My favorite pick PTR, PetroChina, touched $240 closed at $236.44 on Monday (my target price was $200, what can I say, I am embarrassed to be too conservative). Yesterday closed at $232 and the pre-market jumped $12. Oil is over-bought, there will be no war between Iraq and Turkey! What did Mark Twain say about the rumors about his death? Greatly exaggerated! Oil is due for a pull back. If you want to close your long position of PTR, it's up to you now.
In the mid-day yesterday (I said "today" when I published last night, this is the updated version), I reiterated a Chinese solar energy stock SOLF (first recommended on Oct. 10, see Recent Performance), the stock jumped $0.93 or 7.13% closed at $13.98. Investing involves risk, I wouldn't claim anything I recommended is a winner. But lucky or not, my crystal ball worked again. To help our readers on how I selected this stock, I decided to provide some more information about SOLF.
Solarfun stock price was stagnant since IPO December, 2006. But actually it is a strong growth company. We can easily find it from the latest two releases:
Press Release 1: Monday August 20, 7:14 am ET
Press Release 2: Thursday September 20, 12:25 am ET
Here are a few facts extracted from the above two releases:
1. Q2 2006, net revenue was $13.3 million, net income was $2.0 million
Q1 2007 net revenue was $25.1 million, net income was -$0.3 million (net loos)
Q2 2007 net revenue was $60.8 million, net income was $2.5 million
2. Average selling price for the second quarter was US$3.68 per watt
3. For 2007, Net revenue will be from US$250 million to US$270 million, representing year-over-year growth of 209% to 234%.
4. Secured three multi-year framework commitments for 185 MW of photovoltaic modules. The Company currently has now signed enough contracts to meet its current full-year shipment guidance.
5. Year-end manufacturing capacity reaches 240MW by the end of 2007, and 360MW by the end of 2008
Assuming 2007 net revenue(sum of revenues for Q1, Q2, Q3, Q4) will be $260 million(fact 3 above), we can estimate net revenue for Q3 and Q4 of 2007 as below:
| Q2 2006 | Q3 2006 | Q4 2006 | Q1 2007 | Q2 2007 | Q3 2007 | Q4 2007 |
| 13.3 | unknown | unknown | 25.1 | 60.8 | 80 | 95 |
Compared with other solar companies, Solarfun is an extremely lower priced stock, see the Q2/2007 quarter revenue and market cap below:
| Company | Q2 2007 revenue | Market Cap |
| Solarfun(SOLF): | $60.8million | $620.69M |
| JA Solar(JASO): | $60.0million | $1.97B |
| First Solar(FSLR): | $77.223million | $9.87B |
| Suntech(STP): | $317.4million | $6.12B |
For Solarfun, the year-end manufacturing capacity will be 240MW by the end of 2007. A conservative estimation of the revenue for 2008 under the capacity of 240MW/year will be 240MW * $3.68/watt = 883 million. You may question why the company should generate revenue under full capacity. Do not forget, this is only the full capacity by the end of 2007. And the company is still expanding its production capacity to 360MW by the end of 2008. If the management think 240MW capacity is enough for 2008, why do they expand?
First Solar stock price is over 500% of its IPO price, and JA Solar stock price is also more than doubled. But how come Solarfun is still at its IPO price?
Because its first quarter showed a net loss of US$ 0.3 million. Wallstreet are focusing too much on net income. For a new company just IPOed, revenue growth is more important than net income. For Q2 of 2007, its margin rate of net income over revenue is only 4.1% (2.5 / 60.8), and it is more or less related to management decision, since the operating expense of Q2 is $5.56 million, much more than the net income.
Since no analyst is covering this stock, the stock price will be very volatile for a few months. Current price is $12.79, I will not be disappointed if the price drops to $11 or $10. But I will not be surprised if, after company releases the Q3/Q4 earnings, the price doubles or even tripples.
Enjoy,
Mkt Swimmer
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