JA Solar Holdings Co., Ltd. (JASO) is enjoying strong global demand for its PV cells. The growth potential for the solar industry as a whole is very promising. Going forward, JASO's growth story will be boosted by increasing demand for solar energy, ongoing capacity expansions and committed supply of key raw materials.
However, rising silicon wafer costs and the company's high R&D expenses may put pressure on margins over the near-term. Accordingly, we maintain our Buy recommendation on JASO with a six-month target price of $22.00. Price appreciation to our near-term valuation target represents 37.4% upside potential.
With a diversified pan-continental customer base, the company has effectively diversified its market position. JASO's fiscal 2008 geographic breakup of expected sales consists of 70% to domestic customers and 30% to international customers. With its focus on R&D, JA Solar is consistently improving upon its cell conversion efficiency. It already achieved an average cell efficiency of 16.5% in the first quarter of 2008 and targeting 17% or above by the end of fiscal 2008.
Overall, the company has plans to expand its annual capacity to 500 MW by year-end 2008. With a growing customer base, JASO expects its production estimates for the full year 2008 to be approximately 340MW. It also plans to open a research laboratory in Silicon Valley. To avoid any impediments in its production process, the company enters into long-term supply contracts.
However, we note that despite the company's position in a strong growth industry, many other alternative energy stocks, excluding JASO, significantly underperformed the broader market over extended periods in 2006-08.
Read the full analyst report on JASO
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