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November 15, 2010 solar positioning for oversupply & asp declines

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    November 15, 2010 solar positioning for oversupply & asp declines November 15, 2010 solar positioning for oversupply & asp declines Document Transcript

    • MORGAN STANLEY RESEARCH ASIA/PACIFIC Morgan Stanley Asia (Singapore) Sunil Gupta Pte.+ Sunil.Gupta@morganstanley.com +65 6834 6732 Sophie Lu Sophie.Lu@morganstanley.com +65 6834 6718 November 15, 2010 Solar Positioning for Oversupply & Recent Reports ASP Declines Title Date Solar: ASP: As Good As It Gets Oct 19, 2010 Sunil Gupta / Sophie Lu Growing Chorus of Bearishness: Many companies ReneSola: Cost Competitive at a Reasonable Nov 9, 2010 and other industry observers now share our view of a Price slowdown in demand, easier module availability, likely Sunil Gupta / Sophie Lu oversupply from Q1’11 and peaking of ASP. While this LDK Solar: Living with Indebtedness Nov 3, 2010 Sunil Gupta / Sophie Lu warrants caution and selectivity, we do not believe that it OCI Company Ltd.: Near-term Polysilicon Sep 13, 2010 is negative for all the solar companies. We expect low Pricing Strength Already Priced In Sung Hee Lim / Sunil Gupta cost producers with good balance sheets to emerge GCL-Poly Energy: Global Wafer Leader Sep 10, 2010 unscathed from this near-term slowdown. Recent stock Sunil Gupta / Sophie Lu price weakness is providing a very good opportunity to JA Solar: Unloved Cost Leader Sep 8, 2010 buy stocks such as Trina Solar, ReneSola and JA Solar. Sunil Gupta / Sophie Lu GCL is emerging as a disruptive force in the industry. Trina Solar: Tri(na) Proofed Solar Aug 20, 2010 Sunil Gupta / Sophie Lu Oversupply and ASP declines ahead: We expect Solar Product ASP demand growth to slow from 93% in FY10 to 13% next year, yet remain positive due to strong price elasticity 7.0 and a delay in collapse of demand in Germany. However, 6.0 with very large increases in capacity across the entire 5.0 food chain, we expect each part of the food chain to be 4.0 in oversupply from Q1’11, which will likely depress ($/Wp) prices. We expect the polysilicon price to decline to 3.0 $42/kg, wafer price to $0.65/Wp and module price to 2.0 $1.45/Wp before the end of 2011. 1.0 0.0 Silver lining in Italy and Japan: With a decline in 1Q07 3Q07 1Q08 3Q08 1Q09 3Q09 1Q10 3Q10e 4Q11e module prices to $1.45/Wp and some reduction in Wafer ASP Cell ASP Module ASP System ASP inverter prices, we expect system prices in efficient Source: Morgan Stanley Research markets to decline to $2.8 to $3.1/Wp, which could spur strong demand due to grid parity in Italy and Japan. Furthermore, it should result in price elasticity in other incentivized markets too, resulting in small but positive growth in FY11. Morgan Stanley does and seeks to do business with Significant shifts in market share likely: Declines in companies covered in Morgan Stanley Research. As pricing are likely to result in significant market share a result, investors should be aware that the firm may shifts after a benign FY10. Low cost leaders should be have a conflict of interest that could affect the able to gain market share, which we believe is not objectivity of Morgan Stanley Research. Investors reflected in the consensus earnings estimates of should consider Morgan Stanley Research as only a single factor in making their investment decision. companies such as Trina Solar, JA Solar and GCL. On the other hand any companies with high or mediocre For analyst certification and other important disclosures, refer to the Disclosure Section, cost structures and stretched balance sheets may be located at the end of this report. hurt in 2011. += Analysts employed by non-U.S. affiliates are not registered with FINRA, may not be associated persons of the member and may not be subject to NASD/NYSE restrictions on communications with a subject company, public appearances and trading securities held by a research analyst account.
