Market calls

PUBLISHED : Monday, 16 January, 2012, 12:00am
UPDATED : Monday, 16 January, 2012, 12:00am


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Solar power firm Comtec Solar Systems (712) was a major mover last week, its stock climbing 18.7 per cent on Thursday. Nasdaq-listed names such as Trina Solar (TSL) and LDK Solar (LDK) moved 29.1 and 17.9 per cent on Wednesday (US trading day), due to an upward bump in spot prices for polysilicon, the base ingredient for solar cells.

Other Hong Kong-listed solar stocks, such as Solargiga (757) and GCL Poly Energy (3800), also rose sharply on Thursday.

Dennis Lam (DBS Vickers) maintains a 'fully valued' rating on Comtec (equivalent to 'hold'). He says investors responded to the rally in US-listed solar stocks, with all stocks reacting to a 3 per cent bounce in polysilicon prices the week before last, following steady declines.

'It was a 3 per cent bounce off a 60 per cent drop [in polysilicon prices last year]. The whole sector had been sold off,' Lam says.

The bump in spot prices was largely due to news that Germany has installed 2GW of solar power capacity. A large nuclear power plant typically will produce about 1GW of energy.

Germany's boost came ahead of a 15 per cent cut in solar subsidies that kicked in on January 1.

China has announced plans to instal 3GW of solar power capacity this year, and to have 15GW by 2015.

Lam is 'not too optimistic' about the sector. He is also unsure of the ability of Germany - a major market for solar power - to keep subsidising the industry, given the way it has been pulled into the euro-zone sovereign debt morass.

Pranab Kumar Sarmah (Daiwa Securities) also attributes Comtec's rally to the rise in polysilicon prices. He adds that an unwinding of short positions, and a view that inventory levels are falling, also helped.

'People are excited about the stock because of the sudden rally,' says Sarmah, who has an 'outperform' rating on Comtec.

'There are a few financially weak companies in the solar sector, some firms won't survive, but whoever does will be stronger,' Sarmah says.

Profit margins are poor, but they are better for the upstream players (those that make the raw polysilicon material) than downstream (which make more finished solar power products).

The views stated here are those of analysts and are not stock calls by the South China Morning Post