Monday, June 8, 2009

LDK Solar, why the run-up? I don't know... but...

A few people on the boards asked today why LDK was running so strongly. It gained 16.33% on almost three times average volume, in a down market, on no news. After hours, as of this writing, it's up 3.51% on similarly high volume.

I don't know why this is, but I'll lay out a couple potential reasons. Of course, since other Chinese Solars were in the red today, Numbers 5, and 6 are pretty much ruled out. However, they remain on the horizon as strong support for LDK's business, and help to force the hand of Short Interest to get out and let the price correct.

Note that given LDK's history, the price could drop like a rock tomorrow.

Option #0 remains "It's a (massive) headfake."

In brief, though, LDK has alot going for it.

#1: Polysilicon Factory. LDK is building a multi-billion dollar polysilicon plant, which has not so far been in operation, but is due to have the first line of three, up and operating, by the end of the quarter, and with the second line running by the end of the third quarter. This plant will provide LDK with an increasing volume of Polysilicon over time, at a decreasing cost and at an increased quality. It will incrementally add to LDK's bottom line over many quarters. It is the KEY ingredient of the LDK Business Plan, and because of its Technical Difficulty, has been considered a very great risk of absolute and abject failure. When the poly plant is up and running, LDK will among the leading Polysilicon Manufacturers, in addition to being the largest Solar Wafermaker in the World (incidentally, most of their established Poly / Wafer Competition is specialized in the production of Wafers for Computer Chips, not Solar Cells, so LDK has a significant lead in this area).

#2: Q Cells Joint Venture. LDK and Q-Cells has entered a Joint Venture to construct very large Solar Power Installations in Europe and in China. The European project that they've previously announced is 40MW, while 30MW of Installations in China have been applied for as of the Q1 Earning Conference Call. In addition, LDK has entered into a similar kind of partnership with ESPE to construct 5MW of Solar Installations in Italy. These businesses, could provide for upcoming PR's, and Brand Awareness, and should also add incrementally to LDK's revenues over the quarters and years ahead.

#3: Generally Oversold. As of last report, LDK had 40% Short Interest. Large portions of this are the remainder of a massive short attack on LDK almost two years ago, based on the assumption that LDK was a fraudulent chinese company, without a product or future. If LDK, and the conditions within which it does business, thrive, then in theory, this short interest should manifest itself as a source of demand for shares.

#4: Presentations Coming. Tuesday and Thursday of this week. It would be inadvisable to count on a surprise announcement at either of these conferences, as history would suggest that LDK does not use these Presentations for that purpose.

#5: Solar Booming Across the Board. Solar Companies have been generating solid interest since the bottom in March, with many up several hundred percent from their lows. Chinese Solars have beaten the S&P by a sizeable percentage, and yet LDK has underperformed in comparison. Today it appears that some of the other Solars sold off, and some of that money flowed to LDK.

#6: Chinese Subsidies. China is demonstrating that they will NOT leave their small but Exponentially Growing Solar Industry at the mercy of Wall Street. They are doing this by stimulating demand for the products of that Industry. In doing so, they provide for themselves a public service (clean energy), a local investment in jobs and future technology, and ultimately an increased level of energy-security.

I'm sure I'm missing some. There's lots of good news in Solar, and there's even more on the horizon.

Feel free to rebut, or add others.

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1 comment:

Steve James said...

There are masses of US funds wondering how best to hedge against drastic dollar devaluation. Chinese stocks, and Chinese Solar stocks in particular are becoming one of the obvious hedges to take.