Bookkeeping: Some Adjustments to Solar Patch & New Position in ReneSola (SOL)

With the new information from Yingli Green Energy (YGE) [Aug 6: Yingli Green Energy] and LDK Solar (LDK) [Aug 11: LDK Solar (LDK) Crunches Estimates] I am making an adjustment to the "Chinese solar" basket I've created

1. As discussed a quarter ago many of these module makers were getting a huge currency benefit; people didn't care that this had nothing to do with their operations - they just saw the headline press release and saw big numbers and ran up the stocks. Yingli Green Energy showed the effects of what happens when currency goes against you as they had a $20M swing from 1 quarter to the next which is equivalent in their case to $0.15 of EPS (on a $0.23 base) - for that reason I am cautious on Canadian Solar (CSIQ) going into earnings tomorrow so I've cut back that position on this morning's 8%+ spike. I am cutting back the position to 0.4% of the portfolio and will determine after I see earnings tomorrow if it will remain part of the basket. While I like these module makers for the long run, speculators run in and out of them based on how much they beat earnings (as you can see from LDK Solar this morning)
2. Based on the strength of LDK Solar (LDK), I upped the stake in the mid $39s to a 1.7% of portfolio. If my estimates for 2008 are accurate they could be doing a $3 EPS year, conservatively that should generate a $60 stock price by December 2008 (with a 20 PE ratio) or 50% upside from here, even after today's big move.
3. As I said last night ReneSola (SOL) is most like LDK Solar, in that its an "arms supplier" - both supply wafers and both mostly sell in country (to China) so they don't have much currency exposure. Therefore I've initiated ReneSola with a 1.8% stake, with purchases this morning in the $14.50s.

• Net revenues for the first quarter of 2008 were US$123.0 million, an increase of 28.0% sequentially and 242.4% year-over-year. The increase in first quarter revenues was primarily attributable to an increase in output from the expanded production capacity and increasing wafer ASPs.
• First quarter 2008 gross profit was US$27.2 million, a 38.8% increase sequentially and 234.1% year-over-year. The gross margin for the first quarter 2008 was 22.1% compared to 20.4% in the fourth quarter of 2007.
• The increase in gross margin was achieved despite an increase in average feedstock costs of 21.0% sequentially and was primarily attributable to a further reduction in silicon consumption rate to 6.3 grams per watt from 6.5 grams per watt in fourth quarter of 2007, a continuing reduction in non-raw material related production costs and an increase in wafer ASPs due to the high demand for our wafer products. (this is key in a high polysilicon cost environment)
• First quarter 2008 net profit increased 1.2% sequentially and 160.6% year- over-year to US$17.7 million. Earnings per ADS $0.30 basic and $0.28 diluted.
  
• The first quarter foreign exchange loss was US$0.06 million compared to foreign exchange loss of US$1.2 million in the fourth quarter of 2007.
• Production Output 66.5 MW, increase of 29.6% from 51.3 MW in Q4 2007, and ahead of 62 MW guidance

• We anticipate production output to be in the range of 75 MW to 80 MW in the second quarter of 2008 compared to 66.5 MW in the first quarter of 2008 and 23 MW in the second quarter of 2007.
  
• Gross margin for the second quarter of 2008 is expected to remain stable.
  
• On April 17, 2008, we increased previously issued full year 2008 production output to 310 MW to 320 MW and revenue guidance to US$530 million to US$550 million for 2008. We are once again increasing our outlook for full year 2008 and expect production output to be in the range of 330 MW to 340 MW with annual net revenues of approximately US$570 million to US$590 million.

• ReneSola announced on November 19, 2007 that it planned to develop a polysilicon manufacturing facility with an annualized capacity of 1,500 tons in Meishan, Sichuan province, China. With a substantial pipeline of wafer sales secured under various long term contracts and strong customer interest in signing further long-term contracts, ReneSola has decided to increase the previously announced 1,500 tons of annual polysilicon manufacturing to 3,000 tons on the same site in Meishan to secure more in-house polysilicon supplies.
  
• Land leveling has been completed and construction has commenced with completion expected in early 2009. The facility is expected to be operational in the first half of 2009. As part of the project, ReneSola has signed purchasing contracts and made down-payments for major capital equipment from world-class international equipment suppliers.

1. With our current facilities reaching full capacity and strong customer demand for additional wafer sales contracts, ReneSola is pleased to announce a further expansion in its wafer manufacturing capacity to 1,000 MW by the end of 2009. (that is a staggering increase from current levels if they hit this level, a tripling of production in 16 months from today)