Investors are starting to doubt profit estimates for China’s solar manufacturers as concerns about accounting practices first spotted at a forestry company spread nationwide.
Directors leading audit committees quit LDK Solar Co. on July 18 and at its rival Trina Solar Ltd. (TSL) on July 12. Moody’s Investors Service on July 11 cited “accounting risks” at five Chinese companies including LDK. Muddy Waters LLC, a Hong Kong researcher, on June 2 accused Sino-Forest Corp. (TRE) of inflating its timber production.
Those events widened doubts about the solar industry, which already was struggling with falling demand and prices, said Shawn Kravetz, chief executive officer at Esplanade Capital. Eight Chinese companies in the 17-member Bloomberg Large Solar Index have declined 13 percent since the Muddy Waters note, depressing share valuations to less than half the average Hong Kong’s benchmark share index.
“There is a little bit of the Muddy Waters phenomenon here, be careful of all Chinese companies,” Kravetz said by phone from Boston. “Some multiples are so low because they are mirages. If you get up close, the reason the earnings look so cheap is because the earnings won’t be there.”
Multiples of stock prices to earnings forecast for this year are 2.8 at LDK, 6 at Trina and 3.4 at Renesola Ltd. (SOLA) as of July 19. That compares with 11.8 times on the Hang Seng index of 46 companies.
Continue here: Solar Earnings Mirage Brings Muddy Waters Concerns to China’s Panel Makers – Bloomberg.