    • MORGAN STANLEY RESEARCH November 15, 2010 Solar Positioning for Oversupply & ASP Declines: Get Selective As our view about imminent oversupply and decline in ASP Demand in Germany becomes consensus, we expect a wider differentiation in stock While we do realize that the current rate of installations is not price performance of solar stocks. sustainable in Germany and attractive FiT’s and low interest rates may have created bubble-like conditions, we suspect that While we do recommend reducing risk and becoming selective the politicians and regulators may not disrupt the market in with solar investments, we believe that an extreme bear case FY11, and let it correct significantly only in 2012. We expect may be unjustified. We still see significant value in low cost Germany to install 6.6GW in FY10 and a smaller 6.15GW in producers with good balance sheets. We believe that some of FY11 if the module prices were to decline to €1.1-1.2/Wp. the bear arguments are near-term momentum based. For Assuming a € FX rate of 1.3, this implies a module price of investors with six months or longer time horizon, extreme $1.45 to $1.55/Wp. (This is also borne out by our supply and bearishness may provide a very attractive opportunity. cost structure analysis. Please refer to the section on module supply later in the report). Global Solar Demand We were surprised with very weak installations of 493MW in We expect demand growth to remain positive, albeit slow down Sep’10. This implies an annual installation rate of ~6GW per significantly in FY11. year. We were viewing September ’10 as one of the most favorable months for Solar installations in Germany due to the Exhibit 1 following: Global Solar Demand New Installation 08a 09a 10e 11e 12e 13e 1. Last month before an additional 3% FiT reduction in MW Current Estimates October 2010 Total 5,559 7,182 13,830 15,620 18,397 22,405 2. Full workforce availability after summer months Australia 10 23 77 115 150 180 Belgium 48 292 166 182 237 284 3. Benign weather conditions for installations Bulgaria 7 25 50 65 85 Canada 8 58 500 550 715 858 4. Low interest rates and lenient credit conditions China 45 160 400 800 1,440 2,160 Cuba 4 7 9 11 13 5. Appreciating € rate, which helps the project IRR Czech Republic 51 411 1,350 100 40 48 Denmark 10 30 33 43 43 6. Easing inverter availability France 46 185 600 600 630 662 7. Growing confidence in the German economy Germany 1,500 3,800 6,600 6,150 5,000 4,000 Greece 12 36 22 40 40 40 India 40 69 121 194 253 316 In our view, weak installations in September indicate that Israel 60 100 130 169 project IRRs may have declined to a level whereby demand is Italy 258 730 1,500 2,100 2,268 2,495 drying up. We understand that total demand from ground Japan 230 484 775 1,550 2,713 4,069 mounted (10-15% of total demand) and large rooftop systems South Korea 274 96 137 164 214 278 Malaysia 3 28 48 62 74 (15% of total demand) was particularly weak with unlevered Portugal 50 32 23 20 25 31 IRRs of 5.5% and 5.8%, respectively (Exhibit 2). We reckon Singapore 3 6 15 50 75 that large ground mounted and rooftop projects may require an Spain 2,511 69 75 60 60 60 unlevered IRR of 6% and small rooftops require an unlevered South Africa 5 28 40 52 62 IRR of 7%+ for demand to be reasonable. Taiwan 10 70 150 188 234 Thailand 10 30 75 98 127 Turkey 5 10 15 20 25 With a 3% reduction in FiT in Oct’10 and an additional 13% Uruguay 4 15 22 29 34 reduction in Jan’11, we believe that the rooftop market (up to US 342 481 950 2,100 3,360 5,376 100kW) may be able to afford a module ASP of €1.20 or more Others 134 196 225 338 506 608 (implying $1.55+). Growth (%) 134.2 29.2 92.6 12.9 17.8 21.8 Source: Company data, Morgan Stanley Research (e) estimates Demand at module price of €1.20 – As small-to-medium rooftops (up to 100kW) accounted for 70%-75% of the total 2
