Solar Uptick: Buyouts Near? 太阳能行业：并购接近？
A rare piece of upbeat news from mid-sized solar cell maker ReneSola (NYSE: SOL) has had a surprisingly mixed effect on shares from this struggling sector, hinting that investors are no longer looking at news but are rather trying to figure out what lies ahead for this group of companies with deeply depressed valuations. As the sector stabilizes and gets ready to grow again after a devastating downturn that has lasted more than a year, we may start to see both companies and investors taking advantage of extremely low valuations to launch takeover and privatization bids before share prices finally start to rise again.
Let’s take a look at the latest news first, which had ReneSola raise its shipment guidance for 2012 to between 2.2 gigawatts and 2.4 gigawatts, up about 20 percent from its previous forecast of about 1.9 gigawatts. (company announcement) Not surprisingly, ReneSola’s shares jumped 4.4 percent after the announcement. But reaction among shares of its rivals was decidedly mixed, with Canadian Solar (Nasdaq: CSIQ) and Trina (NYSE: TSL) both posting modest to big jumps, while Suntech (NYSE: STP), Yingli (NYSE: YGE) and JA Solar (Nasdaq: JASO) all posted small declines.
What’s probably more interesting than the stock movements is the valuations for all of these companies, which are now very low for a sector that is likely set for a rebound by the end of this year. Whereas most of these players were valued at $4 billion or more before the downturn, the most valuable companies now are Yingli and Trina, both with market capitalizations of around $430 million, followed by Suntech at $320 million. ReneSola and Canadian Solar look like outright bargains, with respective market caps of $122 million and $162 million.
So when considering those market values, perhaps it’s not so surprising that ReneSola and Canadian Solar rose the most after ReneSola’s upbeat outlook. Investors probably see these 2 companies as potential takeover targets and possibly even the subject of bidding wars as their rivals and private equity investors look to buy them up before their shares start to rise again. Both companies, and all of the solar companies in general, might also seriously consider privatization bids to take advantage of their low valuations.
Indeed, Beijing seemed to be encouraging such privatizations for overseas-listed Chinese firms last week, when China Development Bank, a major policy lender, announced it would make more than $1 billion available for such privatizations. (previous post) I don’t like to make too many investment recommendations in general, but in this case there really does seem to be a good argument for buying shares of these larger companies that are likely to emerge as healthy players once the current solar storm subsides.
More research is needed to figure out which companies might make the best takeover targets or candidates for privatization, which also includes an understanding of their relationships with the local governments where they operate. But from a broader perspective, I could easily see a couple of takeover or privatization bids get launched by the end of this year, as many of these companies see their performance improve and potentially start to earn profits again as soon as the first half of 2013.
Bottom line: Depressed valuations and growing signs of a stabilizing market are likely to lead to takeover or privatization bids for 1 or 2 Chinese solar firms by the end of this year.
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