Investor's Champion Blog
Provides refreshingly forthright, independent comment on predominantly small cap companies and specialist investment funds. Informed opinion, based on first-hand research, but pulls no punches in exposing management weaknesses.

Jetion-I hope the sun shines on this cracking solar play

Well, I’ve made a big commitment to the Jetion IPO.

Jetion (I don’t know what it means) is a China based manufacturer of solar cells & modules and is one of the few green plays to have captured my attention (not necessarily a good thing!).

I’ve really had enough of all these fuel cell offerings so it’s a pleasant to come across something that is making money!

The business is already profitable in its second year of operation which is a great achievement and a good sign of things to come.

The business case is largely an industry argument and it’s an industry which has strong demand characteristics. Jetion’s competitive position is based on superior cell efficiency at 16.5% versus industry standard of 15-16%. It’s a small competitive position but at least it has one!

The industry is dominated by Chinese producers as cost control is so vital in an expensive product (US$7000/KW) so don’t bother looking elsewhere for your core solar exposure.

Industry growth is driven by demand for renewable energy source and government subsidies. The main markets are currently Germany, Japan and California – all of which have a renewable resource policy and heavy subsidies. The current environment looks unlikely to change although one would assume that eventually there will be rapid price deflation. However, this industry is still at an embryonic stage so it’s not something to worry about in the short term. Unlike other trendy renewable sectors (fuel cells come to mind again!) this industry is also profitable and producing actual product.

Our research suggests there are approximately 24 other Chinese solar cell suppliers. There are about 8 listed in Europe or NASDAQ and the closest competitors are Suntech Power (NYSE) and JA Solar (NASDAQ). The sector has generally performed well.

There is obviously an extreme gross margin sensitivity to input prices, however, the doubling of silicon prices in the last 2 years has been entirely passed on to customers as demand is so strong. Silicon prices are expected to come down as new refining capacity is coming on stream.

Market demand is obviously spurred by government subsidies and the removal of these would make the economics questionable, however, in the short term there is no sign this may happen although there may be a crunch in 3-4 years as governments expect unit costs to fall and start reducing subsidies.

The valuation of other quoted solar cell manufacturers implies a PE ratio of 20x in 2008 (or 14-15x for the smaller players) whereas Jetion is being priced on 12.2x 2008 estimates. The valuation therefore looks attractive although a small company, AIM, new boy, discount is clearly applicable.

Management really looks up for it. Dipesh Shah built BP Solar into one of the world biggest players and Roger Gai (CEO) was on the board of Suntech.

Jetion has secured its equipment & silicon supply to enable the expansion to 100MW and beyond.

It would be nice to know a bit more about the founder and I’m still not sure why a business of this size needs to come to AIM, but otherwise it looks a great story lets hope it can deliver on all that promise.

Not that it matters to the share price (at least I hope not) but I would like to know what Jetion means!


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