    • MORGAN STANLEY RESEARCH November 15, 2010 Solar installations in FY10, this would represent 4.5GW of systems due to higher IRR. Hence, it could result in total installations (based on Sep’10 run rate of 6GW per year). demand of 6.15GW. Hence, even if these were to grow by 15% to 20% due to relatively attractive IRR, it would imply a demand of 5.15GW. Will Germany be the price setter in FY11? We believe yes. Demand from large rooftops and ground mounted projects at Even if its share were to decline to less than 40% of the global this price would be insignificant. demand, we believe that with a large increase in supply in FY11, the global PV industry will have to price the product to Demand at module price of €1.10 – At this level some of the ensure that there is reasonable demand from Germany. larger roof tops will likely become viable (~500MW) and there may be stronger demand (~500MW) from small- to mid-sized Exhibit 2 Germany PV Economics – September 2010 <=30kW >30kW >100kW >1MW Ground Mounted System Price (€/ Wp) 2.69 2.69 2.62 2.54 2.54 System Price ($/ Wp) 3.50 3.50 3.40 3.30 3.30 Prevailing Tariff (€/ KWh) 0.344 0.327 0.310 0.258 0.250 Unlevered IRR (%) 8.0 7.4 7.2 5.8 5.5 Source: Morgan Stanley Research Exhibit 3 ASP Affordability: Germany in FY11 <=30kW >30kW >100kW >1MW Ground Mounted FY11 Pricing @ €FX @ 1.3 Likely FY11 Tariff (€/ KWh) 0.291 0.276 0.262 0.218 0.211 Hurdle IRR (%) 7.00 7.00 6.75 6.25 6.00 Required System Price (€/Wp) 2.45 2.35 2.20 2.00 1.90 Implied System Price ($/Wp) 3.19 3.06 2.86 2.60 2.47 Implied Module Price (€/Wp) 1.35 1.30 1.20 1.05 1.00 Implied Module Price ($/Wp) 1.76 1.69 1.56 1.37 1.30 Source: Morgan Stanley Research estimates 3
    • MORGAN STANLEY RESEARCH November 15, 2010 Solar Implications of $1.45-1.55/Wp module price We believe that a module price of $1.45-1.55 would make it possible to achieve a system price of $2.7-$3.0, if the supply chain is managed efficiently. This could allow the industry to achieve grid parity in the US peak market (only in California), Italy, Japan and potentially Singapore within next 12 to 18 months. Hence, a decline in module ASPs combined with easier availability of inverters (and lower price) could result in strong demand growth in these markets. Exhibit 4 Likely Grid Parity Roadmap $3.5 US Peak Current System Price Japan System Price Required for Grid parity ($/Wp) $3.0 Italy Singapore Cuba $2.5 Portugal Other Central Americas Current c-Si Cost Structure US > $0.15 Uruguay Denmark $2.0 Brazil Germany Spain NZ Netherlands $1.5 US Chile Ireland PolandAustria UK $1.0 France Slovakia India Scale: Current Global Base China $0.5 $0.0 0.00 0.05 0.10 0.15 0.20 0.25 0.30 Electricity Price ($/KWh) Source: Morgan Stanley Research 4
    • MORGAN STANLEY RESEARCH November 15, 2010 Solar Polysilicon: Oversupply in 1H’11. Expect ASP of Low $40’s by Q4’11 We believe that the current shortage in the polysilicon market Disruptive Forces – Debottlenecking and Higher Capex: will start to ease in Q1’11, as additional production comes on OCI set the trend of increasing capacity by debottlenecking stream (OCI, Woongjin, GCL, LDK, ReneSola, Louyang, and building large polysilicon plants (capacity scheduled to Yingli, REC, Taiwan Polypropylene and others) and demand increase from current 17K tons to 35K tons by end 2011). weakens due to seasonal weakness and a readjustment in Based on recent announcements by GCL and LDK, we Germany after 13% FiT reduction in Jan’11. Furthermore, the believe that there is room for significantly larger production demand from channel should also reduce due to a slowdown from these companies in FY11. This is due to: in demand increase. In fact, we would not be surprised with an 1. Significant improvement in manufacturing cost at inventory reduction in the channel, once prices start declining. companies such as OCI and GCL, thereby providing higher incentives to take share in the commodity market. What is the current pricing? While there is a lot of