LDK Solar's Growth Potential Offset by Gross Margin Pressure

8/13 - "LDK Solar Co.’s (LDK) revenue and earnings for the second quarter continued to show strong growth, which again exceeded market expectations. We think LDK will continue to grow quickly in the next few quarters due to its aggressive capacity expansion and strong growth of solar power industry worldwide."

"LDK is well positioned to leverage the growth prospects of solar power industry...Additionally, the company uses a wide range of silicon feedstock material in its manufacturing process, which lowers its cost basis compared with companies that use a higher percentage of high-cost virgin polysilicon...LDK has higher profit margin than its Chinese peers because it is in the ingot/wafer manufacturing sector."

"However, we are concerned its gross margin will continue to decline due to rising pre-sold orders and increasing competition in the wafer segment. In addition, the current capital market situation may limit its stock price upside potential in the near future. Therefore, we are maintaining our Hold rating on LDK."