Investing to Wealth

Solarfun Power Holdings Co. Ltd (NASDAQ: SOLF)

Solarfun Power Holdings Co. Ltd. (SOLF) is a manufacturer of silicon ingots, photovoltaic (PV) cells and PV modules in China. The Company manufactures a variety of silicon ingots, PV cells and PV modules. The Company also provides PV cell processing services and PV module processing services. It sells PV cells and PV modules both directly to system integrators and through third-party distributors. During the year ended December 31, 2008, the Company sold its products to more than 40 customers, in Germany, Spain and Italy, as well as several other European countries. The Company conducts its business in China through its operating subsidiary, Linyang China. In February 2008, the Company established Solarfun Power Deutschland GmbH. On August 1, 2008, the Company acquired the remaining 48% equity interest in Yangguang Solar.

The Company was founded in 2004 and is headquartered in Qidong, the People’s Republic of China.

Source: http://www.reuters.com/finance/stocks/incomeStatement?symbol=SOLF.O , https://trading.scottrade.com/quotesresearch/ScottradeResearch.aspx?symbol=SOLF , http://investors.solarfun-power.com/

Financial Summary

SOLF reported its total net revenues were RMB 854.6 million (US$125.1 million) in the second quarter of 2009, representing a decrease of 36.8% from RMB 1,352.2 million in the second quarter of 2008, but an increase of 24.9% from RMB 684.2 million in the first quarter of 2009.

PV module shipments reached 64.3 MW in the second quarter of 2009, an increase from 43.1 MW in the second quarter of 2008 and 35.7 MW in the first quarter of 2009. The increase from the first quarter of 2009 was due to increases in PV module shipments and PV module processing services, which represented approximately 36% of the total PV module shipments in the second quarter of 2009. In the second quarter of 2009, excluding module processing, Germany accounted for 83% of the Company’s total PV module shipments. The Czech Republic, a new market for the Company, Australia, Korea and Spain accounted for 6%, 5%, 3% and 2% of the Company’s total module shipments, respectively.

Average selling price further declined, as expected, to US$2.66 per watt in the second quarter of 2009 from US$2.78 per watt in the first quarter of 2009, primarily due to the decrease in the market prices of PV products.

The Company’s management determined that a provision of RMB 236.5 million (US$34.6 million) in the second quarter of 2009 was required for pre-payments already made on certain existing supply agreements because the continued performance of these contracts would not be in the best long term economic interest of the Company in view of current prevailing market prices.

On a U.S. GAAP basis, gross loss was RMB 53.0 million (US$7.8 million) in the second quarter of 2009, compared to a gross profit of RMB 185.6 million in the second quarter of 2008 and a gross profit of RMB 49.4 million in the first quarter of 2009. Excluding the provision for pre-payments, on a non-GAAP basis, gross profit was RMB 183.5 million (US$26.8 million) and gross margin was 21.5% in the second quarter of 2009. This compares to a gross margin of 7.2% in the first quarter of 2009 and 13.7% in the second quarter of 2008, both of which were calculated on a U.S. GAAP basis. The sequential and year-over-year increase was primarily due to the Company’s ability to renegotiate the majority of its existing silicon-based raw material supply agreements to obtain reduced prices and its ability to source these materials in many cases on the spot market, as well as the vertical integration to the ingot and wafer level.

On a U.S. GAAP basis, operating loss was RMB 121.9 million (US$17.8 million) in the second quarter of 2009, compared to an operating profit of RMB 116.4 million in the second quarter of 2008 and an operating loss of RMB 15.3 million in the first quarter of 2009. Excluding the provision for pre-payments, on a non-GAAP basis, operating profit was RMB 114.6 million (US$16.8 million) and the operating margin was 13.4% in the second quarter of 2009. This compares to an operating profit of RMB 116.4 million in the second quarter of 2008 and an operating loss of RMB 15.3 million in the first quarter of 2009, both of which were calculated on a U.S. GAAP basis. The increase in operating profit from the first quarter of 2009 reflects the Company’s continuing focus on managing its operating expenses.

Interest expense was RMB 36.1 million (US$5.3 million) in the second quarter of 2009, an increase from RMB 28.1 million in the second quarter of 2008, but a decrease from RMB 41.4 million in the first quarter of 2009.

Fair value of the conversion feature of the Company’s convertible bonds increased by RMB 113.4 million (US$16.6 million) in the second quarter of 2009, as a result of the increase of the Company’s ADS prices during the second quarter of 2009.