speculation that spot polysilicon prices have risen to $100/kg, 2. Record current profitability resulting in strong cash flow we understand that meaningful spot sales are being made at and higher bank borrowings to finance the expansion. $70-$74/kg and not ~$100/kg. 3. Shorter lead times for new plant construction. What are companies guiding? Most of the buyers of Likely ASP? As shown in exhibit 6, we believe that the entire polysilicon are guiding for a sequential increase in pricing in global demand for polysilicon can be met by top 7 (by cost) Q4’10 and stable pricing in Q1’11. manufactures with total manufacturing cost of the marginal supplier at less than $40/kg. Hence, in an oversupplied market How can price decline, if all the capacity is sold out? We spot price could decline to low $40’s. expect some of the traders in the channel to start dumping inventory and customers to delay taking delivery of polysilicon once demand slows down. Hence, we do not expect the “take or pay” contracts to be honoured as was witnessed in 2009. Exhibit 5 Polysilicon: Demand / Supply Poly Supply (MT) 09a Q1'10 Q2'10 Q3'10 Q4'10e 10e Q1'11e Q2'11e Q3'11e Q4'11e 11e Primary silicon supply 85,011 29,953 31,391 32,919 34,948 129,211 38,446 41,410 44,653 51,898 176,407 Semiconductor use 22,039 5,378 6,722 7,797 6,991 26,888 6,023 7,529 8,733 7,830 30,114 Available for solar 62,972 24,576 24,669 25,122 27,957 102,323 32,423 33,882 35,919 44,068 146,293 Recycled 4,667 944 944 944 944 3,778 857 857 857 857 3,427 Available for solar (MT) 67,639 25,520 25,613 26,066 28,902 106,101 33,280 34,739 36,776 44,925 149,720 c-Si Supply (MW) 8,875 3,449 3,509 3,620 4,071 14,648 4,721 4,963 5,292 6,511 21,486 UMG Si Supply (MT) 1,580 414 414 425 470 1,722 235 235 235 159 864 UMG Supply (MW) 129 40 40 42 47 170 24 24 24 16 85 c-Si Supply (MW) 9,004 3,489 3,549 3,662 4,118 14,818 4,744 4,987 5,316 6,527 21,570 Thin film Supply (MW) 1,155 366 406 439 439 1,649 385 462 558 520 1,925 Total Supply (MW) 10,159 3,855 3,955 4,101 4,556 16,467 5,129 5,449 5,874 7,047 23,495 % chg 85 -62 3 4 11 62 43 System End Demand 7,182 2,900 3,248 3,638 4,044 13,830 3,639 3,821 4,089 4,070 15,620 c-Si System End Demand 5,823 2,534 2,842 3,199 3,605 12,180 3,254 3,359 3,531 3,550 13,694 Total Channel Fill (MW) 910 847 1,010 1,035 773 3,666 180 333 367 469 1,349 Total Poly Demand (MW) 6,733 3,381 3,852 4,234 4,379 15,846 3,435 3,692 3,898 4,019 15,043 Excess / (Shortage) (MW) 2,271 107 (303) (572) (261) (1,029) 1,310 1,295 1,418 2,509 6,527 % Excess / (Shortage) 34 3 -8 -14 -6 -6 38 35 36 62 43 Source: Morgan Stanley Research (e) estimates 5
    • MORGAN STANLEY RESEARCH November 15, 2010 Solar Exhibit 6 Global Polysilicon Cost Structure: FY11 80 Likely FY11 Demand 70 Bear Bull Polysilicon Total Cost ($/Kg) 60 50 40 30 20 10 0 0 20,000 40,000 60,000 80,000 100,000 120,000 140,000 160,000 180,000 200,000 FY 11e Shipments (MT) Cash Mfg Cost Fixed Cost Opex Source: Morgan Stanley Research (e) estimates 6
    • MORGAN STANLEY RESEARCH November 15, 2010 Solar Wafers: Commoditized & Flooded. Expect ASP of mid $0.65/Wp We believe that the current shortage in the wafer market is customers to renegotiate these prices aggressively in Q1’11 largely due to shortage of polysilicon. However, with easing of and Q2’11 due to weak demand and a glut in supply. polysilicon capacity as well as significant new wafer capacity coming on stream, we expect significant oversupply from Disruptive Force – GCL: Currently GCL has guided for a Q1’11. Furthermore, with limited differentiation in cost and capacity of 3.5GW by end-2010 and LDK has guided for quality among he leading producers, we expect the 3.6GW of capacity by end-2011. However, we do expect GCL competition to be very intense next year, which could lead to a to increase its capacity further in 2011, perhaps up to 5GW. significant decline in pricing from current $0.88/Wp to mid On the back of