Francis Chou ( 15 ) free ( 17 ) frugal ( 3 ) Frugal Living ( 34 ) Fund Holdings ( 687 ) futures ( 2 ) FVE ( 2 ) gambling ( 3 ) garmin ( 2 ) Genting ( 2 ) george soros ( 20 ) giveaway ( 15 ) Glenn Greenberg ( 16 ) Glenview Capital ( 10 ) GMAT ( 1 ) Google ( 2 ) Gotham Asset Management ( 7 ) gps ( 4 ) GRE ( 1 ) Greenlight Capital ( 22 ) Guitars ( 3 ) Half Marathon ( 2 ) Hawaii ( 2 ) Hedge Funds ( 706 ) HELOC ( 1 ) High School Education ( 7 ) High School Textbooks ( 6 ) HOA ( 3 ) hobby ( 17 ) holiday shopping ( 7 ) Holidays ( 3 ) Holyland ( 11 ) Home Improvement ( 2 ) home ownership ( 5 ) Homes ( 18 ) Homeschool ( 18 ) Houses ( 2 ) Housing ( 3 ) Hykon ( 2 ) Ian Cumming ( 15 ) Icahn Enterprises ( 6 ) india real estate ( 5 ) Infinuvo ( 6 ) Insurance ( 2 ) invesco ( 17 ) investing strategies ( 2 ) Investment Portfolio ( 94 ) Investment Research ( 10 ) Investments ( 7 ) iRobot ( 3 ) Irving Kahn ( 10 ) israel ( 5 ) Jason Maynard ( 10 ) Jefferies ( 2 ) Jeffrey Bruce ( 10 ) Jeffrey Ubben ( 12 ) Jerusalem ( 2 ) Jim Chanos ( 10 ) Joel Greenblatt ( 7 ) John Armitage ( 10 ) John Griffin ( 10 ) John Paulson ( 17 ) Joho Capital ( 15 ) Jordan ( 3 ) Joseph Steinberg ( 9 ) Julian Robertson ( 4 ) Kahn Brothers ( 10 ) Kakkanad ( 4 ) Kanyakumari ( 2 ) Kawai ( 2 ) Ken Fisher ( 10 ) kerala real estate ( 5 ) Kids ( 49 ) Kids Yamaha ( 3 ) Kindle ( 2 ) kochi ( 8 ) Kodaikanal ( 2 ) Korg ( 2 ) Kraft ( 2 ) Kuala Lumpur ( 2 ) KWA ( 2 ) Kynikos ( 10 ) laptop ( 5 ) Larry Robbins ( 10 ) Las Vegas ( 2 ) Leon Cooperman ( 11 ) Leucadia ( 2 ) Leucadia National ( 13 ) Lone Pine Capital ( 9 ) long ( 6 ) long call ( 2 ) long puts ( 3 ) Lou Simpson ( 15 ) LSAT ( 1 ) Mahabalipuram ( 2 ) Malaysia ( 3 ) Marathon ( 2 ) Mark McGoldrick ( 10 ) Markel ( 10 ) Mason Hawkins ( 4 ) MCAT ( 1 ) Melinda Gates ( 5 ) memorabilia ( 266 ) MFP Investors ( 10 ) Michael Dell ( 12 ) Michael Price ( 10 ) Middle School Education ( 4 ) Middle School Textbooks ( 3 ) Mini Notebook ( 2 ) MODUS ( 1 ) Mohnish Pabrai ( 21 ) mortgage ( 2 ) Mount Kellett ( 10 ) MSD Capital ( 12 ) Music ( 6 ) Mutual Funds ( 4 ) mysore ( 2 ) Nelson Peltz ( 9 ) Netbook ( 3 ) Notebook ( 2 ) numismatics ( 266 ) O-Duster ( 1 ) Oahu ( 2 ) offers ( 2 ) Ole Andreas Halvorsen ( 10 ) Omega Advisors ( 11 ) online tax ( 3 ) ooty ( 2 ) Options ( 4 ) Pabrai Fund ( 17 ) passive income ( 7 ) pattaya ( 2 ) Paulson & Company ( 7 ) Paulson and Company ( 9 ) PEG ( 2 ) Pershing Square ( 19 ) Phil Fisher ( 5 ) philately ( 283 ) Philippe Laffont ( 10 ) Piano ( 9 ) PLAN Test ( 1 ) portfolio ( 4 ) Prem Watsa ( 17 ) product reviews ( 11 ) Property Taxes ( 2 ) PSAT ( 1 ) R2I ( 24 ) R2I Finances ( 3 ) R2I Housing ( 5 ) Raising Kids ( 41 ) Rat Race ( 15 ) RBS Partners ( 9 ) reading ( 5 ) real estate ( 6 ) Reducing Expenses ( 2 ) REIT ( 3 ) Retirement Portfolio ( 9 ) Reviews ( 80 ) Richard C. Blum ( 12 ) Robert Bruce ( 10 ) Robert Karr ( 15 ) Robotic Vacuum ( 2 ) Roland ( 2 ) Roomba ( 8 ) schooling ( 2 ) Sears ( 6 ) seeking alpha ( 2 ) Services - Reviews ( 33 ) Seth Klarman ( 19 ) Shipping ( 5 ) Shopping ( 3 ) short ( 5 ) short calls ( 2 ) short put ( 2 ) short puts ( 2 ) short selling ( 4 ) Ski ( 5 ) Sled ( 4 ) Solar Stocks ( 13 ) Soros Fund Management ( 14 ) Southeastern Asset Management ( 4 ) Southwest ( 2 ) spin-offs ( 2 ) SQ Advisors ( 15 ) stamp collecting ( 283 ) Stanley Druckenmiller ( 15 ) Statue of Liberty ( 2 ) Stephen Mandel ( 9 ) Stock Analysis ( 84 ) Stock Investments ( 4 ) Stock Portfolio Updates ( 6 ) stocks ( 3 ) summer ( 2 ) tax ( 5 ) TaxAct ( 2 ) TaxCut ( 1 ) Teacher's Editions ( 5 ) Technology ( 4 ) Test Prep ( 11 ) Thailand ( 3 ) Thekkady ( 2 ) theme park ( 2 ) Third Point ( 10 ) Thomas Gayner ( 10 ) Thyra Zerhusen ( 10 ) Tiger Cub ( 21 ) Tiger Global ( 11 ) Tiger Management ( 10 ) Time Square ( 2 ) TOEFL ( 1 ) TPG-Axon ( 10 ) Travel ( 277 ) Travel Reviews ( 77 ) Trian Fund Holdings ( 9 ) trip report ( 21 ) TurboTax ( 3 ) Tweedy Browne ( 10 ) Vacations ( 28 ) value investing ( 11 ) ValueAct ( 5 ) ValueAct Holdings ( 6 ) Vancouver ( 2 ) Video ( 3 ) Viking Global ( 10 ) Wallace Weitz ( 10 ) Warren Buffett ( 27 ) Wayanad ( 3 ) Weitz Investment Management ( 9 ) wilbur ross ( 17 ) William Von Mueffling ( 12 ) Wintergreen Advisors ( 15 ) Yacktman Asset Management ( 10 ) Yale Endowment ( 17 ) Yale University ( 7 ) Yamaha ( 7 ) YDP ( 1 ) YPG ( 1 )