Energy Business

The Real Driving Force Behind Great JA Solar Earnings

Thursday before the markets opened, JA Solar Holdings Co., Ltd. (NASDAQ: JASO) released its fourth-quarter financial results. The solar company had $0.28 in earnings per American depositary share (ADS) and $576.4 million in revenue, compared to Thomson Reuters consensus estimates of $0.32 per ADS and $538.99 million in revenue. In the fourth quarter of the previous year, it posted $0.16 per ADS and $357.31 million in revenue.

The company gave its business outlook for the first quarter of 2015. JA Solar expects that total cell and module shipments will be in the range of 680 megawatts (MW) to 750 MW. There are consensus estimates of $0.27 in earnings per share and $466.39 million in revenue.

At of the end of December 2014, the company had cash and cash equivalents of $347.3 million, or RMB 2.2 billion, and total working capital of $325.6 million, or RMB 2.0 billion.

JA Solar connected its 100 MW PV power plant to the national grid on January 25, 2015, consisting of two phases of 50 MW each, in Gansu Province. As of Thursday, the company has received a $48.4 million, or RMB 300 million, loan for Phase I and has secured an additional loan of equal value for Phase II. The project is currently generating revenue from electricity sales.

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Baofang Jin, chairman and CEO of JA Solar, said:

Demand in the China market was as strong as expected, as developers and utilities rushed to meet aggressive government-directed goals for the year. We started the quarter with all of our capacity booked, and demonstrated excellent manufacturing execution to fill orders, resulting in a shipment growth of 43% year-over-year and 21% sequentially. We executed at the margin level too, with product and geographic mix driven sequentially higher gross margin. Filling capacity as we grow enabled us to show steady bottom line improvement. We grew non-GAAP earnings per ADS by 34% sequentially and 85% year over year.

A few operating highlights from the fourth quarter were:

  • Total shipments were 952.7 MW, an increase of 43.2% year-over-year. This consisted of shipments of modules and module tolling of 879.6 MW, up 142%, and shipments of cells and cell tolling of 73.1 MW, up 75.8%.
  • Gross margin remained unchanged at 15.5% (note that this increased to 15.5% from 10.6% for the full fiscal year).
  • Operating profit was $35.8 million, compared to $9.5 million last year, and operating cash flow was $25.5 million, up from negative $30 million sequentially.

The company itself attributes the driving force for earnings this quarter to be its strategic decision to shift the product mix to more profitable modules and better geographies. As a result, gross profit more than doubled and gross margin expanded by about 500 basis points a yearly basis. Finally, JA Solar continued to invest heavily in R&D, increasing this expense by 58%, but held other operating expenses under control, resulting in solid operating and net margins.

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It is also worth mentioning that JA Solar trades at roughly six times its 2015 earnings estimates, making it relatively cheap.

Following the release of the earnings report, shares were up 7.6% at $9.70 in early trading. The stock has a consensus analyst price target of $14.50 and a 52-week trading range of $6.70 to $13.14.