such an announcement from GCL, we would $0.65/Wp, with very sharp falls in 1H’11. not be surprised if LDK were to change its capacity plans to increase it to 5GW. Hence, in our view, GCL and LDK are What is the current pricing? While some of the spot sales likely to emerge as disruptive forces in FY11. are being made at $1.0/Wp, we find companies such as LDK are achieving an average ASP of $0.88-$0.90/Wp and GCL is Pricing – GCL: GCL is following a strategy of co-location with selling at $0.80-$0.82/Wp. its key customers in China and pricing its wafers at a very competitive level due to its low cost in-house polysilicon. How can price decline, if all the capacity is sold out at prices of $0.75-$0.80/Wp? Renesola has recently guided to Likely ASP? As shown in exhibit 8, we believe that the entire fully sold out FY11 with an average wafer price of $0.75/Wp global demand for wafers polysilicon can be met by large with maximum 5% allowable renegotiation. This would imply a Asian suppliers with total manufacturing cost of less than floor price of $0.71/Wp. LDK has recently guided for a flat $0.65/Wp. Hence, in an oversupplied market spot price could price of $0.88+ in 1H’11. However, as in 2009, we expect the decline to low $0.65/Wp. Exhibit 7 Wafer: Demand / Supply (MW) 2009 Q1'10 Q2'10 Q3'10 Q4'10 2010e Q1'11e Q2'11e Q3'11e Q4'11e 2011e Total Supply (MW) 10,966 3,544 4,014 4,630 5,122 17,311 5,010 6,209 6,848 7,304 25,371 System End Demand 7,182 2,900 3,248 3,638 4,044 13,830 3,639 3,821 4,089 4,070 15,620 c-Si System End Demand 5,823 2,534 2,842 3,199 3,605 12,180 3,254 3,359 3,531 3,550 13,694 Module Channel Fill 181 252 321 321 165 1,060 (63) 63 84 168 252 Module End Demand 6,004 2,786 3,163 3,520 3,770 13,240 3,191 3,422 3,615 3,718 13,947 Cell + Wafer Channel Fill 101 144 183 183 94 603 15 22 22 29 88 Wafer End Demand 6,532 3,135 3,580 3,962 4,135 14,812 3,430 3,686 3,891 4,010 15,017 Oversupply (MW) 4,434 409 434 668 987 2,499 1,580 2,524 2,956 3,294 10,354 Oversupply (%) 68 13 12 17 24 17 46 68 76 82 69 Source: Morgan Stanley Research (e) estimates 7
    • MORGAN STANLEY RESEARCH November 15, 2010 Solar Exhibit 8 Global Wafer Cost Structure: FY11 $0.8 Likely FY11 demand $0.7 $0.6 Total Wafer Cost ($/Wp) $0.5 $0.4 $0.3 $0.2 $0.1 $0.0 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 FY 11e Capacity (MW) Mfg Cost Si Cost Opex Source: Morgan Stanley Research 8
    • MORGAN STANLEY RESEARCH November 15, 2010 Solar Modules: Reasonable Differentiation: Expect ASP of $1.45 Similar to loosening up of the capacity for polysilicon and What is the current pricing? Most of the Asian companies wafers, we expect a significant easing up of capacity have recently guided to module pricing of ~41.85/Wp for constraints in modules from Q1’11 and hence a decline in Q4’10. In Q3’10 average realizations were $1.75-$1.80/Wp. module prices. We believe that the pricing could decline to les than $1.40/Wp by the end of 2011, with an average of Likely ASP? As shown in exhibit 10, we believe that the entire $1.45/Wp. global demand for modules can be met by suppliers with total manufacturing cost of less than $1.45/Wp. Exhibit 9 Global Module Demand / Supply (MW) 2009 Q1'10 Q2'10 Q3'10 Q4'10e 2010e Q1'11e Q2'11e Q3'11e Q4'11e 2011e 2012e Total Supply 9,875 3,070 3,633 4,209 4,650 15,562 5,015 5,483 5,908 6,294 22,700 29,023 System End Demand 7,182 2,900 3,248 3,638 4,044 13,830 3,639 3,821 4,089 4,070 15,620 18,397 Channel Fill 181 252 321 321 165 1,060 (63) 63 84 168 252 373 Total Module Demand 7,363 3,152 3,569 3,959 4,209 14,889 3,576 3,885 4,173 4,238 15,872 18,770 Oversupply (MW) 2,511 (83) 64 250 441 672 1,439 1,599 1,735 2,056 6,828 10,252 Oversupply (%) 34 -3 2 6 10 5 40 41 42 49 43 55 Source: Morgan Stanley Research Exhibit 10 Global Module Cost Structure: FY11 $1.7 Likely Demand incl Channel Fill $1.6 $1.5 Likely Average Price for Asian Modules $1.4 $1.3 Total Cost ($/Wp) $1.2 $1.1 $1.0 $0.9 $0.8 $0.7 $0.6 $0.5 0 2,000 4,000 6,000 8,000 10,000 12,000 14,000 16,000 18,000 20,000 22,000 24,000 26,000 FY 11e Capacity (MW) COGS Opex Source: Morgan Stanley Research 9