On a U.S. GAAP basis, net loss attributable to shareholders was RMB 319.9 million (US$ 46.8 million) in the second quarter of 2009, compared to net income attributable to shareholders of RMB 78.1 million in the second quarter of 2008 and net income of 27.4 million in the first quarter of 2009. Net loss per basic ADS was RMB 5.95 (US$0.87) in the second quarter of 2009, compared to net income per basic ADS of RMB 1.62 in the second quarter of 2008 and net income per basic ADS of RMB 0.51 in the first quarter of 2009. Excluding the provision for pre-payments and the increase in fair value of the conversion feature of the Company’s convertible bonds, on a non-GAAP basis, net income attributable to shareholders was RMB 30.0 million (US$4.4 million) and net income per basic ADS was RMB 0.55 (US$0.08) in the second quarter of 2009.

As of June 30, 2009, the Company had cash and cash equivalents of RMB 494.7 million (US$72.4 million) and working capital of RMB 1,289.0 million (US$188.7 million). Total short term bank borrowings as of June 30, 2009, were RMB 1,394.0 million (US$204.1 million), a decrease from RMB 1,435.0 million as of March 31, 2009. The lending environment in China remains accommodative and as of June 30, 2009, the Company had approximately US$84.9 million of undrawn credit lines with a number of commercial banks.

Accounts receivable increased to RMB 514.3 million (US$75.3 million) as of June 30, 2009, from RMB 202.1 million as of March 31, 2009. This increase was primarily due to a large percentage of shipments occurring in the latter part of the second quarter. Days sales outstanding increased from 35 days in the first quarter of 2009 to 38 days in the second quarter of 2009.

Inventories declined to RMB 695.7 million (US$101.9 million) as of June 30, 2009, from RMB 747.6 million as of March 31, 2009.

Capital expenditures were RMB 24.8 million (US$3.6 million) in the second quarter. The Company currently has a module capacity of 460 MW. The Company plans to expand its module capacity by 50 MW during the third quarter of 2009, and plans to further increase its nameplate capacity to 700 MW in 2010.

Source: http://investors.solarfun-power.com/sec.cfm

Analyst Consensus

This is the consensus forecast amongst 8 polled investment analysts. Against the Solarfun Power Holdings Co Ltd company.

The five analysts offering 12-month price targets for SOLF have a median target of 5.00, with a high estimate of 10.00 and a low estimate of 3.20. The median estimate represents a -6.37% decrease from the last price of 5.34.

Source: Financial Times.com

Source: http://www.reuters.com/finance/stocks/estimates?symbol=SOLF.O

Investment Highlights

SOLF recently announced that Nobility Solar Projects a.s. (”Nobility”) has agreed to purchase 14.2MW of high efficiency PV modules from the Company during the second half of 2009. Nobility, a leading distributor of solar products in Eastern Europe, is SOLF’s distribution partner in the region.

SOLF last month announced the appointment of John Breckenridge to the Company’s board of directors, effective immediately. Breckenridge has served on the Company’s Management Committee since the second quarter of 2009, where he has helped to oversee the Company’s day-to-day business activities and the Company’s strategic direction. He has been a managing director of SOLF’s largest shareholder, Good Energies II LP, since December 2007. He joined Good Energies from CCMP Capital Advisors, formerly known as J.P. Morgan Partners, where he served as operating partner and managing director in both Tokyo and New York. During his seven years at the firm, Breckenridge was responsible for leading many of the firm’s portfolio companies, as well as advising on all aspects of the purchase and sales of investments in the U.S., Asia and Europe. While at CCMP Capital Advisors, Breckenridge led the development of companies in the renewable energy, traditional energy, industrial service, manufacturing and chemicals sectors, among others. He also provided guidance to companies expanding into China or other Asian countries. Prior to joining JP Morgan Partners in Tokyo, Breckenridge was Chief Operating Officer of Densei Lambda KK, a publicly traded Japanese corporation. Before that he was the manager of several large divisions of Invensys plc and Exide Electronics in the US. Earlier in his career he held engineering, sales and general management positions at AT&T, International Power Machines, Inc., and Strafor Facom SA.

SOLF also recently announced that Jiangsu Linyang Solarfun Co. Ltd., a wholly owned subsidiary of SOLF, has secured a credit facility in the amount of RMB400 million from Bank of Shanghai, of which RMB300 million will be in the form of a three-year loan.

Source: Scottrade.com, Reuters.com, http://www.solarfun-power.com/

Technical Analysis

Source: www.stockcharts.com

Moving Average Price Compare

SOLF is below its 50-day moving average. This bearish sign is even more significant because the moving average is also trending lower.

Bollinger Bands

SOLF has been relatively stable recently. This is evidenced by the width of its Bollinger Bands which are tighter than normal. Additionally, SOLF is trading within its Bollinger Bands. This is a normal condition and suggests that the stock is neither overbought nor oversold relative to the recent price action.

MACD

The MACD for SOLF currently indicates a strong bearish signal for two reasons. First, the MACD is below the signal line, a 9-day moving average. Second, the MACD is below the critical level of 0, which implies that the underlying moving averages are trending lower.

Comparative Analysis

Source: Reuter.com, Nasdaq.com

Insider Trading Activity

Net Share Purchase Activity

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