No sign of recovery for GCL-Poly Energy (3800) – Maintain SELL

GCL-Poly Energy (3800, $1.66) fell 7.8% on Friday because its operational data for the first quarter disappointed investors. Comment : During the period under review, the company’s sales volume of polysilicon and wafer were 3,041MT and 1,234MT, up 222% qoq and down 1% qoq respectively. Most of the polysilicon produced was consumed in-house for the wafer production. The ASP of polysilicon sold fell 1% qoq to US$25.98 per kg but the production cost increased 2% qoq to US$19.7 per kg. The ASP of wafer sold decreased 13% qoq to US$0.28 per watt while the wafer processing cost cut 10% qoq to US$0.135 per watt. Both the ASP and production cost of polysilicon and wafer were worse than expected. On the other hand, the U.S. has decided to impose tariffs of 31%-250% on imports of Chinese solar products. After adjustment on sales volume, ASP and cost assumptions, we have cut our 2012 EPS estimate by 33% to $0.12 representing a decrease of 57% yoy. We maintain our SELL rating on GCL-Poly Energy and lower price target from $2.16 to $1.50, implying 12.5x 2012 earnings.