    • MORGAN STANLEY RESEARCH November 15, 2010 Solar Extreme Bear Case: Only for Short Term While we do recommend reducing risk and becoming selective appreciation in our cost roadmaps for all coverage stocks. with solar investments, we believe that an extreme bear case Regarding potential € weakening, we have based all our may be unjustified. We still see significant value in low cost IRR and demand estimates based on FX rate of 1.30 for producers with good balance sheets. We believe that some of FY11. the bear arguments are near-term momentum based. For investors with 6 months or longer time horizon, extreme Finally, we believe that current valuations (P/BV as well as P/E bearishness may provide a very attractive opportunity. based) are too reasonable for a number of companies for investors with six months’ time horizon to ignore. The key investor concerns are: 1. A vicious cycle similar to 2009 is unfolding – Some investors may be too concerned about a vicious spiral of seasonal demand slowdown, ASP declines (due to overcapacity) and inventory de-stocking resulting in further order slowdown and hence a collapse in earnings in 1H’11. Unlike 2009 (when credit markets dried up), we believe that for low cost producers, such a scenario may not play out due to price elasticity in markets such as Italy and Japan. As argued earlier, we expect prices to decline in response to a slowdown and overcapacity, which should prevent a collapse of demand. 2. Cyclical momentum has peaked – While we agree that the ASP and margins may have peaked, we believe that profits have not peaked for low cost producers, due to their ability to gain market share. With low cost structure, established sales and distribution network, companies with good balance sheets may be in a very good position to sell all that they can produce. We find Trina, GCL and JA Solar to be in category. As some of the high cost producers are weeded out, low cost producers should gain market share and ultimately benefit when demand elasticity kicks-in in Italy and Japan. We expect 2H’11 profits to exceed 2H’10 profits. 3. Why invest in a commodity product with ASP declines – While that may be true for industries where there is not much room for market share gains, we believe it may not be true for Trina and JA Solar, because they have significant room to gain market share. Furthermore, cost reduction (non-Si manufacturing cost as well as reduction in polysilicon cost) will limit the margin erosion despite ASP declines. 4. Rmb appreciation and potential € weakness – While a 5% to 7% Rmb appreciation is very likely, this in our view is not sufficient to eliminate the cost advantage of most Chinese solar companies. We have factored in Rmb 10
    • MORGAN STANLEY RESEARCH November 15, 2010 Solar Exhibit 11 Global Solar Valuation Comparison Rating Price Mkt Cap P/E(X) P/BV (X) EV/EBITDA (X) ROE (%) EPS Growth (%) 12-Nov-10 (US$m) 10e 11e 10e 11e 10e 11e 10e 11e 10e 11e Polysilicon Manufacturers OCI (KRW)* E 310,500 6,300 13.2 12.5 3.6 2.9 9.2 7.5 36.7 29.1 40.7 5.7 KCC Corp (KRW)* E 360,500 3,363 23.7 16.0 0.9 0.8 3.4 4.2 3.5 5.4 (55.6) 47.8 Tokuyama (JPY)* E 429 1,821 15.7 13.7 0.6 0.6 1.8 1.9 0.0 0.0 (13.0) 14.7 Wacker-Chemie (EUR)* E 136 9,722 16.9 14.2 2.7 2.3 7.8 6.7 18.0 18.9 664.9 19.4 Average 17.4 14.1 1.9 1.7 5.5 5.1 14.6 13.4 159.3 21.9 Polysilicon & Wafer GCL Poly (HKD)* O 2.55 5,090 10.6 7.2 2.6 1.9 7.1 5.2 32.8 36.6 367.2 47.5 MEMC (USD)* E 13.0 2,957 25.3 12.9 1.3 1.2 12.9 7.6 5.4 9.9 NM 96.1 REC Group (NOK)* U 17.1 2,873 NM 19.6 0.8 0.8 9.4 5.5 0.4 4.0 105.5 961.6 SolarWorld (EUR)* E 8.6 1,324 NM NM 1.0 1.1 23.3 17.8 (0.3) (0.3) (103.0) 4.4 Average 17.9 13.2 1.4 1.2 13.2 9.0 9.6 12.6 123.2 277.4 Solar Wafer Manufacturers Comtec (HKD) NC 3.0 444 15.6 NM NM NM NM NM NM NM NM NM Green Energy Tech (TWD) NC 87.0 646 NM NM NM NM NM NM NM NM NM NM JinkoSolar (USD) NC 32.6 751 7.7 7.5 3.7 1.5 NM NM 47.9 20.6 NM 2.7 LDK Solar (USD)* E 12.5 1,650 8.1 11.3 1.7 1.5 6.4 7.6 27.1 15.1 203.6 (28.9) PV Crystalox (GBP) NC 0.5 357 12.8 11.3 1.0 1.0 7.3 6.8 7.6 8.5 (38.3) 13.8 ReneSola (USD)* O 11.1 966 5.7 5.4 1.7 1.3 4.7 3.9 44.4 31.8 327.5 4.1 Sino-American (TWD) NC 103.0 1,302 11.4 9.2 2.6 2.1 8.9 7.5 23.2 23.2 467.5 23.4 Solargiga (HKD) NC 1.9 436 21.1 13.3 2.0 1.7 15.9 8.2 9.3 12.8 521.9 58.3 Wafer Works (TWD) NC 43.6 389 13.6 11.5 1.7 1.6 NM NM 12.8 13.4 4.1 17.4 Average 12.0 9.9 2.1 1.5 8.6 6.8 24.6 17.9 247.7 13.0 Cell/Module Manufacturers Aleo solar (EUR) NC 17.0 303 7.8 NM 1.9 NM 4.0 NM 23.8 NM 179.0 NM Ascent Solar (USD) NC 3.9 105 NM NM 0.8 0.9 NM NM (20.5) (14.8) (12.2) 38.7 Canadian Solar (USD)* NA 14.2 615 28.9 9.9 1.2 1.1 6.2 4.8 4.3 12.1 (61.3) 192.6 China Sunergy (USD) NC 4.6 204 6.1 7.6 1.0 0.9 4.7 3.4 15.8 11.4 368.2 (19.7) DelSolar (TWD) NC 56.0 463 NM NM NM NM NM NM NM NM NM NM E-Ton Solar (TWD) NC 39.9 329 NM 10.4 1.0 0.9 13.3 9.2 (13.3) 9.0 42.0 174.8 ECD (USD)* U 5.1 255 NM NM 0.7 0.9 NM NM NM NM (6.7) 57.8 Evergreen Solar (USD)* E 0.9 184 NM NM 0.6 0.7 31.5 20.1 (0.2) (0.2) 35.4 38.0 First Solar (USD) O 138.4 11,863 17.7 14.3 3.4 2.7 12.1 9.2 0.3 0.2 3.8 23.4 Gintech (TWD) NC 88.0 938 6.8 7.3 1.6 1.4 5.5 5.8 23.9 19.5 16.8 (6.7) JA Solar (USD)* O 8.5 1,438 8.2 6.5 1.6 1.3 4.1 3.2 24.5 24.2 1,246.0 27.2 Kaneka (JPY) NC 497.0 2,112 14.7 11.8 0.7 0.6 3.7 3.5 4.5 5.4 36.1 25.1 Motech (TWD)* U 122.0 1,536 14.6 12.8 2.2 2.0 7.3 6.8 14.9 15.4 NM 13.8 Neo Solar (TWD) NC 73.8 695 6.5 6.9 1.5 1.1 NM NM NM NM 315.8 (0.1) Q-Cells (EUR)* U 3.0 604 NM NM NM NM NA NA 1.6 6.4 NM NM Solar-Fabrik (EUR) NC 5.4 95 4.7 7.2 1.1 1.0 2.0 2.5 22.4 13.4 417.0 (0.3) Solon (EUR) NC 2.3 54 NM NM 0.4 0.5 17.7 12.7 (16.4) (7.9) 94.0 60.2 Suntech (USD)* E 8.47 1,526 25.2 21.0 1.0 0.9 7.4 7.8 4.0 4.7 (27.4) 19.8 Sunways (EUR) NC 4.7 74 4.2 7.8 0.8 0.7 2.1 2.4 19.2 9.4 (23.5) (46.1) SunPower (USD) NC 14.0 778 9.3 7.6 0.9 0.8 7.0 5.5 10.0 11.1 49.2 21.7 Trina Solar (USD)* O 24.5 1,906 8.4 6.8 1.6 1.3 4.7 4.2 28.1 23.3 108.4 24.2 Yingli Green (USD)* E 11.0 1,640 11.7 11.7 1.5 1.3 5.8 6.2 14.2 12.6 308.3 0.1 Average 11.6 10.0 1.3 1.1 8.2 6.7 8.5 8.6 162.6 33.9 Source: Factset consensus numbers for non-covered companies, Morgan Stanley Research estimated for MS covered companies (*) denoted companies covered by MS; (O)= Overweight, (E) = Equal-weight, (U)= Underweight, (NC) =Non-covered 11
    • MORGAN STANLEY RESEARCH November 15, 2010 Solar Disclosure Section The information and opinions in Morgan Stanley Research were prepared or are disseminated by Morgan Stanley Asia Limited (which accepts the responsibility for its contents) and/or Morgan Stanley Asia (Singapore) Pte. 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    • MORGAN STANLEY RESEARCH November 15, 2010 Solar Coverage Universe Investment Banking Clients (IBC) % of % of % of Rating Stock Rating Category Count Total Count Total IBC Category Overweight/Buy 1122 40% 413 44% 37% Equal-weight/Hold 1158 41% 411 43% 35% Not-Rated/Hold 121 4% 22 2% 18% Underweight/Sell 393 14% 103 11% 26% Total 2,794 949 Data include common stock and ADRs currently assigned ratings. An investor's decision to buy or sell a stock should depend on individual circumstances (such as the investor's existing holdings) and other considerations. Investment Banking Clients are companies from whom Morgan Stanley received investment banking compensation in the last 12 months. Analyst Stock Ratings Overweight (O or Over) - The stock's total return is expected to exceed the total return of the relevant country MSCI Index, on a risk-adjusted basis over the next 12-18 months. Equal-weight (E or Equal) - The stock's total return is expected to be in line with the total return of the relevant country MSCI Index, on a risk-adjusted basis over the next 12-18 months. Not-Rated (NR) - Currently the analyst does not have adequate conviction about the stock's total return relative to the relevant country MSCI Index on a risk-adjusted basis, over the next 12-18 months. Underweight (U or Under) - The stock's total return is expected to be below the total return of the relevant country MSCI Index, on a risk-adjusted basis, over the next 12-18 months. Unless otherwise specified, the time frame for price targets included in Morgan Stanley Research is 12 to 18 months. Analyst Industry Views Attractive (A): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be attractive vs. the relevant broad market benchmark, as indicated below. In-Line (I): The analyst expects the performance of his or her industry coverage universe over the next 12-18 months to be in line with the relevant broad market benchmark, as indicated below. Cautious (C): The analyst views the performance of his or her industry coverage universe over the next 12-18 months with caution vs. the relevant broad market benchmark, as indicated below. Benchmarks for each region are as follows: North America - S&P 500; Latin America - relevant MSCI country index or MSCI Latin America Index; Europe - MSCI Europe; Japan - TOPIX; Asia - relevant MSCI country index. . Stock Price, Price Target and Rating History (See Rating Definitions) 13
    • MORGAN STANLEY RESEARCH November 15, 2010 Solar 14
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    • MORGAN STANLEY RESEARCH The Americas Europe Japan Asia/Pacific 1585 Broadway 20 Bank Street, Canary Wharf 4-20-3 Ebisu, Shibuya-ku 1 Austin Road West New York, NY 10036-8293 London E14 4AD Tokyo 150-6008 Kowloon United States United Kingdom Japan Hong Kong Tel: +1 (1) 212 761 4000 Tel: +44 (0) 20 7 425 8000 Tel: +81 (0) 3 5424 5000 Tel: +852 2848 5200 Doosan Heavy Industries & O (01/28/2010) W89,500 Construction (034020.KS) Hyunjin Materials (053660.KQ) E (06/30/2010) W19,000 Industry Coverage:China Clean Energy KCC Corporation (002380.KS) E (11/14/2008) W360,500 KEPCO Engineering & U- (10/22/2010) W127,500 Company (Ticker) Rating (as of) Price* (11/12/2010) Construction (052690.KS) KEPCO Plant Service & E- (10/22/2010) W62,000 Engineering (051600.KS) Sunil Gupta OCI Company Ltd. (010060.KS) E (07/19/2010) W310,500 China High Speed Transmission E (11/25/2009) HK$15.5 Pyeong San (089480.KQ) E (01/22/2008) W7,410 (0658.HK) Taewoong (044490.KQ) E (01/19/2010) W51,300 China Ming Yang Wind Power O (11/12/2010) US$10.66 Woongjin Coway (021240.KS) O (08/05/2009) W39,800 Group (MY.N) GCL-Poly Energy (3800.HK) O (06/21/2010) HK$2.55 Stock Ratings are subject to change. Please see latest research for each company. JA Solar (JASO.O) O (11/09/2009) US$8.5 * Historical prices are not split adjusted. LDK Solar (LDK.N) E (03/24/2009) US$12.53 ReneSola (SOL.N) O (12/16/2009) US$11.13 Suntech Power (STP.N) E (08/05/2009) US$8.47 Trina Solar (TSL.N) O (06/30/2009) US$24.51 Yingli Green Energy (YGE.N) E (06/30/2009) US$11.04 Industry Coverage:India Clean Energy Simon H.Y. Lee, CFA China Longyuan Power Group E (04/06/2010) HK$7.88 Company (Ticker) Rating (as of) Price* (11/12/2010) (0916.HK) Sunil Gupta Stock Ratings are subject to change. Please see latest research for each company. * Historical prices are not split adjusted. Suzlon Energy (SUZL.BO) E (02/12/2010) Rs55.05 Stock Ratings are subject to change. Please see latest research for each company. * Historical prices are not split adjusted. Industry Coverage:Taiwan Solar Devices Company (Ticker) Rating (as of) Price* (11/12/2010) Sunil Gupta Motech (6244.TWO) U (03/24/2009) NT$122 Stock Ratings are subject to change. Please see latest research for each company. * Historical prices are not split adjusted. Industry Coverage:S. Korea Clean Tech Company (Ticker) Rating (as of) Price* (11/12/2010) Sung Hee Lim © 2010 Morgan Stanley